Calculate packaging scrap cost with a recovery credit

The purchasing question

Scrap has a purchased-material cost even when some recovery value is available. Gross scrap cost and net loss answer different questions. Keep them separate so a recovery credit does not hide a deterioration in production yield.

Calculation method

Scrap kilograms = gross material consumed × scrap fraction. Gross material loss = scrap kilograms × purchase price/kg. Recovery credit = recovered kilograms × applicable recovery price/kg. Subtract the credit from the material loss, using the actual recovered quantity if it differs from total scrap.

Worked example

A run consumes 1,000 kg at €3/kg and produces 50 kg of scrap. Gross material loss is €150. If all 50 kg earns €0.30/kg, the credit is €15 and net material loss is €135. If only 30 kg is recovered, the credit is €9 and net loss is €141.

This calculation excludes processing labour, downtime, sorting, transport and rejected finished-product contents unless those costs are entered elsewhere. Compare periods at a consistent boundary and use actual recovery proceeds instead of assuming every kilogram is saleable.

Checks before using the result

• Use a scrap percentage measured on gross consumption.
• Separate unrecoverable and recoverable streams where necessary.
• Do not subtract an expected credit again from a price already quoted net of recovery.

Common questions