Normal Spoilage

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DEFINITION

The deterioration of a firm's product line that is generally considered to be unavoidable and expected. Normal spoilage refers to the inherent worsening of products during the production or inventory processes of the sales cycle. Companies typically set a normal spoilage rate for lines of products which they produce and assign the costs of such spoilage to cost of goods sold.

INVESTOPEDIA EXPLAINS

Companies operating in any sort of manufacturing environment will inevitably see at least part of their production line wasted or destroyed during manufacturing, transporting or while in inventory. Consequently, firms will use historical data along with some forecasting methods to produce a number or rate of normal spoilage to account for such losses, typically as a portion of cost of goods sold.


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