Meaning of Scrap
Scrap is the residue of certain materials left from certain type of manufacture having small recovery value without further processing.
Examples of scrap are chippings of wood, off cuts of sheet metals, small pieces of cloth, etc. As it has recovery value, the entire cost of scrap is not a loss. Only the difference between the original cost of the scrap and its recovery value is the loss.
Characteristics of Scrap
1. It is raised from manufacturing process.
2. Scrap is always physically available.
3. It can not be used as a material for original purpose.
4. It has small recovery value.
5. No further processing is required to realize its recovery value.
Treatment of Waste
There are two types of scrap:
(i) Normal scrap
(ii) Abnormal scrap
(i) Meaning of Normal Scrap
Also Read – What is Difference Between Waste and Scrap
Normal scrap is that portion of scrap which occurs normally due to the inherent nature of the manufacturing process or due to administrative actions, such as change in the method of production or design.
(ii) Meaning of Abnormal Scrap
Abnormal scrap refers to the scrap in excess of the normal scrap, arising from abnormal causes like bad quality of materials, defective method of working, defective machines, bad workmanship, etc.
What is Treatment of Scrap
The cost of the normal scrap is absorbed by the process or job in which the normal scrap occurs. The realizable value of the normal scrap is deducted from the material cost of the concerned process or job.
Where the scrap occurs, if the scrap can be identified with any process or job, then the realizable value of the normal scrap is deducted from the factory overhead.
The loss arising from abnormal scrap should be excluded from cost and charged to costing Profit and Loss Account.
What is Control of Scrap
Scrap can be controlled through the following measures:
1. By fixing the limit of normal scrap.
2. Through regular scrap report.
3. By remedial action (such as, use of good quality material. improvement in the manufacturing methods, use of modern machines, improved workmanship).
- Difference between Cost Accounting and Management Accounting
- What is Cost Concepts and Different Terms of Costs
- What is concept of Cost Audit | Objective and Scope of Cost Audit
- Advantages and Disadvantages of Cost Audit
- Meaning of Methods of Cost | Basic Methods of Costing
- What is meaning of Classification of Cost & elements of Cost | rules of Cost Accounting Standard
- What is Installation of a Costing System | Conditions and Factors
- What are the practical difficulties in installing cost accounting
- What is technique of Costing | Various techniques of Costing
- What is Material or Inventory Control | Techniques of Materials Control
- What is FIFO Method | advantages and disadvantages
- What is LIFO method | Advantages and Disadvantages
- What is Periodical or Annual Inventory Control System | Limitations
- Methods of Pricing Material Issues | Cost Methods
- What is Cost of Labour Turnover | Causes, Effects Classification
- What is meant by idle time | Definition, Causes, Control
- What is meaning of overtime work | Reason, Disadvantages
- HIFO method of inventory valuation |Advantages, Disadvantages
- What is two Bin System | Meaning of Bin Card and Specimen
- What is Meaning of NIFO Method | Advantages, Disadvantages
- What is Market Price Method or Replacement Price Method | Advantages, Disadvantages
- What is average cost method of Inventory valuation | Advantages and Disadvantages
- What is Meaning of Weighted Average Price Method | Advantages and Disadvantages\
- Meaning of Material Losses | Types and Treatment
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