The below mentioned article provides a note on scrap.

Scrap is the residue material that has a recovery value. It is incidental residue from the materials used in manufacturing operations which is recoverable and measurable without processing.

Accounting of Scrap:

The accounting treatment of scrap is based on the following considerations:

(a) If the value of the scrap is negligible, the good units should bear the cost of scrap and any income realized will be treated as other income.


(b) When the value of scrap is considerable and identifiable with the process or job, the cost of the scrap will be transferred to Scrap Account and any realization from sale of such scrap will be credited to the Job or Process Account and any unrecovered balance in the Scrap Account will be transferred to Costing Profit and Loss Account.

(c) If the scrap value is significant and it cannot be identified with particular job or process, then the net sales realization after deducting the selling cost is transferred to either Material or Factory Overhead Account. This method will reduce the cost of material or factory overhead to the extent of sale proceeds of scrap.

Classification of Scrap:

For control purpose scrap may be classified into the following:

1. Legitimate Scrap:


Predetermined or anticipated in advance due to experience in manufacturing operations.

2. Administrative Scrap:

Results from administrative decision e.g., change in design or withdrawal from saleable lots or for some other reasons.

3. Defective Scrap:


Resulting from poor quality of raw material, negligent handling of material, defect in production process etc.

Control of Scrap:

Scrap can be controlled in the following ways:

(a) Material specification at product design-stage.

(b) Selection of right material and equipment.


(c) Selection of right type of personnel with proper training and experience.

(d) Determination of acceptable limits of scrap.

(e) Reporting the source of waste, quantum of waste.

(f) Specific areas of responsibility.