Jyosh,
There is plenty of information on Rework orders in the forum.
Here are two of them:
http://scn.sap.com/thread/684311
http://scn.sap.com/people/rupesh.brahmankar3/blog/2009/07/27/rework-in-manufacturing
This is an MM/PP issue.
Also discuss Split Valuation with the MM team.
Cheers,
TD