Scrap Option

The scrap option determines how the Inventory Accounting module will account for scrap expense.  Scrap is reported in the Shop Floor Control module (for MRP items) and in the Just-in-Time module (for JIT parts).  Three options are available:

·     No scrap expense (option 1).  Inventory Accounting will not generate any journal entries to account for recorded scrap.  Scrap transactions can still be entered but they will be costed only for reporting purposes.  This option is the default. 

·     Parent and component scrap expense (option 2).  You can report scrap at both the parent and component levels.  Scrapping a parent means identifying a parent item as unusable.  The cost of the scrap equals the total material cost of the parent (since all material will have been issued to the manufacturing order) and the labor and overhead incurred so far in the manufacturing process.  Scrapping a component means identifying that the component cannot be used at the operation.  The cost of component scrap equals the entire cost of the component item.

·     Parent scrap expense only (option 3).  Inventory Accounting will generate journal entries to the scrap expense account only for parent scrap.  This option is recommended if you have specified scrap factors on the bill of material, since component scrap will have already been calculated into the standard cost of the parent part.

For JIT items, only component scrap can be reported.  Therefore, option 1 and option 3 have the same accounting effect for JIT items.  For a JIT item, you should choose option 1 if you do not want to cost scrap and option 2 if you do want to account for reported scrap expense.