April 18, 2021

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Meaning of Abnormal Cost and Key Explanations

Meaning of Abnormal Cost and Key Explanations
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When cost is abnormal, it is definitely going against management wishes. Although, such expenses can be avoided most times. It is only possible if care and good maintenance culture is practice. What really is this cost? What causes it? And how can it be avoided?

Definition of Abnormal Cost

It can be defined as a cost incurred by an entity’s management that wasn’t planned. Another name can have extraordinary costs. The cost occurs outside the formal plan or budget of the business concerned.

Key Explanations

A type of cost. Abnormal cost is the very opposite of normal cost discussed in a previous article under cost accounting. While normal expenses are planned for and included in a business budget, that’s not the case with the expenses under discussion.

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It is unplanned. This expenditure is not part of the business plan. It just occurred! Such costs are avoidable but cannot be controlled. Therefore, we can say that it is an avoidable and uncontrollable expense.

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It is not in the budget. Since the cost isn’t planned for, it means that it is not in the entity budget. A budget is a formal plan showing income, expenses and expenditure of a firm. Abnormal expenses defy a budget. It is incurred outside the budget. As I said earlier, it just occurred. The company’s management is not expecting it to happen.

Also known as extraordinary expenses. We can referred to it as extraordinary expenses. It is extraordinary when it goes outside the normal operation of a business. However, it is mostly called abnormal cost in costing.

A good example of abnormal expenses in costing is abnormal loss that occurs during production processes. It can spoil material above the recommended minimum. If the planned spoilage of material for testing the readiness of the product is 5 units and the supervisor ends up using 7 units, the extra two units is abnormal.

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Causes of Abnormal expenses

The major causes of abnormal cost is lack of good maintenance culture and care on the part of the supervisor in particular and management, generally. Also operational staff may cause it when they lack care or are not properly trained.

When machines and equipment are not properly maintained or are not maintained at the right time, it may affect the production process negatively. Some machines may cause spoilage when not maintained.

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Also, when employees are not well trained to handle machines and equipment well. The result shall be catastrophe. Some employees may be careless or lack focus during the job and cause abnormal cost as a result.

Management staff may not take maintenance seriously. The supervisor may not be diligent at times for certain reasons and end up causing things to go wrong during the production cycle.

How to avoid Abnormal Cost

It can be avoided if management and operational staff are careful with their job. Proper training should be made available to employees in a timely manner. Also, new staff members should be trained before they fully resume operations.

On the part of management, a good maintenance culture should be abided. Regular maintenance of machines and equipment will avoid disruptions during manufacturing processes and therefore avoid abnormal cost.

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Conclusion

Finally, abnormal costs are unplanned expenses. In costing, they are abnormal losses and arise as a result of lack of maintenance and care on the part of the management of the business and employees in operations. If care and maintenance is a company culture, there will be minimum abnormal expenses.

READ ON  Meaning of Normal Cost and Key Explanations

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