Looking for some clarification on Scrap in BOM Entry.
In my experience, scrap is considered unusable waste generated during a work order or manufacturing process. But in ERPNext the scrap is DEDUCTED from the Cost, instead of being ADDED to the cost when building BOMs.
example
Finished Good: FG-SSBAR50
Items : qty 50mm of SSBAR-500 (500mm piece of Stainless Steel Bar)
Operation: Cut SSBAR at 50mm
From my SSBAR500 I should get 10 pieces of FG-SSBAR50, but in reality I only get 9 because the saw cuts take 3mm, it’s part of the cost of making the FG-SSBAR50.
Essentially my 500mm bar only yields 9 pieces, generating 50mm of unusable stock or 11.1% of scrap. The 11.1% scrap should be relieved from stock and added to the cost.
Can someone explain to me why the Scrap in the BOM is being deducted from the Cost?
In any manufacturing process, the concept you explained falls into 1 of the following #
Normal Loss
Abnormal Loss
For example - for a fuel vendor, when he pays for 100 litres of fuel @ 10$ / litre - it works to $ 1000.
When he receives the physical fuel, he will receive only 90 litres - because of evaporation and vaporisation. This is called as Normal Loss.
His cost of per litre works to $1000 divided by 90 litres which is $ 11.11 / litre. He can add his profit margin and sell it any price above $11.11 / litre.
To sum-up Normal Loss is always added to the cost of goods to arrive at the “final cost of goods” or “landing cost”.
Now, let’s after receiving the 90 litres, the quality team, while testing the fuel quality in the storage tank, erroneously spills & wastes 5 litres of fuel. This cost of 5 litres (5 x $ 11.11 = $ 55.55) is added to the Profit & Loss a/c (expenses account) as abnormal loss.
Your scenario that you explained is the Normal Loss.
The concept of SCRAP as prevalent in ERP Next is primarily referring to the residue or waste which remains, after completing a process / finished good. Else, if you sell any asset for zero value, then as well, it’s called as SCRAP. That’s how ERP Next treats the word “SCRAP” and accordingly treats the accounting as well.
Thank you, I see now how the scrap is being used in ERPNext.
IMO, the naming is really confusing.
Essentially what you call scrap in the BOM, is the process of using waste to make another Item to stock that has value$$.
I would consider this a Material Return, LeftOver, or Residual Stock, but scrap is a misleading terminology.
BILL OF Material Documentation
Under the Scrap section, select the scrap Item that will be created when manufacturing and its quantity. The scrap Item can also...
Knowing what I know now, how do I add scrap (as a % or a qty) to a raw item within a BOM.
Finished Good: FG-SSBAR50
Items : qty 50mm of SSBAR-500 (500mm piece of Stainless Steel Bar)
Operation: Cut SSBAR at 50mm
From my SSBAR-500 I should get 10 pieces of FG-SSBAR50, but in reality I only get 9 because the saw cuts take 3mm, it’s part of the cost of making the FG-SSBAR50.
How can I add 11.1% scrap rate to the SSBAR-500 raw item in the BOM?
Here’s an example from SAP., and link to the full article
