What is the difference between scrap and by-product?

ADVERTISEMENTS: The distinction between scrap and by-product is a matter of degree determined in terms of value as well as manufacturing objective. By-products may be subject to further processing and market strategy before sale, whereas scrap is sold without further treatment.

How is scrap treated in cost accounting?

In cost accounting, scrap is defined as material that’s left over after production. Scrap has a low sales value, if it has any value at all. You sell scrap “as is.” No costs are added to scrap before you sell it to someone.

How will you treat defectives and scraps in cost accounts?

Job returning the scrap is credited with the value of the scrap returned to stores. The cost of defective scraps after deduction there-from the sale a proceeds of such scrap is transferred to Costing Profit and Loss Account because it is an abnormal loss.

How do you account for by-products in cost accounting?

Accounting for by-products There are two ways of accounting for a by-product: the production method and the sales method. Under the production method, a product’s sales value is recognised in the accounting period in which the product is produced, and the by-product is considered as inventory.

What are the difference between main product and by-product?

Definition of By-Product While producing the main product, there are instances when another product emanates which are of minor importance, as compared to the main product, are the by-product. These are produced from the discarded material, i.e. scrap or waste of the main process. Products sold in their original form.

What do you mean by by-product?

A by-product or byproduct is a secondary product derived from a production process, manufacturing process or chemical reaction; it is not the primary product or service being produced. Gasoline was once a byproduct of oil refining that later became a desirable commodity as motor fuel.

What is the difference between waste and scrap?

Reviewing these summaries you could conclude that the difference between scrap and waste is that scrap is an unforeseen loss of raw material in your production process and waste is a foreseen and calculated percentage of loss of raw materials or/and time in your production process.

What is scrap in cost accounting Mcq?

Explanation : Residual material which results from manufacturing products is called scrap. Scrap is residual material that results from manufacturing a product. Question 742.

How do you account for scrap material?

Credit the sale proceeds of the scraps from all jobs to production or factory overhead account. Sale proceeds of scraps to be credited to ” Miscellaneous Income Account.” Debit the value to the job when the scraps using as raw materials and credit the job from which these originated.

What is main product and by-product in cost accounting?

The classification of a product resulting from a joint production process as either a main product or a by-product has relevance in the context of cost management because costs are only allocated to main products, not to by-products. …

What is the difference between a product and a by product?

As nouns the difference between product and byproduct is that product is (countable|uncountable) a commodity offered for sale while byproduct is a secondary or additional product; something produced, as in the course of a manufacture, in addition to the principal product.

What are the difference between main product and by product?

What is the difference between by-products and scrap?

By-products may be subject to further processing and market strategy before sale, whereas scrap is sold without further treatment. Waste is a term used to describe material that has no value, or even negative value if it has to be disposed off at some cost.

What are the methods of accounting for scrap?

The usual methods for accounting of scrap are as follows: i. The sale value of scrap is credited to profit and loss account as other income. The unit cost of production is, therefore, inclusive of cost of scrap.

What is the difference between scrap sales and accounts receivable?

At that time, cash or accounts receivable is debited while scrap sales is credited. This method is expedient and is justified when a more accurate accounting becomes expensive and burdensome, the scrap value is relatively small, or the price is uncertain. Proceeds from the sale of scrap in reality a reduction in production cost.

What is the effect of the scrap sale method?

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. This method fails to secure effective control of scraps arising in processes or jobs.