Sale of scrap- material issue/accounting

[Former Member]

Hi ALL,

After searching in the forum, I could not found the answer so it is the fresh post.

We are using in one of our production process the blasting iron balls. After use these balls become undersize and no longer usable for the blasting process.

These undersize balls are then sold as scrap.

These balls are ROH and base unit is Kg. the undersize balls as scrap are also sold in kg

Query:

1) Is it required to create a new material type for scrap?

2) Do I have to make material to material transfer using mvt 309.

3) How the link/connectivity between the original balls and scrap balls can be established as I have to reflect in the system that these scrap balls have originated from the fresh balls after use.

Also there weight will also undergo change, example 100 kg fresh balls after use is equivalent to 50 kg of undersize balls.

Say if I create a new material type for scrap and load the stock using 561. Then there will be 2 different materials but actually it is 1 material only.

From audit and inspection point of view, the process should be self explanatory.

If we see from accounting prospective it has to hit consumption account when used in production and revenue account when sold. Means we should be able to know that 50 kg has been consumed in production and rest 50 kg is scrap.

Please suggest the correct way and right movement type to handle this case and right way of handling its accounting.

REGARDS

[Former Member · Accepted solution]

HI kavitha

Scrap Sales:

In a manufacturing industry say for example machine components are manufatured from steel bars. So during machining / turning of the raw material turning scrap is generated in the form of "chips". Again you will have scrap for stationary which is used, then scrap in the form of "used coolant oil", "cotton waste", "defective packing material", etc.

The scrap also generates revenue as it is saleable in the scrap market. When we sell the scrap it is called as scrap sales.

Role of scrap sales in SD:

The scrap material is also considered as finished goods with no MRP. As and when a suficient qty is generated then the management can decide to sell it. A sales order is generated, delivery + PGI and then invoice and excise invoice if the scrap material is excisable.

Configuration & settings:

Material type - It should be FERT only with no MRP settings, no quality, no forecasting. Accounting & Costing will be there as well as plant stock.

Pricing - The pricing procedure will be the same except for scrap sales you have an extra condition type for "TCS - tax deducted at source". The rate of this is may be "1.133%"

So in your pricing procedure you will have to include an extra condition type say for eg:ZTCS.

Role of scrap sale in SD - The scrap sales is treated in SD in a similar way as we treat normal sales.i.e Sale order -- Delivery PGI Invoice --accounting. But , the sales area for scrap sales should be different

Configuration - For this the Division is defined for Scrap sales and assigned accordingly. (refer set up sales area -- OVXG). Separate Sales Order type + Delivery + Billing is defined. The scrap material master is defined by assigning the division to the materials.Revenue account determination is set up for scrap sales G/L accounts.( VKOA).Customer master to be created for Scrap sales area.All other SD relevant seetings to be maintained. But the transaction process to be followed as per normal SD process

Reward if useful to u

[Former Member]

thanks