Glossary
What is scrap in manufacturing?
What scrap is, how a scrap allowance in the bill of materials keeps plans and costs honest, and what to do with scrap you can sell.
Updated
In short
Scrap is material lost or left over in production, such as offcuts, spillage or rejected parts. In SimpleERP each BOM line can carry a scrap percentage that raises the planned material and its cost.
Scrap is material lost or left over during production: offcuts from cutting steel, paint that does not stick, or parts rejected at inspection. Expected scrap is planned as a percentage of each component in the bill of materials, so the work order issues enough material and the finished product carries the cost of what was wasted. Scrap that can be sold, such as steel offcuts, still has some value.
Scrap: a worked example
Lakshmi Steel loses about 1 shelf panel in 40 to dents in handling, so the BOM carries 2.5% scrap on panels.
| Shelf panel for 50 racks | Working | Panels | Cost at ₹290 |
|---|---|---|---|
| Panels needed with no scrap | 4 per rack × 50 | 200 | ₹58,000 |
| Planned with 2.5% scrap | 200 × 1.025 | 205 | ₹59,450 |
| Actually consumed | Entered at completion | 207 | ₹60,030 |
| Scrap cost carried by the racks | 207 − 200 panels | 7 | ₹2,030 |
FAQ
Questions, answered
How do I calculate scrap percentage?
Scrap % = material wasted ÷ material needed with no waste × 100. If 10 racks need 40 panels and you lose 1, scrap is 1 ÷ 40 × 100 = 2.5%. Use an average over several runs, not one bad day.
Where does the cost of scrap go?
Into the finished goods. The scrapped material is consumed with the rest, so the cost per unit of the product includes it. That is why a scrap allowance that is too low makes your product look cheaper to make than it is.
Is GST charged when I sell scrap?
Yes, sale of scrap is a taxable supply. Bill it on a tax invoice with the right HSN code and rate for the scrap material. For metal scrap, check the current rules on reverse charge and TCS with your accountant.
What is the difference between scrap and wastage?
Wastage is material that is lost with no value, such as paint overspray. Scrap often has resale value, such as steel offcuts sold by the kilo. Both are planned the same way in a BOM; only scrap may come back as stock.
Related
Keep reading
Bill of materials (BOM)
The recipe for a manufactured product: components, quantities per batch, expected scrap and extra cost per batch.
Read moreConsumption
Material used up in production, recorded when work completes or worked out as opening stock plus purchases less closing stock.
Read moreManufacturing
Bills of materials with scrap and cost roll-up, and work orders from plan to complete.
Read more
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