Infrastructure as an Asset Class
As asset class is a group of assets that have similar investment characteristics amongst themselves. At the same time, their investment characteristics are different from other asset classes. For instance, all stocks share certain characteristics amongst themselves, which they do not share with bonds. Similarly, there are certain characteristics that infrastructure also has as an […]
The Socialization of Losses
Joseph Stiglitz is one of the most renowned economists of our time. He once criticized the current economic system after the great recession of 2008. He said that the current system is skewed in favor of the rich. This economic system is no longer capitalism. It is a strange combination of capitalism and socialism wherein […]
The War on Cash
Governments all over the world are fighting a war on cash. It is a known fact that the governments do not like cash. However, what is not clearly known is the reason behind it. What is it that makes governments all over the world unanimously abhor cash and pass legislation to control or even curb […]
Why Is Free Cash Flow Approach Better Than Dividend Discount Models?
The dividend discount models assume that the investors have no control over the payout policy of the firm whatsoever. This is true for the case of the minority shareholder. Hence, it is said that as far as the minority shareholder is concerned, dividend discount models may be the best tools for valuing a firm. This […]
Risks Associated with Sponsorship from Sponsored Entity’s Perspective
In the previous article, we have already seen that sponsorship is not really a risk-free activity. We became aware of the various types of risks which are faced by sponsors when they provide monetary assistance to sporting leagues. However, it is important to realize that the risks are not one-sided. Just like, sponsors are exposed […]
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 *
