USA Scrap _ Standard Costing


Oct 2, 2017
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United States
In my operation, when WIP completing an item standard gross absorption is recorded in the sub-ledger. Pretty basic. Scrap transactions are posted to a scrap account which calculates net absorption (gross absorption less scrap). First question - In this scenario, is the debit to scrap intended to offset the full absorption of the item? For instance, standard absorption for an item is a $10 credit. If the item is defective, should the scrap transaction be $10 debit? My question is due to an observation of seeing an item scrapped without an additional item added to the job. I’m wondering if the scrap debit is being charged but the credit for the first produced item is not. This can happen because the operation scraps an item but does not increase the wip job by 1 to make up for it, so it could look like $0 were credited from an absorption perspective. One produced item at $10 standard cost and $10 scrap = $0, but should it be 2 x $10 @ $20 less the one scrapped to get complete $10 of absorption? I believe this is causing an inventory variance as well because twice the material is needed to produce 1 according to the wip job.


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