The NSE Co-Location Fraud
The National Stock Exchange (NSE) is one of the two leading stock exchanges in India. Ironically, the National Stock Exchange was created as a result of a huge scam which happened in the Bombay Stock Exchange (BSE). The regulators were of the opinion that the broker nexus in the BSE was too strong. Hence, in […]
Why Hedge Funds Fail ?
Hedge funds are considered to be the riskiest of all asset classes. Almost everybody considers hedge funds to be completely speculative in nature. Add to this the fact that Securities and Exchange Commission (SEC) allows only accredited high net worth individuals to invest in such funds and they start to look all the more suspicious. […]
Treasury Operations of Banks
Modern banks are huge entities employing thousands of people in their workforce. However, amongst the various departments present at banks, treasury department is the most important as well as the least understood. In this article, we will provide a brief overview of these treasury operations. Asset Liability Management The primary function of the treasury department […]
Interest Rates and Their Effect on Small Businesses
Predicting future interest rate movements is not only important for traders who invest in financial markets. Instead, it is also important for regular business people. It is important for small businesses because the increase and decrease in demand is related to interest rates which the central bank sets. The problem is that most central banks […]
The Case for Index Funds
People who invest their money in stocks can be split up into two categories. One category of people actively decide which stock they want to invest their money in. This means that these investors spend their time and money doing research on individual stocks. On the other hand, the other category of people invests their […]
Scrap is the waste that arises while manufacturing goods. It may arise because the unit being manufactured has been irreparably damaged during production. Alternatively it can arise because too much direct material is being used for production. In either case, it signifies that there are problems with the manufacturing process that need to be addressed. If left unaddressed, these can be the cause of major costs and reduce the profitability of the company.
Now, when the term scrap is used, the mind automatically conjures up images of waste materials. The term scrap is associated with warehouse full of junk that may not have much value for the company. Disposing them without harming the environment is often supposed to be the only priority. But, this may not always be the case.
In many cases, scrap may have significant value. This makes it necessary to ensure that the job order costing system can account for scrap.
Once the material is declared to be scrap, its value needs to be ascertained and it is added back in the inventory of the organization. This inventory account is usually the direct materials account of the relevant job.
In some cases, companies also tend to use scrap from one job as a part of direct material for another job. This may be done directly or sometimes material may have to be processed. For instance, metal scrap can be molted and reshaped and it becomes as useful as a new piece of metal. Therefore it can be directly used in the production process.
Here are the costing conventions that are related to the treatment of scrap in job order costing. They have been mentioned in this article:
No distinction needs to be made between normal and abnormal like it is made in the case of rework and spoilage. Hence if a scrap can be traced to a particular job, its value is adjusted to the material inventory that has been used for that particular job.
Your email address will not be published. Required fields are marked *
