Process Costing Examples-muhammadazeem
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CaseParticular
Input
Output
Ltrs
Ltrs
Normal Loss Ltrs
Abnormal Loss Ltrs
Abnormal gain Ltrs
1 No losses
12,000
12,000
-
-
-
2 Normal loss- no S.V
12,000
10,000 2,000 (1/6)
-
-
3 Abnormal loss - no S.V. 12,000
9,000 2,000 (1/6)
4 Normal loss - with SV 12,000
10,000 2,000 (1/6)
5 Abnormal loss - with SV 12,000
9,000 2,000 (1/6)
6 Abnormal gain - no SV12,000
11,000 2,000 (1/6)
-
1,000
7 Abnormal gain - with SV 12,000
11,000 2,000 (1/6)
-
1,000
1,000
-
-
-
1,000
-
Required no.1 When No losses in the process Process Cost Account Units Rate Cost Input
12,000 12,000
10
Units
120,000 Output
12,000
120,000
12,000
Cost per unit = Cost of input / Nos. of output units (Expected output units) = Rs. 120,000 / 12,000 units = Rs. 10 per unit. Input cost includes cost of direct material and cost of conversion. In this there is no loss in units, therefore the cost of output is equal to cost of input.
Required no.2: When Normal loss in the process (With NO salvage value) Process Cost Account Units Rate Cost units Input
12,000
10
120,000 Output
10,000
Normal loss 12,000
120,000
2,000 12,000
Cost per unit = Cost of input / Nos. of Expected output units (excluding normal loss) = Rs. 120,000 / 10,000 units = Rs. 12 per unit. The normal loss is inherient in nature, and it occur under efficient operating condition and are unavoidable. Cost is not assigned to nos. of units lost (Normal). The cost of material loss (Normal) is transferred to nos. of expected goods output, which increases the per unit cost of finished goods. For Input: Work in process Debit Raw material Accured payrol FOH (Applied)
Credit Credit Credit
For Output Finished goods Work in process
Debit
No entry for normal loss because there is no value of normal loss units.
Required no.3: When Abnormal loss in the process (With NO salvage value) Process Cost Account units Rate Cost units Input
12,000
10
120,000 Output
12,000
9,000
Normal loss
2,000
Abnormal Loss
1,000
120,000
12,000
Cost per unit = Cost of input / Nos. of Expected output units (including abnormal loss) = Rs. 120,000 / 10,000 units = Rs. 12 per unit. Units Process cost account
Rate
1,000 1,000
1 2 3 4
Abnormal loss Account Cost 12
Units
12,000 Profit and loss a/c
1,000
12,000
1,000
These losses are not an inherent in nature and that is why it is called abnormal or controllable loss. It will be excluded from the process account having a value equal to the value of goods output. It is treated as a periodic cost and written off in the profit statement at the end of accounting year. Cost of abnormal loss in not included in cost of ending inventory, if any. For Input Same entry For Output Same entry
For Abnormal Loss: a) Transferred from Process account to Abnormal loss account Abnormal loss account Process cost account b) Transferred to Profit and loss account:
Debit
Profit and loss account Abnormal loss account
Debit
For normal loss: No entry will be made
Required no.4: When Normal loss in the process (With salvage value)
Units Input
12,000
Process Cost Account Cost
Rate 10
120,000 Output
Units 10,000
Normal loss (salvage value) 12,000
120,000
2,000
12,000
Cost per unit = (Cost of input - Salvage value of normal loss) / Nos. of Expected output units = [Rs. 120,000 - 10,000 (2,000 units x Rs. 5)] / 10,000 units = Rs. 11 per unit.
Units Process cost account
2,000
2,000
Accounting Entries: 1) For Input: Same entry
Spoiled goods (Normal loss) Account Rate Cost Units 5
10,000 Cash
2,000
10,000
2,000
2) For Output: Same entry
3) For Normal Loss - Salvage value: a) Recording of normal loss with salvage value: Spoiled goods (Normal10,000 loss) Process account
10,000
b) Sale of normal loss Cash 10,000 Spoiled goods (Normal loss)
10,000
1 The salvage value of normal loss, if any, will reduce the process cost. 2 The salvage value of normal loss will be excluded from process cost account, and open a new account of spoi goods and transferred that salvage value in it. This procedure will be made regularly and when the spoiled goo are in large quantity then it will be sold for cash. In this case there may be gain or loss on sale of spoiled goods if it is not sold simulteneously, which will be transferred to Profit and loss account. 3 The cost value on normal loss is not assigned because it is transferred to good output. The Salvage value of normal loss is assigned, which reduces the process cost.
Required no.5: Abnormal loss with Salvage value a) Calculate the salvage value of normal loss Salvage value of normal loss = Nos. of units lost x scrape value 2,000 units x Rs. 5 Rs. 10,000
b) Calculate cost per unit Cost per unit = (Cost of input - Salvage value of normal loss) / Nos. of Expected output units incl. abnorma = Rs. 120,000 - Rs. 10,000 / 10,000 units = Rs. 11 per unit c)
Cost of Abnormal loss = units of abnormal loss x cost per unit = 1,000 units x 11
= Rs. 11,000
Units Input
Process Cost Account Cost
Rate
12,000
10
Units
120,000 Output
9,000
Normal loss (salvage value)
Abnormal loss 1,000 (cost of abnormal loss) 120,000 12,000
12,000
Units Process cost account
1,000
1,000
Units Process cost account
2,000
Abnormal loss Account Cost
Rate 11
Units
11,000 Cash Profit & loss account
1,000
11,000
1,000
Spoiled goods (Normal loss) Account Rate Cost Units
2,000
10,000 Cash
2,000
2,000
10,000
2,000
NORMAL LOSS: 1 In Process account, there is no cost value of normal loss because the cost of normal loss is transferred to Goods output. 2 In Process account, there is a Salvage of normal loss because this value will be recovered from sale of normal loss which reduces the process cost account. ABNORMAL LOSS: 3 In Process account, there is a Cost value of abnormal loss is taken, which is equal to cost of output 4 Separate Abnormal loss account will be prepared, taking cost value from process and cash value will be credited. The balance is called Loss on sale of abnormal loss which will be transferred to Profit and loss account 5 Separate Normal loss (Spoiled goods) account will be prepared in same manner.
ENTRIES For Input and Output: Same entries For transfer of goods to Spoiled goods (Normal Loss) Spoiled goods Debit Process account
Credit
On Sale of spoiled goods: Cash Profit & Loss a/c Profit & Loss a/c Spoiled goods
Gain / loss can be happened in spo For transfer of goods to Abnormal Loss: Abnormal loss account Debit Process account
On Sale of Abnormal Loss unit Cash Profit & Loss a/c Abnormal Loss
Credit
Only loss will be happened in sale loss units b/c salvage value is less
Required no.6: Abnormal Gain with NO Salvage value a) Calculate the cost per unit Cost per unit = Cost of input / Nos. of expected output units (input units - normal loss unit). = Rs. 120,000 / 10,000 units = Rs. 12 b) Calculate the cost of abnormal gain unit: Cost of abnormal gain units = 1,000 units x Rs. 12 = Rs. 12,000 c)
Prepare Process cost account:
Input Abnormal Gain
Process Cost Account Units Rate Cost 12,000 10 120,000 Output 1,000 13,000
12
12,000 Normal loss 132,000
Units 11,000 2,000 13,000
Abnormal Gain Account Cost 12,000 Process account
Units Rate Profit & loss account 1,000 1,000
Units 1,000
12,000
1,000
1 Cost of abnormal gain is also equal to cost of output. 2 Cost of abnormal gain is transferred to Profit and loss as a gain, if no salvage value. Accounting Entries Process account Abnormal Gain
12,000 12,000
Abnormal gain Profit & loss
12,000 12,000
Required no.7: Abnormal Gain with Salvage value a) Salvage value of normal loss: Salvage value of normal loss = Nos. of normal loss unit x salvage value per unit = 2,000 units x Rs 5 = Rs 10,000 b) Cost per unit: Cost per unit = (Cost of input - Salvage value of normal loss) / Nos. of Expected output units = Rs. 120,000 - 10,000 / 10,000 units = Rs. 110,000 / 10,000 units = Rs. 11 c) Process Cost Account Units Rate Cost Units Input Abnormal Gain
12,000
10
1,000
11
13,000
units
120,000 Output
11,000
11,000 Normal loss 131,000 Abnormal Gain Account Cost
2,000 13,000
units
P&L account
1,000
11
1,000
2,000
1,000
11,000
1,000
Normal Loss Account Cost
units Process Account
11,000 Process account
5
2,000
units
10,000 Cash P&L Account
1,000 1,000
10,000
2,000
P&L Account units Normal Loss
1,000
Net Profit
Cost
units 5,000 Abnormal Gain
1,000
6,000 11,000
Accounting Entries Process account 11,000 Abnormal Gain
11,000
Abnormal gain 11,000 Profit & loss Spoiled goods
6,000 5,000
Spoiled goods (Normal10,000 loss) Process account
10,000
b) Sale of normal loss Cash 5,000 Abnormal gain 5,000 Spoiled goods (Normal loss)
10,000
1,000
1,000
Scrap value of spoiled output/ unit 5 5 5
Rate
Cost 10
is there is no loss in
120,000 120,000
Rate
Cost 12
120,000 120,000
g normal loss)
condition and are
ods output, which
Credit
se there is no value of
Rate
Cost
12.00
108,000 -
12
12,000 120,000
abnormal loss)
Rate
Cost 12
12,000 12,000
mal or controllable loss. lue of goods output. d of accounting year.
loss account
Credit
Credit
Rate
Cost 11
110,000
5
10,000
120,000
Expected output units
Rate
Cost 5
10,000
10,000
t, and open a new account of spoiled egularly and when the spoiled goods
d simulteneously, which will be
ected output units incl. abnormal lost unit
Rate
Cost 11
99,000
5
10,000
11
11,000 120,000
Rate
Cost 5
5,000 6,000 11,000
Rate
Cost 10,000
10,000
f normal loss is transferred to
l be recovered from sale
equal to cost of output
ocess and cash value will e transferred to
On Sale of spoiled goods:
Profit & Loss a/c Profit & Loss a/c Spoiled goods
(Loss) (Gain)
Debit Debit Credit Credit
Gain / loss can be happened in spoiled goods
On Sale of Abnormal Loss unit
Profit & Loss a/c Abnormal Loss
(Loss)
Debit Debit Credit
Only loss will be happened in sale of abnormal oss units b/c salvage value is less cost value
rmal loss unit).
