Disposal of scrap is effected by:
(a) Inviting offers
(b) Annual contract
ADVERTISEMENTS:
(c) Public auction.
In the first case, lists of scrap showing description of the items and approximate quantities available are circulated to interested parties or advertised in the newspapers once in three months or so and disposal will be effected at the highest price obtained. The procedure followed will be similar to the ‘Tender System’.
Sale by contract is also affected by circulating lists or advertisement in the newspapers showing the approximate quantity expected to be available during the year. In certain companies, where the volume of major items is considerable, the contract is awarded to two or three dealers, but in small size firms it may be convenient to give to one dealer.
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ADVERTISEMENTS:
The annual contract has the advantage that the scrap will be automatically removed from time to time; there will be no large accumulation with possible fire hazard and at the same time valuable space in the factory will be saved.
The procedure followed for auction is briefly given below:
(a) Materials for auction will be properly listed giving lot number, full description of the material, quantity etc.
(b) Sale will be effected on as is where basis is.
ADVERTISEMENTS:
(c) Proposals to sell materials by auction will be adequately advertised.
(d) Auction will be supervised by a representative each from the stores and purchase as well as accounts.
(e) Often a reserve price is fixed for various items and before a bid is accepted, the officers attending the auction must satisfy themselves that the highest bid obtained is the best in the circumstances.
(f) A statement showing the highest bids obtained will be signed by the officers attending the auction.
(g) An amount of 10 percent to 25 percent of the accepted bid will be taken as earnest money from the bidders concerned and a receipt for the same will be issued by the accounts department.
(h) On the production of the cash receipt for the balance amount, delivery order is issued in favour of the bidder to collect the materials within a reasonable time.
The sale proceeds from scrap is generally credited to miscelleneous revenue. The periodical sale value of the wastage and spoilage will be so low as compared to the value of manufactured components that no serious difference in the ultimate cost will be found even if such proceeds are credited to the jobs. Further, it is often difficult to properly allocate such proceeds to the original job.
Procedure of Writing off Scrap:
The procedure of writing off scrap involves the following steps:
STEP-1:
All materials listed as scrap should be sorted out according to the buyer trade group. Suitable size lots must be formed. The lots should neither be too big nor too small. If they are too big, only rich buyer will be interested and competition will be restricted. If they are too small, they will be unattractive to prospective buyers.
STEP-2:
There are certain obvious disposal plans for a few categories of scrap, e.g.,
(a) Bronze borings, cast iron scrap may be earmarked for use internally by the brass and iron foundry.
(b) Certain components may be offered back to original supplier and if they offer a suitable price, it is sold to them.
(c) Off cuts of steel may be offered to steel plant and sold if price offered is reasonable.
STEP-3:
Details of scrap lots available for disposal should be circulated to all internal likely users to see if they can put them to some profitable use with little or no reprocessing costs.
STEP-4:
Lots which cannot be disposed off in the manner indicate under step 2 or step 3, may be referred to the high level technical committee called Survey Committee for their recommendation regarding the best method of disposal.
Scrap must not be allowed to stay as a part of the inventory for long as it deteriorates very fast and lose value quickly. By prompt disposal the locked up finances will be released. Also use of storage accommodation in keeping unwanted material will be avoided and congestion of working space will be relieved.