Scrap in Inventory

When we produce any product, we have send the raw material in different manufacturing processes. At every manufacturing process, some material may be rest or residue which can easily recycle. This residual material will be scrap.

Treatment of Scrap in Cost Accounting :

1. If scrap cost is very low :

No, need to record. Its loss is suffered by products. Earning from selling of scrap will be other income.

2. If scrap cost have some amount which can not be ignored :

Calculate net realisable value scrap =

Total sale of scrape - Net sale and distribution expenses of scrap

Now, we deduct correct cost of material = Total cost of material - net realisable value of scrap

3. If scrap is identified with a particular job or process :

When scrap is identified with a particular job or process and its value is significant, the scrap account should be charged with full cost. The credit is given to job or process concerned. The profit and loss account in scrap account, on realisation, will be transferred to costing profit and loss account.

Scrap Report