Rate
Cost 12 132,000 132,000
Rate
Cost 12,000 12,000
salvage value.
Expected output units
Rate
Cost 11
121,000
5
10,000 131,000
Cost
11
11,000
11,000
Cost 5
5,000 5,000 10,000
Cost 11
11,000
11,000
Solution of Example no. 5.2 on Page # 142 Units Input
Rate
Process A account Cost
14,000
Units
Output
Cost incurred: Material Conversion
10,000
210,000 144,000 Balance c/d 14,000
354,000
4,000 14,000
FOR PROCESS A: Calculation of cost of work in process at end and cost of output: 2 Cost of Work in Process (at end): Nos of units in process (at end) Stage of completion
4,000 50% Conversion
Material cost: (4,000 units x 100% x 15) Conversion cost: (4,000 units x 50% x 12) COST OF WORK IN PROCESS
1 Equivalent Production units:
3 Cost of Finished goods:
Material Units completed add: WIP (at end) - 50% EPU Cost incurred Per unit cost
60,000 24,000 84,000
Conversion
10,000 4,000 14,000
10,000 2,000 12,000
210,000
144,000
15.00
12.00
Cost of finished goods: (10,000 units x 100% x 27)
Units Units received
10,000
Rate
Process B account Cost 27
Cost incurred: Material Conversion
10,000
Units
270,000 Output
9,000
108,000 171,000 Balance c/d
1,000
549,000
10,000
FOR PROCESS B: Calculation of cost of work in process at end and cost of output: 3 Cost of Work in Process: Nos of units in process (at end) Stage of completion
1,000 50% conversion
Inventory cost (1,000 units x 27) Material cost: (1,000 units x 0% x 12) Conversion cost: (1,000 units x 50% x 18) COST OF WORK IN PROCESS
1 Equivalent Production units:
4 Cost of Finished goods:
Material Units completed add: WIP (at end) - 50% EPU
27,000 9,000 36,000
9,000 9,000
Conversion
Cost of finished goods: (9,000 units x 100% x 57)
9,000 500 9,500
2 Per unit cost: Cost received from Process A
Cost Units Rate 270,000 10,000
27
Cost incured in Process B Material Conversion
108,000 171,000 549,000
9,000 9,500
12 18 57
Rate
Cost 27
270,000
84,000 354,000
270,000
Rate
Cost 57
513,000
36,000
549,000
513,000
Solution of Example 5.3:
Balance b/f Input
WEIGHTED AVERAGE METHOD Process X account Units Rate Cost 6,000
Units
117,900
16,000
Output
Cost incurred: Material Conversion
18,000
192,000 225,000 Balance c/d
22,000
534,900
4,000
22,000
Calculation of Equivalent Production Units: Material Units completed and transferred out Add: Units in process (at end) EPU
Conversion 18,000 4,000 22,000
18,000 3,000 21,000
Calculation of per unit cost: Cost
Units
Rate
Material cost incurred: On work in process at start During current period Total material
72,000 192,000 EPU 264,000
22,000
12.00
Conversion cost incurred: On work in process at start During current period Total Conversion
45,900 225,000 EPU 270,900
21,000
12.90
TOTAL PER UNIT COST
24.90
Cost of Work in Process (at end) Material cost
(4,000 units x 100% x 12)
48,000
Conversion cost (4,000 units x 3/4 x12.90) Cost of Work in Process (at end)
38,700 86,700
Cost of Finished goods: Cost of finished goods (18,000 units x 100% x 24.90)
Units Balance b/f Transferred in
Process Y account Cost
Rate
2,000 18,000
448,200
Units
142,200 24.90
Cost incurred: Material Conversion
448,200 Output
12,000
60,000 259,200 Balance c/d 20,000
909,600
8,000 20,000
Calculation of Equivalent Production Units: Material Units completed and transferred out Add: Units in process (at end) EPU
Conversion 12,000 12,000 4,000 12,000 16,000
Calculation of per unit cost: Per unit cost from Process X: Units received from previous dept Cost incured on Work in process (at start) TOTAL Material cost incurred: On work in process at start During current period Total material
Cost
Units
Rate
448,200 91,800 540,000
18,000 2,000 20,000
27.00
12,000 60,000 EPU 72,000
12,000
6.00
Conversion cost incurred: On work in process at start During current period Total Conversion
38,400 259,200 EPU 297,600
16,000
TOTAL PER UNIT COST Cost of Work in Process (at end) Inventory cost (8,000 units x 27) Material cost
(8,000 units x 0% x 6)
Conversion cost (8,000 units x 1/2 x 18.6) Cost of Work in Process (at end) Cost of Finished goods: Cost of finished goods (12,000 units x 100% x 51.60)
18.60 51.60
216,000 74,400 290,400
619,200
Rate
24.90
Cost
448,200
86,700
534,900
Rate
51.60
Cost
619,200
290,400 909,600
Solution of Example 5.3:
Balance b/f Input
FIFO
Units Rate 6,000
Process X account Cost 117,900
16,000
Units
Output
Cost incurred: Material Conversion
18,000
192,000 225,000 Balance c/d 22,000
534,900
4,000 22,000
Calculation of Equivalent Production Units: Material Units completed and transferred out Less: Work in Process (at start) Units started and completed during the period Add: Work in process (at start) - work this period Add: Work in process (at end) - work this period EPU
18,000 (6,000) 12,000 4,000 16,000
Conversion 18,000 (6,000) 12,000 2,400 3,000 17,400
Calculation of per unit cost: Material cost incurred:
Cost 192,000
Units 16,000
Rate 12.00
Conversion cost incurred:
225,000
17,400
12.93
TOTAL PER UNIT COST
24.931
Cost of Work in Process (at end) Material cost (4,000 units x 100% x 12)
48,000
Conversion cost (4,000 units x 3/4 x12.90) Cost of Work in Process (at end)
38,793 86,793
Cost of Finished goods: a) From beginning inventory (6,000 units) Cost incured till start upto 60% processed add: Further cost incurred to complete 100%: Material (6,000 units x 0% x 12) Conversion (6,000 units x 40% x 12.93)
117,900 31,032
31,032
FROM BEGINNING INVENTORY - 6,000 units b) From Current Production (12,000 units) Cost incurred (12,000 units x 100% x 24.93) COST OF FINISHED GOODS
Units Balance b/f Transferred in
Process Y account Cost
Rate
2,000 18,000
Units
142,200 24.89
Cost incurred: Material Conversion
448,107 Output
12,000
60,000 259,200 Balance c/d
20,000
909,507
8,000
20,000
Calculation of Equivalent Production Units: Material Units completed and transferred out Less: Work in Process (at start) Units started and completed during the period Add: Work in process (at start) - work this period Add: Work in process (at end) - work this period EPU
Conversion 12,000 (2,000) 10,000 10,000
12,000 (2,000) 10,000 400 4,000 14,400
Calculation of per unit cost: Cost
Units
Rate
Per unit cost from Process X: Cost transferred in Material cost incurred: During current period Conversion cost incurred: During current period
448,107
18,000
24.89
60,000
10,000
6.00
259,200
14,400
18.00
TOTAL PER UNIT COST
48.89
Cost of Work in Process (at end) Inventory cost
(8,000 units x 24.89)
Material cost
(8,000 units x 0% x 6)
Conversion cost (8,000 units x 1/2 x 18) Cost of Work in Process (at end)
199,120 72,000 271,120
Cost of Finished goods: a) From beginning inventory (2,000 units) Cost incured till start of the period add: Further cost incured to complete 100%: Material cost (2,000 units x 0% x 6) Conversion cost (2,000 units x 20% x 18) 7,200 Total cost incured on 2,000 units
142,200
b) From current Production (10,000 units) Cost incurred (10,000 units x 100% x 48.89) TOTAL COST OF FINISHED GOODS
7,200 149,400
488,900 638,300
Rate
24.931
Cost
448,107
86,793 534,900
148,932
299,160 448,107
Rate
53.20
Cost
638,387
271,120
909,507
WIP (at start) Nil Units put into process units completed WIP (at end) - 50% completed units lost (normall) lost at end Material cost Conversion cost
1,000 600 300 100 5,000 3,400
Units Balance b/f Input
Rate
Process account Cost
-
Units
-
1,000
Cost incurred: Material Conversion
1,000
Output
600
Normal loss
100
5,000 3,400 Balance c/d
300
8,400
1,000
Calculation of Equivalent Production Units: Material Units completed and transferred out Add: Work in process (at end) - work this period Add: Unit lost EPU Calculation of per unit cost: Cost 5,000
Material cost incurred: Conversion cost incurred:
3,400 TOTAL PER UNIT COST
Cost of Work in Process (at end) Material cost (300 units x 100% x 5) Conversion cost (300 units x 50% x 4) Cost of Work in Process (at end) Cost of Finished goods:
Conversion 600 600 300 100 1,000
150 100 850
Units 1,000
Rate 5.00
850
4.00 9.00
1,500 600 2,100
From Current Production (600 units) Cost incurred (600 units x 100% x 9) Add: Cost of normal loss
(100 units x 9) COST OF FINISHED GOODS
