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Material Losses

Material losses do occur in every type of manufacturing organisation. These losses may be in the form of waste, spoilage or defective work. There is no uniformity in the terminology and accounting treatment of these items. The most commonly adopted practice in respect of each of the above items is given below.

Waste

It represents that portion of the basic raw material which has been lost in the manufacturing process and which has no recoverable value, e.g. gases, dust, smoke, unsaleable residue, losses on account of shrinkage or evaporation of materials etc.

Control of waste: Standard or norms should be fixed type of waste. The actual percentage of waste should be fixed for each type of waste. The actual percentage of waste should be compared with the normal percentage. Waste reports should be prepared at regular intervals. Particular care has to be taken to check abnormal waste.

This can be done by holding regular meetings with the foreman and his staff.

Accounting treatment: (a) Normal Waste: Waste within the normal limits should be distributed over good output. Thus, per unit cost would be increased.

(b) Abnormal Waste: Waste beyond the normal limits should be transferred to costing profit and loss account as to avoid fluctuations in the cost of production.

Scrap

Scarp is the incidental material residue coming out of certain types of manufacturing processes, usually of small amount and low value, recoverable without further processing. Scrap may arise on account of turnings, borings, trimmings etc. from metals of which machine operations are carried out. By-products of small value which are sold without further processing are also treated as scrap. It should be noted that scrap is always physically available while waste may or may not be present in the form of residue.

Control over scrap: Control over scrap is possible by:

(i) Setting standards for scrap;

(ii) Determining the responsibility for scrap;

(iii) Keeping up proper records of scrap in the form of Scrap Reports.