This refers to a loss or disappearance of material inputs used during the production process. It occurs mainly through the evaporation. This is unlike spoilage in which the units are still existing only that they will be of a lower value than the good units. Shrinking is common in chemical mixtures, which produce or use liquid gases as material inputs. The problem associated with shrinking is the reconciliation of the beginning and ending inventory. This problem is resolved by expressing the various layers of production in terms of what its weights or volume would be either at the beginning or end of the process.
>>> Illustration
Assume that a chemical company, which is processing one of its products through one of its processes, must start with 100kg of a certain chemical for its 80kg of finished products. Assume that all the chemical is added at the beginning of the process and 20% of the evaporation takes place gradually through-out the process. The actual weights through measurement were as follows:
The 21,250kg of beginning WIP are equivalent to 85% of the input and 5% above the expected output. The actual output expected is 80% of the input (units). However, the units are only 75%
complete. Therefore, 20% evaporation on the 75% complete units in beginning inventory has already occurred. The remaining 20% on the 25% to be processed is yet to evaporate.
Thus evaporation should be 25,000kg (75%complete) at 20% evaporation
PROCESS COST REPORT
Shrinkage