Short Cut Approach: - Unit lost (Normal) is NOT taken in EPU:
Units Balance b/f Input
Rate
Process account Cost
-
Units
-
1,000
Cost incurred: Material Conversion
1,000
Output
600
Normal loss
100
5,000 3,400 Balance c/d
300
8,400
1,000
Calculation of Equivalent Production Units: Material
Conversion 600 600
Units completed and transferred out Add: Work in process (at end) - work this period EPU Calculation of per unit cost: Material cost incurred: Conversion cost incurred:
Cost 5,000 3,400 TOTAL PER UNIT COST
Cost of Work in Process (at end) Material cost (300 units x 100% x 5.56) Conversion cost (300 units x 50% x 4) Cost of Work in Process (at end) Cost of Finished goods:
300 900
150 750
900
Rate 5.56
Units
750
1,668 681 2,349
4.53 10.09
From Current Production (600 units) Cost incurred (600 units x 100% x 1.09) COST OF FINISHED GOODS
CASE I Input 1000 units are processed upto 50% which is the inspection point. At this level 100 are declared as a loss and the expected good output become 900 units. Therefore the cost of normal loss which is 712.50 is transfer to 900 units. At the end of month out of 900 expected good output is converted in to 600 finished good and 300 w.i.p
Calculation of Equivalent Production Units: Material Units completed and transferred out Add: Work in process (at end) - work this period Add: Unit lost EPU
Conversion 600 300 100 1,000
600 150 50 800
Units 1,000 800
Rate 5.00 4.25 9.25
Calculation of per unit cost: Material cost incurred: Conversion cost incurred:
Cost 5,000 3,400 TOTAL PER UNIT COST
Cost of normal loss: Cost of material (100 units x 100% x 5) Cost of conversion (100 units 50% x 4.25)
500 212.50 712.50
Cost of normal loss on good units (per unit) Cost of normal loss / Expected good output 712.50 0.7917 900 WIP (at end) = 300 units x 0.79 = Finished goods =600 units x 0.79 =
Calculation of Cost of Finished goods 600 units x 9.25
237.50 475.00 712.50
5,550
Add: Share of normal loss
475 6,025
Cost of Ending WIP: Material cost (300 units x 100% x 5) Conversion cost (300 units x 50% x 4.25) Add: Share of normal loss Cost of Work in Process (at end)
Units Balance b/f Input
1,000
Cost incurred: Material Conversion
Rate
1,500 638 238 2,375
Process account Cost Output Normal loss 5,000 3,400 Balance c/d
1,000
8,400
Units 600 100 300 1,000
Rate
Cost
10.50
6,300
2,100
8,400
5,400 900 6,300
Rate
Cost
10.09
6,054
2,349
8,403
6,054 6,054
are declared as a which is 712.50 is transfer finished good and
Rate
Cost
10.04
6,025
2,375 8,400
Solution of 5 A -2 WIP (at start) Nil Units put into process units completed WIP (at end) - 20% completed Normal loss Abnormal loss lost at end Material cost Conversion cost
1,000 600 250 100 50 8,000 4,000
Units Balance b/f Input
Process account Cost
Rate -
-
1,000
Cost incurred: Material Conversion
Output
600
Normal loss
100
Abnormal loss
50
8,000 4,000 Balance c/d
1,000
Units Process account
Units
250
12,000
Rate
1,000
Abnormal loss account Cost
Units
50
13
650 P & L
50
50
13
650
50
Calculation of Equivalent Production Units: Material
Conversion
Units completed and transferred out Add: Work in process (at end) - work this period Add: Abnormal loss Add: Unit lost EPU
600 250 50 100 1,000
600 50 50 100 800
Units 1,000
Rate 8.00
800
5.00 13.00
Calculation of per unit cost: Cost 8,000
Material cost incurred: Conversion cost incurred:
4,000 TOTAL PER UNIT COST
Cost of Work in Process (at end) Material cost (250 units x 100% x 8)
2,000
Conversion cost (250 units x 20% x 5) Cost of Work in Process (at end) Cost of Finished goods: From Current Production (600 units) Cost incurred (600 units x 100% x 13) Add: Cost of normal loss
Cost of Abnormal Loss: 50 units x 13
250 2,250
(100 units x 13) COST OF FINISHED GOODS
650
Allocation of Cost of normal loss to Output and on abnormal loss (Expected good Output) - as per Exampl
When the amount of normal loss is significant, then the cost is transferred to expected good output(Finished + Abn
Units Balance b/f
Rate -
Process account Cost -
Output
Units 600
Input
1,000
Normal loss
Cost incurred: Material Conversion
100
Abnormal loss
50
8,000 4,000 Balance c/d
1,000
Units Process account
250
12,000
Rate
1,000
Abnormal loss account Cost
Units
50
15
750 P & L
50
50
15
750
50
Calculation of Equivalent Production Units: Material
Conversion
Units completed and transferred out
600
600
Add: Work in process (at end) - work this period
250
50
50
50
100 1,000
100 800
Add: Abnormal loss Add: Unit lost EPU Calculation of per unit cost: Cost
Units
Rate
Material cost incurred:
8,000
1,000
8.00
Conversion cost incurred:
4,000
800
5.00
TOTAL PER UNIT COST
13.00
Cost of Work in Process (at end) Material cost
(250 units x 100% x 8)
2,000
Conversion cost (250 units x 20% x 5) Cost of Work in Process (at end)
250 2,250
Cost of normal loss per unit: Amount of normal loss Expected good output
1,300 650
2.00
Cost of normal charged to Finished goods
(600 units x 2)
Cost of normal loss charged to abnormal loss
(50 units x 2)
Cost of Finished goods: From Current Production (600 units) Cost incurred (600 units x 100% x 13) Add: Cost of normal loss COST OF FINISHED GOODS
1,200 100
CASE I
Input 1000 units are processed upto 50% which is the inspection point. At this level 100 are declared as a loss and the expected good output become 900 units. Therefore the cost of normal loss which is 712.50 is transfer to 900 units. At the end of month out of 900 expected good output is converted in to 600 finished good and 300 w.i.p
Calculation of Equivalent Production Units: Material Units completed and transferred out Add: Work in process (at end) - work this period Add: Unit lost EPU
Conversion 600 300 100 1,000
600 150 50 800
Units 1,000 800
Rate 5.00 4.25 9.25
Calculation of per unit cost: Material cost incurred: Conversion cost incurred:
Cost 5,000 3,400 TOTAL PER UNIT COST
Cost of normal loss: Cost of material (100 units x 100% x 5) Cost of conversion (100 units 50% x 4.25)
500 212.50 712.50
Cost of normal loss on good units (per unit) Cost of normal loss / Expected good output 712.50 0.7917 900 WIP (at end) = 300 units x 0.79 = Finished goods =600 units x 0.79 =
237.50 475.00 712.50
Calculation of Cost of Finished goods 600 units x 9.25 Add: Share of normal loss
Cost of Ending WIP:
5,550 475 6,025
Material cost
(300 units x 100% x 5)
Conversion cost
(300 units x 50% x 4.25)
1,500 638
Add: Share of normal loss
238
Cost of Work in Process (at end)
Units Balance b/f Input
Rate -
2,375
Process account Cost -
1,000
Cost incurred: Material Conversion
1,000
Units
Output
600
Normal loss
100
5,000 3,400 Balance c/d
300
8,400
1,000
Rate
Cost
15.17
9,100
-
-
13.00
650 2,250
12,000
Rate
Cost 13
650
13
650
7,800 1,300 9,100
Output) - as per Example 5.1
ood output(Finished + Abnormal)
Rate 15.00
Cost 9,000
-
-
15.00
750 2,250
12,000
Rate
Cost 15
750
15
750
7,800 1,200 9,000
are declared as a which is 712.50 is transfer finished good and
Rate
Cost
10.04
6,025
2,375
8,400
Pb 5.27 (5th edition) & 5.35 (6th Edition) 1 At specific level material is added whereas conversion is added uniformly. 2 Inspection at the end of process 3 upto 10% of good output is consider to be normal loss. 4 Reworked- 500 rolls 5 Rework cost is charged to Process overhead. (FIFO) 6 Dyeing dept 1000 units ( Rs. 12000 D/M and 4620 direct labor) all material added and 60% D/L is incured During the month 5650 rolls were started and 500 rolls are reworked Reworked cost is 60% material and 50% direct labor 7 Spoiled goods 550 rolls 8 WIP at end 800 rolls 80% material and 40% direct labor 9 Direct material cost incured 72085 and direct labor 11718 10 FOH 3.5 per direct labor cost 11 Actual FOH is 34110 (excluding reworked cost)
Solution Unit in process (start) Add: Unit placed in production Total Add: Re-work units Total Less: WIP (at end) Less: Spoiled units Units finished during the period
1,000 5,650 6,650 500 7,150 (800) (550) 5,800
Total 5,800 rolls are completed during the year including 500 rolls reworked. Therefore 5,300 rolls are un-reworked rolls. (i.e 5,800 rolls - 500 rolls). These rolls are good output and the normal loss is calculated on these rolls.
