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.

Characteristics of Scrap

The key characteristics of scrap are as follows:

Residual material. Scrap is typically the byproduct of manufacturing processes or the remains of used or damaged products.
Variable quality. Scrap quality can range from near-pristine to highly degraded, depending on its source and handling.
Economic value. Scrap often has economic value, particularly metals like steel, aluminum, and copper. Its value fluctuates based on market demand and global commodity prices.
Heterogenous composition. Scrap may consist of mixed materials, requiring sorting and separation for processing.
Storage requirements. Scrap often requires careful storage to prevent contamination or environmental harm.
Physical and chemical properties. Characteristics like density, corrosion resistance, and conductivity determine scrap’s usability in recycling.
Hazard potential. Some types of scrap, such as e-waste or chemical waste, may contain hazardous substances requiring specialized disposal methods.

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.