How scrapping pieces on a job affects costing
Overview on Scrapping Pieces
Solution ID = KB-241
Goal : Describes the affect that scrapping pieces when moving the item through the routing has on the job's costing.
Version = All Version
Module : SLMFG
Fact : SFC
Database : Progress, SQL
Cause
Fix
You can scrap pieces of the parent item on a job by entering a Qty Scrapped when entering a job transaction (not to be confused with scrapping individual materials). How the scrapping of pieces impacts the costing on the job depends on whether the item is actual or standard costed.
Actual Costing:
For actual costed items, scrapping pieces does affect the cost at which the good pieces are moved into inventory. If you close the job when you move the pieces into inventory, the job's actual total cost is spread over the quantity being moved so those pieces would absorb the cost of the material and labor that went into the scrapped pieces. If you don't close the job as part of the move the good pieces are moved the job's planned unit cost. If you then close the job manually, the cost left in WIP is written of to inventory adjustment and will include the cost that went into the scrapped pieces.
For example (closing the job via the move), if you had a job for 10, you posted $1000 against the job, completed and moved 8 into inventory while scrapping 2, those 8 would be moved to inventory at $125 per unit (1000 / 8).
Standard Costing:
For a standard costed item, scrapping pieces doesn't affect the move to stock cost (which is always at the item's standard) but it will result in variances. Any actual labor posted that was for work on the scrapped pieces will go into labor usage variance. All material issued for the scrapped pieces will go to material usage variance.
For example, suppose you have an item with one standard operation that has 1 hour per piece with a run rate of $15. There is one material in its BOM with a standard cost of $10 giving the item a standard cost of $25. You then release a job for 10 and issue 10 of the material. WIP is debited and the material's inventory account is credited $100.
If you post a run transaction for 10 hours which complete 8 and scraps 2 and the employee's rate is $15, WIP labor will be debited with the labor to make the 8 pieces ($120), direct labor applied will be credited with the actual labor ($150) and labor usage variance will be debited with the difference ($30).
The 8 good pieces are moved into inventory and taken out of WIP at its standard of $25 (total $200). That leaves $20 in WIP which is value of the material that went into the two scrapped of the parent. When the job is closed, that is written off to material usage variance.