Normal Loss (5,300 rolls x 10%)
530 rolls
Abnormal loss
20 rolls.
(550 rolls - 530 rolls)
Material Conversion 5,800 5,800 (500) (500) (1,000) (1,000) 4,300 4,300 300 250 400 640 320 5,240 5,270 530 530 20 20 5,790 5,820
Total units completed Less: Re-worked units Less: Units in process (at start) Units compeleted and transferred out add: Re-worked units - work this period add: units in process (at start) - work this period add: units in process (at end) - work this period TOTAL add: Normal loss - at the end of process add: Abnormal loss - at the end of process EQUIVALENT PRODUCTION UNITS Cost Material Labor Factory overhead
(350%)
72,085 11,718 41,013 124,816
Units
Rate 5,790 5,820 5,820
12.4499 2.0134 7.0469 21.5102
Req 2: Allocation of Cost to: a) Cost of good output (Excluding re-work cost) - 5,300 units: i) From Beginning Inventory (1,000 units): Cost incured till start of the period add: Cost incurred to complete 100%: Material (1,000 units x 0% x 12.4499) Labor (1,000 units x 40% x 2.0134) FoH (1,000 units x 40% x 7.0469)
(12000 DM + 4620 DL + 16170 FOH (4620 x
805.36 2,818.76
Total cost incurred to complete 100% -1,000 Units ii) From Current Production (4,300 units): (4,300 units x 100% x 21.5102) COST OF GOOD OUTPUT -5,300 UNITS b) Cost of Re-worked units (500 units) Material Labor FOH
(500 units x 60% x 12.4499) (500 units x 50% x 2.0134) (500 units x 50% x 7.0469) COST OF RE-WORKED
c) Cost of Losses: i) Cost of Normal Loss: (530 units x 100% x 21.5102) ii) Cost of Abnormal Loss: (20 units x 100% x 21.5102)
d) Cost of Work in Process (at end) Material Labor FOH
(800 units x 80% x 12.4499) (800 units x 40% x 2.0134) (800 units x 40% x 7.0469)
7,967.936 644.288 2,255.008 10,867
Process Account Units Bal b/d Reworked Started
1,000
Cost 32,790 Good Output
500 5,650
Material Labor FOH (Applied)
Units 5,300
128,908
Reworked
500
6,000
Normal Loss
530
11,400
20
430
800
10,867
7,150
157,605
72,085 Abnormal Loss 11,718 41,013 Bal c/d 7,150
157,606
Cost
Process Account Units Bal b/d Reworked Started
1,000
Cost
Units
32,790 Completed units
Cost
5,800
500
-
5,650
Material Labor FOH (Applied)
Normal Loss 72,085 Abnormal Loss 11,718 41,013 Bal c/d
7,150
146,308
157,606
530
-
20
430
800
10,867
7,150
157,605
4620 DL + 16170 FOH (4620 x 3.5) 32,790
3,624.12
36,414
92,494 128,908
3,737.97 503.35 1,761.72 6,000.0
11,400
430
Solution of Ex- 7 (Chapter 6) M&U Department B Units
Unit received
12,000
Rate
Cost
7.00
84,000 Output Normal loss
Cost incurred: Material Conversion
Abnormal Loss 18,000 45,600 Balance c/d 12,000
147,600 Department B
Units
Unit received
12,000
Rate
Cost
7.00
84,000 Output Normal loss
Cost incurred: Material Conversion
Abnormal Loss 18,000 45,600 Balance c/d 12,000
Units
Unit received
550
147,600
Rate
Abnormal Loss account Cost
11.00
550
Calculation of Equivalent Production Units:
6,050 P & L / FOH
6,050
Material Units completed and transferred out Add: Work in process (at end) - work this period Add: Normal Loss - due to inspection at end Add: Abnormal Loss - due to inspection at end EPU
9,000 9,000
Calculation of per unit cost: Cost 84,000
1. Per unit cost from Previous dept
Units 12,000
Material cost incurred:
18,000
9,000
Conversion cost incurred:
45,600
11,400
TOTAL PER UNIT COST Cost of Work in Process (at end) Inventory Cost
(2,000 units x 7)
Material cost
(2,000 units x 0% x 2)
Conversion cost (2,000 units x 70% x 4) Cost of Work in Process (at end)
14,000 5,600 19,600
Cost of Finished goods: Cost incurred (9,000 units x 100% x 13) COST OF FINISHED GOODS
B Units
Rate
Cost
9,000
13
117,000
450
11
4,950 Cost is assigned b/c inspection at end
550
11
6,050 Cost is assigned b/c inspection at end
2,000
19,600
12,000
147,600
B Units
Rate
9,000
Cost
13.55
121,950
11
6,050
450 550 2,000
19,600
12,000
147,600
count Units
Rate
550
550
Cost
11
6,050
6,050
D GOODS
Conversion 9,000 1,400 450 550 11,400
Rate 7.00
2.00 4.00 13.00
117,000 117,000
Solution of Pb 7-2 WEIGHTED AVERAGE METHOD Department A Units Rate Cost Balance b/f Input
3,000
2,647 Output - Transferred out - On hand
61,000
Cost incurred: Material Direct Labor FOH
Unit lost - Normal loss 12,481 16,273 Balance c/d 18,409 64,000
49,810
Calculation of Equivalent Production Units: Material Units completed and transferred out Units completed but not transferred, on hand Add: Units in process (at end) EPU
50,000 5,000 8,000 63,000
Calculation of per unit cost: Cost
Units
Material cost incurred: On work in process at start During current period Total material
749 12,481 EPU 13,230
63,000
Direct Labor used On work in process at start During current period Total Conversion
837 16,273 EPU 17,110
59,000
Conversion cost incurred: On work in process at start During current period Total Conversion
1,061 18,409 EPU 19,470
59,000
TOTAL PER UNIT COST
Cost of Work in Process (at end) Material cost
(8,000 units x 100% x 0.21)
1,680
Direct labor cost
(8,000 units x 50% x 0.29)
1,160
(8,000 units x 50% x 0.33) Cost of Work in Process (at end)
1,320 4,160
FOH
Cost of Finished goods: 1 Units completed and transferred out (50,000 units x 100% x 0.83) 2 Units completed and on hand (5,000 units x 100% x 0.83)
Note: Cost of Normal Loss - is added in Finished goods but in this units are lost at the start of process, therefore at start work done on it in respect of material, labor and FOH
Units Balance b/f Transferred in
Process Y account Cost
Rate
2,000 50,000
Cost incurred: Material Direct labor FOH
2,564 0.83
41,500 Output Unit lost -Normal loss 3,092 4,045 4,579 Balance c/d
52,000
55,780
Calculation of Equivalent Production Units: Material Units completed and transferred out Add: Units in process (at end) EPU
45,000 5,000 50,000
Calculation of per unit cost: Per unit cost from Process X: Units received from previous dept Cost incured on Work in process (at start) TOTAL
Cost
Units
41,500 1,600 43,100
50,000 2,000 52,000
Material cost incurred: On work in process at start During current period Total material
158 3,092 EPU 3,250
50,000
Direct labor On work in process at start During current period Total material
325 4,045 EPU 4,370
46,000
FOH incurred On work in process at start During current period Total Conversion
481 4,579 EPU 5,060
46,000
TOTAL PER UNIT COST Cost of Work in Process (at end) Inventory cost (5,000 units x 0.83)
4,150
Material cost
(5,000 units x 100% x 0.07)
350
Direct labor cost
(5,000 units x 20% x 0.10)
100
(5,000 units x 20% x 0.11) Cost of Work in Process (at end)
110 4,710
FOH Cost
Cost of Finished goods: (45,000 units x 100% x 1.10)
Units
Rate
50,000 5,000 1,000
9.13
Cost
45,650 -
8,000
4,160
64,000
49,810
Conversion 50,000 5,000 4,000 59,000
Rate
0.21
0.29
0.33 0.83
41,500
4,150 45,650
at the start
Units
Rate
45,000
1.10
Cost
49,500
2,000
5,000
4,710
52,000
54,210 1,570
Conversion 45,000 1,000 46,000
Rate
0.83
0.07
0.10
0.11 1.10
49,500
Input
Output
Ltrs
Ltrs
Normal Loss Ltrs
Abnormal Loss Ltrs
Abnormal gain Ltrs
1 No losses
12,000
12,000
-
-
-
2 Normal loss- no S.V
12,000
10,000 2,000 (1/6)
-
-
3 Abnormal loss - no S.V. 12,000
9,000 2,000 (1/6)
4 Normal loss - with SV 12,000
10,000 2,000 (1/6)
5 Abnormal loss - with SV 12,000
9,000 2,000 (1/6)
6 Abnormal gain - no SV12,000
11,000 2,000 (1/6)
-
1,000
7 Abnormal gain - with SV 12,000
11,000 2,000 (1/6)
-
1,000
1,000
-
-
-
1,000
-
Required no.1 When No losses in the process Process Cost Account Units Rate Cost Input
12,000 12,000
10
Units
120,000 Output
12,000
120,000
12,000
Cost per unit = Cost of input / Nos. of output units (Expected output units) = Rs. 120,000 / 12,000 units = Rs. 10 per unit. Input cost includes cost of direct material and cost of conversion. In this there is no loss in units, therefore the cost of output is equal to cost of input.
