Sawdust, for instance, in a wood-working plant, ash in the coke industry, sand, dust, etc., is the examples of visible wastage. Usually, it is possible to avoid defects in the units produced but to some extent defectives may be unavoidable. The basic difference between ‘defectives’ and ‘spoilages’ is that the former can be sold after rectifying them whereas the latter has got to be rejected or sold as sub-standard or rejected articles.
Material Flow Cost Accounting: A Tool for Designing Economically and Ecologically Sustainable Production Processes
Normal wastage is treated as a part of cost, i.e., the rate per unit is inflated to recover the loss. If some spoilage is normal in the manufacturing process, the cost of such spoilage will be borne by good units. The value realised from sale of scrap is credited to particular job, process or operation. This method has an advantage of identifying scrap with each operation, process or job. Among the several factors that contribute to the losses, material absorption and Rayleigh scattering are the major ones. Material absorption arises due to the presence of several impurities inside the core medium.
Ferroelectric and Electro-Optical Properties of Nano-Glass Ceramics
This method fails to secure effective control of scraps arising in processes or jobs. It is suitable in cases where several production orders are taken in hand and it is not possible to segregate the value of scrap for each order. As a principle, all normal losses which are necessarily incurred are treated as a part of the cost and abnormal losses should not be included in the cost. In order to absorb normal material losses in cost, the rates of usable units are inflated so that such losses are absorbed. Alternatively, normal material loss is transferred to factory overhead. However abnormal loss of material is charged to Costing Profit and Loss account.
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Sometimes disposal of waste entails additional expenditure. Loss in the form of waste increases the cost of production. Losses in the form of waste, scraps, spoilage and defectives are inherent and inevitable with any manufacturing activity. These losses can be controlled through adequate reporting and responsibility accounting. Actuals are compared and action is to be taken by the management to control the abnormal losses, based on the variances. Abnormal wastage of material arising due to abnormal reasons, i.e. theft, fire, careless handling, etc., is not added to the cost of production but is transferred to costing profit and loss account.
In this method of treatment, it is necessary to take into consideration the utility value of spoilage to the process for which the same is used. The accounting treatment of scrap is more or less the same as that of waste. Loss of the nature of scrap, which is normal, becomes a part of cost of production. Any income from the sale of scrap will go to reduce the cost. If additional expenses are incurred in disposing of the scrap, the same are added to departmental factory overhead costs and the sale proceeds are credited to the same. (ii) The net sale proceeds (total sale proceeds from sale of scrap—selling and distribution costs) from sale of scrap is deducted from the material cost or factory overhead.
A lean approach to address material losses: materials cost deployment (MaCD)
(b) Abnormal defectives – They arise on account of abnormal circumstances and, therefore, should be taken to costing profit and loss account. The Inspector prepares a Spoilage Report on finding that the work has been spoiled. The actual spoilage is compared with the standard or normal spoilage and remedial measures are taken for preventing any abnormal spoilage.
- The development of the rare earth magnet, called neodymium iron boron (NdFeB), came about in the 1980s.
- In many concerns, inefficient and bad workmanship results in defective units.
- The low efficient heating system leads to enormous energy loss and causes a serious problem of environmental pollution [47].
- For normal waste arising from breakage, evaporation, deterioration, shrinkage in production, the total cost incurred is distributed over the good output.
If the spoilage is normal, the cost is borne by good units of output. In case of abnormal spoilage, cost of spoilage is transferred to Costing Profit and Loss Account. When, however, the normal spoiled units are used again as raw material in the same manufacturing process, no separate treatment becomes necessary. Waste is the portion of basic raw material lost in processing, having no recoverable value. Waste may occur due to evaporation, breaking the bulk, loading and unloading, leakage, inefficient handling, fire, etc.
Materials having a very low turnover ratio are known as slow-moving items. However, materials that have no immediate demand are known as dormant materials. Obsolete items, on the other hand, are those for which there is no demand at all owing to how much cash can you withdraw from your bank the fact that the finished product, in which they are used, is no longer being produced. The reasons may be changed in fashion or the use of substitute materials. Actual wastage and scrap should be compared with the pre-determined standard.
As such, the same should be transferred to costing profit and loss account. From the sale proceeds of scrap selling and distribution costs are deducted and the net value is deducted from material cost or factory overhead. The effect of this method is to reduce material cost or overhead recovery rate.
Realizable value of spoilage is credited to the account in which cost of spoilage is charged. Cost of abnormal waste is not a part of cost of production, so it is charged to costing profit or loss account. (ii) If the defective production is not identified with a particular job or department, the cost of rectification is added to general factory overhead. Goods that do not meet production standards and must be processed further in order to be saleable as good units are known as defectives.
However, milder cathodic conditions (~ − 0.5 V) will reduce the risk of hydrogen embrittlement. Having determined Mtot, Mw − c, Mmech and Mc, the corrosion-enhanced wear, Mc − w, is simply the balance of eq.