Accounting for Scrap, Wastage, and By-Products in Discrete and Process Manufacturing

The Financial Reality of Production Residue

In industries like metal fabrication, plastics extrusion, and chemical processing, production unavoidably yields secondary outputs: turnings, cuttings, trim residue, and usable chemical by-products. Ignoring their financial and physical presence distorts inventory valuation and tax ledgers.

Scrap vs. By-Product Accounting

• Wastage & Scrap: Unusable residue sold at scrap value. Net realizable value (NRV) is credited against the direct material cost of the main product.
• By-Products: Incidental products possessing significant commercial value, requiring separate inventory ledgering and secondary tax invoicing.

Relaso Manufacturing ERP automates scrap generation rules within the Bill of Materials, allowing factories to track scrap recovery rates and invoice metal residue with proper TCS/GST taxation.