Required no.2: When Normal loss in the process (With NO salvage value) Process Cost Account Units Rate Cost units Input
12,000
10
120,000 Output
10,000
Normal loss 12,000
120,000
2,000 12,000
Cost per unit = Cost of input / Nos. of Expected output units (excluding normal loss) = Rs. 120,000 / 10,000 units = Rs. 12 per unit. The normal loss is inherient in nature, and it occur under efficient operating condition and are unavoidable. Cost is not assigned to nos. of units lost (Normal). The cost of material loss (Normal) is transferred to nos. of expected goods output, which increases the per unit cost of finished goods. For Input: Work in process Debit Raw material Accured payrol FOH (Applied)
Credit Credit Credit
For Output Finished goods Work in process
Debit
No entry for normal loss because there is no value of normal loss units.
Required no.3: When Abnormal loss in the process (With NO salvage value) Process Cost Account units Rate Cost units Input
12,000
10
120,000 Output
12,000
9,000
Normal loss
2,000
Abnormal Loss
1,000
120,000
12,000
Cost per unit = Cost of input / Nos. of Expected output units (including abnormal loss) = Rs. 120,000 / 10,000 units = Rs. 12 per unit. Units Process cost account
Rate
1,000 1,000
1 2 3 4
Abnormal loss Account Cost 12
Units
12,000 Profit and loss a/c
1,000
12,000
1,000
These losses are not an inherent in nature and that is why it is called abnormal or controllable loss. It will be excluded from the process account having a value equal to the value of goods output. It is treated as a periodic cost and written off in the profit statement at the end of accounting year. Cost of abnormal loss in not included in cost of ending inventory, if any. For Input Same entry For Output Same entry
For Abnormal Loss: a) Transferred from Process account to Abnormal loss account Abnormal loss account Process cost account b) Transferred to Profit and loss account:
Debit
Profit and loss account Abnormal loss account
Debit
For normal loss: No entry will be made
Required no.4: When Normal loss in the process (With salvage value)
Units Input
12,000
Process Cost Account Cost
Rate 10
120,000 Output
Units 10,000
Normal loss (salvage value) 12,000
120,000
2,000
12,000
Cost per unit = (Cost of input - Salvage value of normal loss) / Nos. of Expected output units = [Rs. 120,000 - 10,000 (2,000 units x Rs. 5)] / 10,000 units = Rs. 11 per unit.
Units Process cost account
2,000
2,000
Accounting Entries: 1) For Input: Same entry
Spoiled goods (Normal loss) Account Rate Cost Units 5
10,000 Cash
2,000
10,000
2,000
2) For Output: Same entry
3) For Normal Loss - Salvage value: a) Recording of normal loss with salvage value: Spoiled goods (Normal10,000 loss) Process account
10,000
b) Sale of normal loss Cash 10,000 Spoiled goods (Normal loss)
10,000
1 The salvage value of normal loss, if any, will reduce the process cost. 2 The salvage value of normal loss will be excluded from process cost account, and open a new account of spoi goods and transferred that salvage value in it. This procedure will be made regularly and when the spoiled goo are in large quantity then it will be sold for cash. In this case there may be gain or loss on sale of spoiled goods if it is not sold simulteneously, which will be transferred to Profit and loss account. 3 The cost value on normal loss is not assigned because it is transferred to good output. The Salvage value of normal loss is assigned, which reduces the process cost.
Required no.5: Abnormal loss with Salvage value a) Calculate the salvage value of normal loss Salvage value of normal loss = Nos. of units lost x scrape value 2,000 units x Rs. 5 Rs. 10,000
b) Calculate cost per unit Cost per unit = (Cost of input - Salvage value of normal loss) / Nos. of Expected output units incl. abnorma = Rs. 120,000 - Rs. 10,000 / 10,000 units = Rs. 11 per unit c)
Cost of Abnormal loss = units of abnormal loss x cost per unit = 1,000 units x 11
= Rs. 11,000
Units Input
Process Cost Account Cost
Rate
12,000
10
Units
120,000 Output
9,000
Normal loss (salvage value)
Abnormal loss 1,000 (cost of abnormal loss) 120,000 12,000
12,000
Units Process cost account
1,000
1,000
Units Process cost account
2,000
Abnormal loss Account Cost
Rate 11
Units
11,000 Cash Profit & loss account
1,000
11,000
1,000
Spoiled goods (Normal loss) Account Rate Cost Units
2,000
10,000 Cash
2,000
2,000
10,000
2,000
NORMAL LOSS: 1 In Process account, there is no cost value of normal loss because the cost of normal loss is transferred to Goods output. 2 In Process account, there is a Salvage of normal loss because this value will be recovered from sale of normal loss which reduces the process cost account. ABNORMAL LOSS: 3 In Process account, there is a Cost value of abnormal loss is taken, which is equal to cost of output 4 Separate Abnormal loss account will be prepared, taking cost value from process and cash value will be credited. The balance is called Loss on sale of abnormal loss which will be transferred to Profit and loss account 5 Separate Normal loss (Spoiled goods) account will be prepared in same manner.
ENTRIES For Input and Output: Same entries For transfer of goods to Spoiled goods (Normal Loss) Spoiled goods Debit Process account
Credit
On Sale of spoiled goods: Cash Profit & Loss a/c Profit & Loss a/c Spoiled goods
Gain / loss can be happened in spo For transfer of goods to Abnormal Loss: Abnormal loss account Debit Process account
On Sale of Abnormal Loss unit Cash Profit & Loss a/c Abnormal Loss
Credit
Only loss will be happened in sale loss units b/c salvage value is less
Required no.6: Abnormal Gain with NO Salvage value a) Calculate the cost per unit Cost per unit = Cost of input / Nos. of expected output units (input units - normal loss unit). = Rs. 120,000 / 10,000 units = Rs. 12 b) Calculate the cost of abnormal gain unit: Cost of abnormal gain units = 1,000 units x Rs. 12 = Rs. 12,000 c)
Prepare Process cost account:
Input Abnormal Gain
Process Cost Account Units Rate Cost 12,000 10 120,000 Output 1,000 13,000
12
12,000 Normal loss 132,000
Units 11,000 2,000 13,000
Abnormal Gain Account Cost 12,000 Process account
Units Rate Profit & loss account 1,000 1,000
Units 1,000
12,000
1,000
1 Cost of abnormal gain is also equal to cost of output. 2 Cost of abnormal gain is transferred to Profit and loss as a gain, if no salvage value. Accounting Entries Process account Abnormal Gain
12,000 12,000
Abnormal gain Profit & loss
12,000 12,000
Required no.7: Abnormal Gain with Salvage value a) Salvage value of normal loss: Salvage value of normal loss = Nos. of normal loss unit x salvage value per unit = 2,000 units x Rs 5 = Rs 10,000 b) Cost per unit: Cost per unit = (Cost of input - Salvage value of normal loss) / Nos. of Expected output units = Rs. 120,000 - 10,000 / 10,000 units = Rs. 110,000 / 10,000 units = Rs. 11 c) Process Cost Account Units Rate Cost Units Input Abnormal Gain
12,000
10
1,000
11
13,000
units
120,000 Output
11,000
11,000 Normal loss 131,000 Abnormal Gain Account Cost
2,000 13,000
units
P&L account
1,000
11
1,000
2,000
1,000
11,000
1,000
Normal Loss Account Cost
units Process Account
11,000 Process account
5
2,000
units
10,000 Cash P&L Account
1,000 1,000
10,000
2,000
P&L Account units Normal Loss
1,000
Net Profit
Cost
units 5,000 Abnormal Gain
1,000
6,000 11,000
Accounting Entries Process account 11,000 Abnormal Gain
11,000
Abnormal gain 11,000 Profit & loss Spoiled goods
6,000 5,000
Spoiled goods (Normal10,000 loss) Process account
10,000
b) Sale of normal loss Cash 5,000 Abnormal gain 5,000 Spoiled goods (Normal loss)
10,000
1,000
1,000
Scrap value of spoiled output/ unit 5 5 5
Rate
Cost 10
is there is no loss in
120,000 120,000
Rate
Cost 12
120,000 120,000
g normal loss)
condition and are
ods output, which
Credit
se there is no value of
Rate
Cost
12.00
108,000 -
12
12,000 120,000
abnormal loss)
Rate
Cost 12
12,000 12,000
mal or controllable loss. lue of goods output. d of accounting year.
loss account
Credit
Credit
Rate
Cost 11
110,000
5
10,000
120,000
Expected output units
Rate
Cost 5
10,000
10,000
t, and open a new account of spoiled egularly and when the spoiled goods
d simulteneously, which will be
ected output units incl. abnormal lost unit
Rate
Cost 11
99,000
5
10,000
11
11,000 120,000
Rate
Cost 5
5,000 6,000 11,000
Rate
Cost 10,000
10,000
f normal loss is transferred to
l be recovered from sale
equal to cost of output
ocess and cash value will e transferred to
On Sale of spoiled goods:
Profit & Loss a/c Profit & Loss a/c Spoiled goods
(Loss) (Gain)
Debit Debit Credit Credit
Gain / loss can be happened in spoiled goods
On Sale of Abnormal Loss unit
Profit & Loss a/c Abnormal Loss
(Loss)
Debit Debit Credit
Only loss will be happened in sale of abnormal oss units b/c salvage value is less cost value
rmal loss unit).
