We handle scrap/obsolete/unusable material by creating an inventory adjustment transaction through IN-C, tagging it as an "Adjustment" and entering a negative quantity.
 
This transaction will charge whatever expense account is set up as a default in the Manufacturing defaults menu; it will NOT increase WIP material.
 

Sorry, I wasn't aware this piece was already issued to the work order.  
 
There are two choices to get the part out of the work order:  1.  WO-G  - Unissue it by looking up the date this piece was issued to the work order and reversing the transaction.  If it was issued with other pieces, then back out the entire issue and reissue only the remaining pieces back to the work order.
 
2nd choice would be to do a negative work order issue for -1 piece.  This will take it out of the job  and put it back into inventory on hand, (which is okay because you just reduced inventory on hand by one piece.) However, the cost for the negative issue may not be the same at which it went into the job.  That is why we prefer to back out work order issues and then redo the transaction.

When you issue in WO-G, there is a place for Quantity Issued and one for Quantity Scrapped.  If you enter it in Qty Scrap, then you will reduce On Hand but not increase WIP.