Abnormal Cost Definition with Example
Abnormal Cost Definition – “Cost which is non – recurring in nature and incurs due to some unexpected misshapen in the business”.
It is one of the type of costing on the basis of normality. As per normality, the costs are divided into two categories. They are normal cost and abnormal costs. Normal costs are those which incurs in running day to day business. However, any cost that results in damaging or creating loss to the business assets is known as abnormal cost. In addition to this, such costs are also unusual in nature. Once they incur, these costs are unavoidable.
Abnormal Cost Example
To understand the abnormal cost definition more clearly, let’s discuss an example –
XYZ ltd is a chemical firm which act as a intermediate good for producing various medicinal drugs. However, due to carelessness, a wrong chemical mix with another and a blast happens. This results in damaging a lab whose repairing and maintenance will cost Rs 2,00,000. This cost is abnormal cost as it incurs due to abnormal situation. In normal cases, this loss would not have happen.
Related Financial Terms of Abnormal Cost
- Administrative Expenses Definition – Meaning and Examples
- Gross Profit Definition – Meaning, Example and Importance