Rate
Cost 12 132,000 132,000
Rate
Cost 12,000 12,000
salvage value.
Expected output units
Rate
Cost 11
121,000
5
10,000 131,000
Cost
11
11,000
11,000
Cost 5
5,000 5,000 10,000
Cost 11
11,000
11,000
Solution of Example no. 5.2 on Page # 142 Units Input
Rate
Process A account Cost
14,000
Units
Output
Cost incurred: Material Conversion
10,000
210,000 144,000 Balance c/d 14,000
354,000
4,000 14,000
FOR PROCESS A: Calculation of cost of work in process at end and cost of output: 2 Cost of Work in Process (at end): Nos of units in process (at end) Stage of completion
4,000 50% Conversion
Material cost: (4,000 units x 100% x 15) Conversion cost: (4,000 units x 50% x 12) COST OF WORK IN PROCESS
1 Equivalent Production units:
3 Cost of Finished goods:
Material Units completed add: WIP (at end) - 50% EPU Cost incurred Per unit cost
60,000 24,000 84,000
Conversion
10,000 4,000 14,000
10,000 2,000 12,000
210,000
144,000
15.00
12.00
Cost of finished goods: (10,000 units x 100% x 27)
Units Units received
10,000
Rate
Process B account Cost 27
Cost incurred: Material Conversion
10,000
Units
270,000 Output
9,000
108,000 171,000 Balance c/d
1,000
549,000
10,000
FOR PROCESS B: Calculation of cost of work in process at end and cost of output: 3 Cost of Work in Process: Nos of units in process (at end) Stage of completion
1,000 50% conversion
Inventory cost (1,000 units x 27) Material cost: (1,000 units x 0% x 12) Conversion cost: (1,000 units x 50% x 18) COST OF WORK IN PROCESS
1 Equivalent Production units:
4 Cost of Finished goods:
Material Units completed add: WIP (at end) - 50% EPU
27,000 9,000 36,000
9,000 9,000
Conversion
Cost of finished goods: (9,000 units x 100% x 57)
9,000 500 9,500
2 Per unit cost: Cost received from Process A
Cost Units Rate 270,000 10,000
27
Cost incured in Process B Material Conversion
108,000 171,000 549,000
9,000 9,500
12 18 57
Rate
Cost 27
270,000
84,000 354,000
270,000
Rate
Cost 57
513,000
36,000
549,000
513,000
Solution of Example 5.3:
Balance b/f Input
WEIGHTED AVERAGE METHOD Process X account Units Rate Cost 6,000
Units
117,900
16,000
Output
Cost incurred: Material Conversion
18,000
192,000 225,000 Balance c/d
22,000
534,900
4,000
22,000
Calculation of Equivalent Production Units: Material Units completed and transferred out Add: Units in process (at end) EPU
Conversion 18,000 4,000 22,000
18,000 3,000 21,000
Calculation of per unit cost: Cost
Units
Rate
Material cost incurred: On work in process at start During current period Total material
72,000 192,000 EPU 264,000
22,000
12.00
Conversion cost incurred: On work in process at start During current period Total Conversion
45,900 225,000 EPU 270,900
21,000
12.90
TOTAL PER UNIT COST
24.90
Cost of Work in Process (at end) Material cost
(4,000 units x 100% x 12)
48,000
Conversion cost (4,000 units x 3/4 x12.90) Cost of Work in Process (at end)
38,700 86,700
Cost of Finished goods: Cost of finished goods (18,000 units x 100% x 24.90)
Units Balance b/f Transferred in
Process Y account Cost
Rate
2,000 18,000
448,200
Units
142,200 24.90
Cost incurred: Material Conversion
448,200 Output
12,000
60,000 259,200 Balance c/d 20,000
909,600
8,000 20,000
Calculation of Equivalent Production Units: Material Units completed and transferred out Add: Units in process (at end) EPU
Conversion 12,000 12,000 4,000 12,000 16,000
Calculation of per unit cost: Per unit cost from Process X: Units received from previous dept Cost incured on Work in process (at start) TOTAL Material cost incurred: On work in process at start During current period Total material
Cost
Units
Rate
448,200 91,800 540,000
18,000 2,000 20,000
27.00
12,000 60,000 EPU 72,000
12,000
6.00
Conversion cost incurred: On work in process at start During current period Total Conversion
38,400 259,200 EPU 297,600
16,000
TOTAL PER UNIT COST Cost of Work in Process (at end) Inventory cost (8,000 units x 27) Material cost
(8,000 units x 0% x 6)
Conversion cost (8,000 units x 1/2 x 18.6) Cost of Work in Process (at end) Cost of Finished goods: Cost of finished goods (12,000 units x 100% x 51.60)
18.60 51.60
216,000 74,400 290,400
619,200
Rate
24.90
Cost
448,200
86,700
534,900
Rate
51.60
Cost
619,200
290,400 909,600
Solution of Example 5.3:
Balance b/f Input
FIFO
Units Rate 6,000
Process X account Cost 117,900
16,000
Units
Output
Cost incurred: Material Conversion
18,000
192,000 225,000 Balance c/d 22,000
534,900
4,000 22,000
Calculation of Equivalent Production Units: Material Units completed and transferred out Less: Work in Process (at start) Units started and completed during the period Add: Work in process (at start) - work this period Add: Work in process (at end) - work this period EPU
18,000 (6,000) 12,000 4,000 16,000
Conversion 18,000 (6,000) 12,000 2,400 3,000 17,400
Calculation of per unit cost: Material cost incurred:
Cost 192,000
Units 16,000
Rate 12.00
Conversion cost incurred:
225,000
17,400
12.93
TOTAL PER UNIT COST
24.931
Cost of Work in Process (at end) Material cost (4,000 units x 100% x 12)
48,000
Conversion cost (4,000 units x 3/4 x12.90) Cost of Work in Process (at end)
38,793 86,793
Cost of Finished goods: a) From beginning inventory (6,000 units) Cost incured till start upto 60% processed add: Further cost incurred to complete 100%: Material (6,000 units x 0% x 12) Conversion (6,000 units x 40% x 12.93)
117,900 31,032
31,032
FROM BEGINNING INVENTORY - 6,000 units b) From Current Production (12,000 units) Cost incurred (12,000 units x 100% x 24.93) COST OF FINISHED GOODS
Units Balance b/f Transferred in
Process Y account Cost
Rate
2,000 18,000
Units
142,200 24.89
Cost incurred: Material Conversion
448,107 Output
12,000
60,000 259,200 Balance c/d
20,000
909,507
8,000
20,000
Calculation of Equivalent Production Units: Material Units completed and transferred out Less: Work in Process (at start) Units started and completed during the period Add: Work in process (at start) - work this period Add: Work in process (at end) - work this period EPU
Conversion 12,000 (2,000) 10,000 10,000
12,000 (2,000) 10,000 400 4,000 14,400
Calculation of per unit cost: Cost
Units
Rate
Per unit cost from Process X: Cost transferred in Material cost incurred: During current period Conversion cost incurred: During current period
448,107
18,000
24.89
60,000
10,000
6.00
259,200
14,400
18.00
TOTAL PER UNIT COST
48.89
Cost of Work in Process (at end) Inventory cost
(8,000 units x 24.89)
Material cost
(8,000 units x 0% x 6)
Conversion cost (8,000 units x 1/2 x 18) Cost of Work in Process (at end)
199,120 72,000 271,120
Cost of Finished goods: a) From beginning inventory (2,000 units) Cost incured till start of the period add: Further cost incured to complete 100%: Material cost (2,000 units x 0% x 6) Conversion cost (2,000 units x 20% x 18) 7,200 Total cost incured on 2,000 units
142,200
b) From current Production (10,000 units) Cost incurred (10,000 units x 100% x 48.89) TOTAL COST OF FINISHED GOODS
7,200 149,400
488,900 638,300
Rate
24.931
Cost
448,107
86,793 534,900
148,932
299,160 448,107
Rate
53.20
Cost
638,387
271,120
909,507
WIP (at start) Nil Units put into process units completed WIP (at end) - 50% completed units lost (normall) lost at end Material cost Conversion cost
1,000 600 300 100 5,000 3,400
Units Balance b/f Input
Rate
Process account Cost
-
Units
-
1,000
Cost incurred: Material Conversion
1,000
Output
600
Normal loss
100
5,000 3,400 Balance c/d
300
8,400
1,000
Calculation of Equivalent Production Units: Material Units completed and transferred out Add: Work in process (at end) - work this period Add: Unit lost EPU Calculation of per unit cost: Cost 5,000
Material cost incurred: Conversion cost incurred:
3,400 TOTAL PER UNIT COST
Cost of Work in Process (at end) Material cost (300 units x 100% x 5) Conversion cost (300 units x 50% x 4) Cost of Work in Process (at end) Cost of Finished goods:
Conversion 600 600 300 100 1,000
150 100 850
Units 1,000
Rate 5.00
850
4.00 9.00
1,500 600 2,100
From Current Production (600 units) Cost incurred (600 units x 100% x 9) Add: Cost of normal loss
(100 units x 9) COST OF FINISHED GOODS
