USA Accounting for parts that don't pass inspection

May 22, 2020
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United States
We are moving to a new ERP system in not too distant future. One question has come up regarding parts that do not pass inspection and must be scrapped. One side of the discussion is to remove the scrap dollars from WIP and put in the Manufacturing Variance expense account. The other side is to transfer the entire amount from WIP to Finished Goods Inventory, and basically "ignore" the scrap amount. (This is not scrap as in excess raw material cut or machined away in manufacturing.)

Thanks for your thoughts...

Chris Breidenbaugh


Werner Reisacher

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Jun 30, 2017
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I think, the problem you are struggling with has more to do with the way to convert your present inventory information into a new data management system. If you are under time pressure, you can convert the data as is to the new system and set up a "scrap valuation reserve" as a temporary solution until you have time to eliminate the items.
Whichever way you handle the details, make sure that the valuation of the total inventories is not impacted by an incorrect valuation of scraped items.

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