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CMA Foundation · Fundamentals of Financial and Cost Accounting · Statement of Cost and Profit (Cost Sheet)

Sharma Plastics has normal scrap arising from a process, and the scrap realises Rs 8,000 when sold. The scrap is not identifiable with any particular job. How is this amount treated in the cost sheet under CAS-oriented practice?

The Rs 8,000 realised from normal scrap not linked to any job is deducted from factory overheads, reducing the cost of production. Since the scrap is a routine outcome of manufacturing and cannot be traced to a job, its sale proceeds offset general production costs.

  1. AAdded to sales as additional revenue and ignored in costs
  2. BDeducted from factory overheads, thereby reducing the cost of productionCorrect
  3. CDeducted from prime cost of a specific job only
  4. DShown as a separate item added to profit after the cost of sales

Explanation

Where scrap is a normal, unidentifiable by-product of manufacturing, its sale value is credited to factory overheads, reducing the production cost. Treating it as other income after cost of sales would overstate the cost of production. Charging to a specific job applies only when scrap is traceable to that job.

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