Where IAS 2 applies, abnormal amounts of wasted materials are excluded from inventory cost. Wastage still matters when calculating ingredient unit economics, so a business should separate the quantity purchased from the edible portion available for use rather than conceal the difference in a general markup.
The USDA Food Buying Guide explicitly distinguishes purchased quantity from edible portion yield. That distinction provides the starting point for calculating the effective cost of usable ingredients.
Put edible yield into the unit-cost calculation
A costing worksheet can define:
- Purchased quantity: the quantity bought.
- Edible portion yield: the share of that purchase available as edible output.
- Purchase cost: the cost attributable to the purchased quantity.
- Edible quantity: purchased quantity multiplied by edible portion yield.
The resulting relationships are:
- Purchase cost per purchased unit = purchase cost ÷ purchased quantity
- Cost per edible unit = purchase cost ÷ edible quantity
- Implied yield-loss cost per edible unit = cost per edible unit − purchase cost per purchased unit
The last calculation isolates the additional purchase cost carried by each edible unit because part of the purchase does not become edible output. It should be adjusted if a documented recovery or other value is received.
For a recipe requiring a stated edible quantity, the estimated purchase quantity is the required edible quantity divided by edible portion yield. Applying the verified purchase cost to that larger quantity shows the effect of wastage before the ingredient cost is added to the finished item.
If landed cost is included, the verified landed cost of the batch should be allocated over the edible quantity. Purchase cost and substantiated additional charges should remain in separate cost columns so that yield loss is not confused with logistics or other costs.
Separate expected yield loss, abnormal waste and scrap
These terms should not be used interchangeably.
| Category | How it affects the calculation |
|---|---|
| Expected yield loss | Affects the edible-yield assumption used to calculate operational ingredient cost. |
| Abnormal wasted material | Excluded from inventory cost where IAS 2 applies, rather than absorbed into the inventory cost of usable output. |
| Scrap | A narrower quality category. ASQ defines scrap as defective material that cannot be repaired, used or sold. |
An operational costing model can use recorded or tested yield assumptions to reflect repeatable preparation loss. That does not automatically determine the accounting treatment of a particular loss. Where IAS 2 applies, the assessment of whether wasted material is abnormal remains a separate matter.
The cited IAS 2 wording does not provide a universal percentage cutoff. A business therefore should not classify a loss as abnormal solely because it crosses an internal percentage rule; the expected process, the specific event and the applicable accounting policy still need review.
Not every spoiled or unusable ingredient meets the ASQ definition of scrap. Recording the reason for loss helps prevent ordinary spoilage, preparation loss and defective material from being combined under one unexplained wastage rate.
Check the wastage figure against operating records
A reliable calculation should answer the following questions:
- Does the purchased quantity match the quantity recorded for that batch?
- Is the edible portion measured after the relevant receiving and preparation conditions?
- Does the yield reflect this ingredient, condition and process rather than a generic category average?
- Does the purchase price used in the formula match the cost document?
- Are purchase costs, landed charges and documented recoveries shown separately?
- Is each material loss connected to a recorded reason rather than treated automatically as scrap?
- Has an unusual loss been reviewed separately from the expected yield assumption?
Repeated observations can support an operating yield assumption, but they do not replace a case-specific assessment of abnormal waste. A supplier figure or historical average should also remain labelled as such rather than being presented as a guaranteed result.
What the business must still confirm
Before using the resulting ingredient cost for a menu, quotation or purchasing decision, the business must confirm the actual yield, current cost basis and treatment of any exceptional loss. The accounting adviser should also confirm how the loss enters the inventory records and financial statements under the applicable reporting framework.
The cited materials do not establish a Hong Kong-specific tax or reporting treatment. They also do not determine whether a particular wastage event is abnormal. Those points should not be inferred from a general wastage percentage.
The practical rule is straightforward: calculate cost per edible output, show what caused the difference from purchased quantity, and keep abnormal waste outside inventory cost where IAS 2 applies. A purchase price alone does not reveal the full ingredient burden when only part of the purchase becomes usable output.