Accounting for damaged materials and material wastage
In this article, we'll cover:
Handling material wastage
Implementing effective tracking and accounting practices is essential to account for material waste produced during manufacturing.
This article will explore the two available strategies for accounting for material wastage in manufacturing processes, ensuring that every resource is utilized efficiently and sustainably.
Firstly, you can include the wastage amount in your material usage for the manufacture itself so that this is factored into the material cost (i.e., if you have 50 sq inches of fabric used and 10 sq in scrap, then you would create your manufacture to use 60 sq inches).
Alternatively, you can create the manufacture with the exact material used and then create an inventory adjustment to remove the extra wastage. This method allows you to categorize and report your material wastage costs for any period.
Details on adding a material adjustment can be found here: How do I add a Material Inventory Adjustment?
Handling Damaged Materials
Suppose you need to remove material from your stock due to damage/loss. In that case, the recommended approach is to set up an adjustment category for damaged goods and add an inventory adjustment for the missing amount. This will decrease your stock on hand correctly and attribute the material cost of the damaged stock to your inventory adjustments record.
By categorizing adjustments, you can swiftly identify damaged items, ensuring efficient inventory management and precise financial reporting. This can be seen in your Materials adjustment summary report.
Your end of year inventory values will include this decrease and can thus be included in your cost of goods sold calculations.