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Chapter 9

Scrap value of losses

It may be possible to sell some losses. If this is possible the normal loss units will
have a scrap or residual value.

This affects step 2 where we consider costs and adds an addition step at the end.

The value of the normal loss reduces the total cost of the process as we get some
revenue to net off the input costs.

Cost per unit = net cost of input ÷ expected output

Cost per unit = (input costs – normal loss proceeds) ÷ (input units
– normal loss units)

6.1 Scrap value and normal loss

At the start of a heating process 1,000 kg of material costing $18 per kg
is input. Normal loss is expected to be 10% of input which can be sold
for $1.80 per kg. Labour costs are $1,800 and overheads are $900.
Output was 900 kg.

Step 1 – balance the units and determine any loss/gain

Input = Output + Loss

1,000kg = 900kg + 100kg (all NL)

Step 2 – consider the costs

Inputs $18,000 + $1,800 + $900 = $20,700

NL = 100kg × $1.80 = $180

Net costs = $20,700 - $180 = $20,520

Step 3 – calculate the average cost per unit

The cost per unit = net cost of inputs ÷ expected output

The cost per unit = $20,520 ÷ (1,000kg × 90%) = $22.80 per unit

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