What is Scrap?

Scrap is the excess unusable material that is left over after a product has been manufactured. This residual amount has minimal value, and is usually sold off for its material content. A business can reduce the amount of scrap that it generates by exercising great care in setting up production equipment, buying raw materials of adequate quality, and training employees in the proper use of production equipment.

Standard Scrap

When a business uses a bill of materials to itemize the contents of its products, it may include a scrap percentage that reflects the amount of scrap that will normally be generated in the production process. The intent behind including this percentage is to gain a realistic view of the total cost of the associated product.

Accounting for Scrap

Any proceeds earned from the sale of scrap are normally offset against the cost of goods sold, thereby reducing the overall cost of goods of the reporting entity.