Short Cut Approach: - Unit lost (Normal) is NOT taken in EPU:
Units Balance b/f Input
Rate
Process account Cost
-
Units
-
1,000
Cost incurred: Material Conversion
1,000
Output
600
Normal loss
100
5,000 3,400 Balance c/d
300
8,400
1,000
Calculation of Equivalent Production Units: Material
Conversion 600 600
Units completed and transferred out Add: Work in process (at end) - work this period EPU Calculation of per unit cost: Material cost incurred: Conversion cost incurred:
Cost 5,000 3,400 TOTAL PER UNIT COST
Cost of Work in Process (at end) Material cost (300 units x 100% x 5.56) Conversion cost (300 units x 50% x 4) Cost of Work in Process (at end) Cost of Finished goods:
300 900
150 750
900
Rate 5.56
Units
750
1,668 681 2,349
4.53 10.09
From Current Production (600 units) Cost incurred (600 units x 100% x 1.09) COST OF FINISHED GOODS
CASE I Input 1000 units are processed upto 50% which is the inspection point. At this level 100 are declared as a loss and the expected good output become 900 units. Therefore the cost of normal loss which is 712.50 is transfer to 900 units. At the end of month out of 900 expected good output is converted in to 600 finished good and 300 w.i.p
Calculation of Equivalent Production Units: Material Units completed and transferred out Add: Work in process (at end) - work this period Add: Unit lost EPU
Conversion 600 300 100 1,000
600 150 50 800
Units 1,000 800
Rate 5.00 4.25 9.25
Calculation of per unit cost: Material cost incurred: Conversion cost incurred:
Cost 5,000 3,400 TOTAL PER UNIT COST
Cost of normal loss: Cost of material (100 units x 100% x 5) Cost of conversion (100 units 50% x 4.25)
500 212.50 712.50
Cost of normal loss on good units (per unit) Cost of normal loss / Expected good output 712.50 0.7917 900 WIP (at end) = 300 units x 0.79 = Finished goods =600 units x 0.79 =
Calculation of Cost of Finished goods 600 units x 9.25
237.50 475.00 712.50
5,550
Add: Share of normal loss
475 6,025
Cost of Ending WIP: Material cost (300 units x 100% x 5) Conversion cost (300 units x 50% x 4.25) Add: Share of normal loss Cost of Work in Process (at end)
Units Balance b/f Input
1,000
Cost incurred: Material Conversion
Rate
1,500 638 238 2,375
Process account Cost Output Normal loss 5,000 3,400 Balance c/d
1,000
8,400
Units 600 100 300 1,000
Rate
Cost
10.50
6,300
2,100
8,400
5,400 900 6,300
Rate
Cost
10.09
6,054
2,349
8,403
6,054 6,054
are declared as a which is 712.50 is transfer finished good and
Rate
Cost
10.04
6,025
2,375 8,400
Solution of 5 A -2 WIP (at start) Nil Units put into process units completed WIP (at end) - 20% completed Normal loss Abnormal loss lost at end Material cost Conversion cost
1,000 600 250 100 50 8,000 4,000
Units Balance b/f Input
Process account Cost
Rate -
-
1,000
Cost incurred: Material Conversion
Output
600
Normal loss
100
Abnormal loss
50
8,000 4,000 Balance c/d
1,000
Units Process account
Units
250
12,000
Rate
1,000
Abnormal loss account Cost
Units
50
13
650 P & L
50
50
13
650
50
Calculation of Equivalent Production Units: Material
Conversion
Units completed and transferred out Add: Work in process (at end) - work this period Add: Abnormal loss Add: Unit lost EPU
600 250 50 100 1,000
600 50 50 100 800
Units 1,000
Rate 8.00
800
5.00 13.00
Calculation of per unit cost: Cost 8,000
Material cost incurred: Conversion cost incurred:
4,000 TOTAL PER UNIT COST
Cost of Work in Process (at end) Material cost (250 units x 100% x 8)
2,000
Conversion cost (250 units x 20% x 5) Cost of Work in Process (at end) Cost of Finished goods: From Current Production (600 units) Cost incurred (600 units x 100% x 13) Add: Cost of normal loss
Cost of Abnormal Loss: 50 units x 13
250 2,250
(100 units x 13) COST OF FINISHED GOODS
650
Allocation of Cost of normal loss to Output and on abnormal loss (Expected good Output) - as per Exampl
When the amount of normal loss is significant, then the cost is transferred to expected good output(Finished + Abn
Units Balance b/f
Rate -
Process account Cost -
Output
Units 600
Input
1,000
Normal loss
Cost incurred: Material Conversion
100
Abnormal loss
50
8,000 4,000 Balance c/d
1,000
Units Process account
250
12,000
Rate
1,000
Abnormal loss account Cost
Units
50
15
750 P & L
50
50
15
750
50
Calculation of Equivalent Production Units: Material
Conversion
Units completed and transferred out
600
600
Add: Work in process (at end) - work this period
250
50
50
50
100 1,000
100 800
Add: Abnormal loss Add: Unit lost EPU Calculation of per unit cost: Cost
Units
Rate
Material cost incurred:
8,000
1,000
8.00
Conversion cost incurred:
4,000
800
5.00
TOTAL PER UNIT COST
13.00
Cost of Work in Process (at end) Material cost
(250 units x 100% x 8)
2,000
Conversion cost (250 units x 20% x 5) Cost of Work in Process (at end)
250 2,250
Cost of normal loss per unit: Amount of normal loss Expected good output
1,300 650
2.00
Cost of normal charged to Finished goods
(600 units x 2)
Cost of normal loss charged to abnormal loss
(50 units x 2)
Cost of Finished goods: From Current Production (600 units) Cost incurred (600 units x 100% x 13) Add: Cost of normal loss COST OF FINISHED GOODS
1,200 100
CASE I
Input 1000 units are processed upto 50% which is the inspection point. At this level 100 are declared as a loss and the expected good output become 900 units. Therefore the cost of normal loss which is 712.50 is transfer to 900 units. At the end of month out of 900 expected good output is converted in to 600 finished good and 300 w.i.p
Calculation of Equivalent Production Units: Material Units completed and transferred out Add: Work in process (at end) - work this period Add: Unit lost EPU
Conversion 600 300 100 1,000
600 150 50 800
Units 1,000 800
Rate 5.00 4.25 9.25
Calculation of per unit cost: Material cost incurred: Conversion cost incurred:
Cost 5,000 3,400 TOTAL PER UNIT COST
Cost of normal loss: Cost of material (100 units x 100% x 5) Cost of conversion (100 units 50% x 4.25)
500 212.50 712.50
Cost of normal loss on good units (per unit) Cost of normal loss / Expected good output 712.50 0.7917 900 WIP (at end) = 300 units x 0.79 = Finished goods =600 units x 0.79 =
237.50 475.00 712.50
Calculation of Cost of Finished goods 600 units x 9.25 Add: Share of normal loss
Cost of Ending WIP:
5,550 475 6,025
Material cost
(300 units x 100% x 5)
Conversion cost
(300 units x 50% x 4.25)
1,500 638
Add: Share of normal loss
238
Cost of Work in Process (at end)
Units Balance b/f Input
Rate -
2,375
Process account Cost -
1,000
Cost incurred: Material Conversion
1,000
Units
Output
600
Normal loss
100
5,000 3,400 Balance c/d
300
8,400
1,000
Rate
Cost
15.17
9,100
-
-
13.00
650 2,250
12,000
Rate
Cost 13
650
13
650
7,800 1,300 9,100
Output) - as per Example 5.1
ood output(Finished + Abnormal)
Rate 15.00
Cost 9,000
-
-
15.00
750 2,250
12,000
Rate
Cost 15
750
15
750
7,800 1,200 9,000
are declared as a which is 712.50 is transfer finished good and
Rate
Cost
10.04
6,025
2,375
8,400
Pb 5.27 (5th edition) & 5.35 (6th Edition) 1 At specific level material is added whereas conversion is added uniformly. 2 Inspection at the end of process 3 upto 10% of good output is consider to be normal loss. 4 Reworked- 500 rolls 5 Rework cost is charged to Process overhead. (FIFO) 6 Dyeing dept 1000 units ( Rs. 12000 D/M and 4620 direct labor) all material added and 60% D/L is incured During the month 5650 rolls were started and 500 rolls are reworked Reworked cost is 60% material and 50% direct labor 7 Spoiled goods 550 rolls 8 WIP at end 800 rolls 80% material and 40% direct labor 9 Direct material cost incured 72085 and direct labor 11718 10 FOH 3.5 per direct labor cost 11 Actual FOH is 34110 (excluding reworked cost)
Solution Unit in process (start) Add: Unit placed in production Total Add: Re-work units Total Less: WIP (at end) Less: Spoiled units Units finished during the period
1,000 5,650 6,650 500 7,150 (800) (550) 5,800
Total 5,800 rolls are completed during the year including 500 rolls reworked. Therefore 5,300 rolls are un-reworked rolls. (i.e 5,800 rolls - 500 rolls). These rolls are good output and the normal loss is calculated on these rolls.
Normal Loss (5,300 rolls x 10%)
530 rolls
Abnormal loss
20 rolls.
(550 rolls - 530 rolls)
Material Conversion 5,800 5,800 (500) (500) (1,000) (1,000) 4,300 4,300 300 250 400 640 320 5,240 5,270 530 530 20 20 5,790 5,820
Total units completed Less: Re-worked units Less: Units in process (at start) Units compeleted and transferred out add: Re-worked units - work this period add: units in process (at start) - work this period add: units in process (at end) - work this period TOTAL add: Normal loss - at the end of process add: Abnormal loss - at the end of process EQUIVALENT PRODUCTION UNITS Cost Material Labor Factory overhead
(350%)
72,085 11,718 41,013 124,816
Units
Rate 5,790 5,820 5,820
12.4499 2.0134 7.0469 21.5102
Req 2: Allocation of Cost to: a) Cost of good output (Excluding re-work cost) - 5,300 units: i) From Beginning Inventory (1,000 units): Cost incured till start of the period add: Cost incurred to complete 100%: Material (1,000 units x 0% x 12.4499) Labor (1,000 units x 40% x 2.0134) FoH (1,000 units x 40% x 7.0469)
(12000 DM + 4620 DL + 16170 FOH (4620 x
805.36 2,818.76
Total cost incurred to complete 100% -1,000 Units ii) From Current Production (4,300 units): (4,300 units x 100% x 21.5102) COST OF GOOD OUTPUT -5,300 UNITS b) Cost of Re-worked units (500 units) Material Labor FOH
(500 units x 60% x 12.4499) (500 units x 50% x 2.0134) (500 units x 50% x 7.0469) COST OF RE-WORKED
c) Cost of Losses: i) Cost of Normal Loss: (530 units x 100% x 21.5102) ii) Cost of Abnormal Loss: (20 units x 100% x 21.5102)
d) Cost of Work in Process (at end) Material Labor FOH
(800 units x 80% x 12.4499) (800 units x 40% x 2.0134) (800 units x 40% x 7.0469)
7,967.936 644.288 2,255.008 10,867
Process Account Units Bal b/d Reworked Started
1,000
Cost 32,790 Good Output
500 5,650
Material Labor FOH (Applied)
Units 5,300
128,908
Reworked
500
6,000
Normal Loss
530
11,400
20
430
800
10,867
7,150
157,605
72,085 Abnormal Loss 11,718 41,013 Bal c/d 7,150
157,606
Cost
Process Account Units Bal b/d Reworked Started
1,000
Cost
Units
32,790 Completed units
Cost
5,800
500
-
5,650
Material Labor FOH (Applied)
Normal Loss 72,085 Abnormal Loss 11,718 41,013 Bal c/d
7,150
146,308
157,606
530
-
20
430
800
10,867
7,150
157,605
4620 DL + 16170 FOH (4620 x 3.5) 32,790
3,624.12
36,414
92,494 128,908
3,737.97 503.35 1,761.72 6,000.0
11,400
430
Solution of Ex- 7 (Chapter 6) M&U Department B Units
Unit received
12,000
Rate
Cost
7.00
84,000 Output Normal loss
Cost incurred: Material Conversion
Abnormal Loss 18,000 45,600 Balance c/d 12,000
147,600 Department B
Units
Unit received
12,000
Rate
Cost
7.00
84,000 Output Normal loss
Cost incurred: Material Conversion
Abnormal Loss 18,000 45,600 Balance c/d 12,000
Units
Unit received
550
147,600
Rate
Abnormal Loss account Cost
11.00
550
Calculation of Equivalent Production Units:
6,050 P & L / FOH
6,050
Material Units completed and transferred out Add: Work in process (at end) - work this period Add: Normal Loss - due to inspection at end Add: Abnormal Loss - due to inspection at end EPU
9,000 9,000
Calculation of per unit cost: Cost 84,000
1. Per unit cost from Previous dept
Units 12,000
Material cost incurred:
18,000
9,000
Conversion cost incurred:
45,600
11,400
TOTAL PER UNIT COST Cost of Work in Process (at end) Inventory Cost
(2,000 units x 7)
Material cost
(2,000 units x 0% x 2)
Conversion cost (2,000 units x 70% x 4) Cost of Work in Process (at end)
14,000 5,600 19,600
Cost of Finished goods: Cost incurred (9,000 units x 100% x 13) COST OF FINISHED GOODS
B Units
Rate
Cost
9,000
13
117,000
450
11
4,950 Cost is assigned b/c inspection at end
550
11
6,050 Cost is assigned b/c inspection at end
2,000
19,600
12,000
147,600
B Units
Rate
9,000
Cost
13.55
121,950
11
6,050
450 550 2,000
19,600
12,000
147,600
count Units
Rate
550
550
Cost
11
6,050
6,050
D GOODS
Conversion 9,000 1,400 450 550 11,400
Rate 7.00
2.00 4.00 13.00
117,000 117,000
Solution of Pb 7-2 WEIGHTED AVERAGE METHOD Department A Units Rate Cost Balance b/f Input
3,000
2,647 Output - Transferred out - On hand
61,000
Cost incurred: Material Direct Labor FOH
Unit lost - Normal loss 12,481 16,273 Balance c/d 18,409 64,000
49,810
Calculation of Equivalent Production Units: Material Units completed and transferred out Units completed but not transferred, on hand Add: Units in process (at end) EPU
50,000 5,000 8,000 63,000
Calculation of per unit cost: Cost
Units
Material cost incurred: On work in process at start During current period Total material
749 12,481 EPU 13,230
63,000
Direct Labor used On work in process at start During current period Total Conversion
837 16,273 EPU 17,110
59,000
Conversion cost incurred: On work in process at start During current period Total Conversion
1,061 18,409 EPU 19,470
59,000
TOTAL PER UNIT COST
Cost of Work in Process (at end) Material cost
(8,000 units x 100% x 0.21)
1,680
Direct labor cost
(8,000 units x 50% x 0.29)
1,160
(8,000 units x 50% x 0.33) Cost of Work in Process (at end)
1,320 4,160
FOH
Cost of Finished goods: 1 Units completed and transferred out (50,000 units x 100% x 0.83) 2 Units completed and on hand (5,000 units x 100% x 0.83)
Note: Cost of Normal Loss - is added in Finished goods but in this units are lost at the start of process, therefore at start work done on it in respect of material, labor and FOH
Units Balance b/f Transferred in
Process Y account Cost
Rate
2,000 50,000
Cost incurred: Material Direct labor FOH
2,564 0.83
41,500 Output Unit lost -Normal loss 3,092 4,045 4,579 Balance c/d
52,000
55,780
Calculation of Equivalent Production Units: Material Units completed and transferred out Add: Units in process (at end) EPU
45,000 5,000 50,000
Calculation of per unit cost: Per unit cost from Process X: Units received from previous dept Cost incured on Work in process (at start) TOTAL
Cost
Units
41,500 1,600 43,100
50,000 2,000 52,000
Material cost incurred: On work in process at start During current period Total material
158 3,092 EPU 3,250
50,000
Direct labor On work in process at start During current period Total material
325 4,045 EPU 4,370
46,000
FOH incurred On work in process at start During current period Total Conversion
481 4,579 EPU 5,060
46,000
TOTAL PER UNIT COST Cost of Work in Process (at end) Inventory cost (5,000 units x 0.83)
4,150
Material cost
(5,000 units x 100% x 0.07)
350
Direct labor cost
(5,000 units x 20% x 0.10)
100
(5,000 units x 20% x 0.11) Cost of Work in Process (at end)
110 4,710
FOH Cost
Cost of Finished goods: (45,000 units x 100% x 1.10)
Units
Rate
50,000 5,000 1,000
9.13
Cost
45,650 -
8,000
4,160
64,000
49,810
Conversion 50,000 5,000 4,000 59,000
Rate
0.21
0.29
0.33 0.83
41,500
4,150 45,650
at the start
Units
Rate
45,000
1.10
Cost
49,500
2,000
5,000
4,710
52,000
54,210 1,570
Conversion 45,000 1,000 46,000
Rate
0.83
0.07
0.10
0.11 1.10
49,500
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