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Collin, Chapter # 5, Example # 5.1, Page # 156 Case
Particular
Input
Output
Ltrs
Ltrs
Normal Loss Ltrs
Abnormal Loss 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 SV
12,000
11,000 2,000 (1/6)
-
7 Abnormal gain - with SV
12,000
11,000 2,000 (1/6)
-
1,000 1,000
Required no.1 When No losses in the process Process Cost Account Units Rate Input
12,000 12,000
Cost 10
120,000 Output 120,000
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 Input
12,000
Cost 10
120,000 Output Normal loss
12,000
120,000
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. 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 Raw material Accured payrol FOH (Applied)
For Output Finished goods Work in process
Debit Credit Credit Credit
No entry for normal loss because there is no val normal loss units.
Required no.3: When Abnormal loss in the process (With NO salvage value) Process Cost Account units Rate Cost Input
12,000
10
120,000 Output Normal loss
Abnormal Loss 12,000
120,000
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
Abnormal loss Account Cost 12
1,000 1 2 3 4
12,000 Profit and loss a/c 12,000
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 Abnormal Loss: a) Transferred from Process account to Abnormal loss account
For Output Same entry
Abnormal loss account Process cost account b) Transferred to Profit and loss account: Profit and loss account Abnormal loss account For normal loss: No entry will be made
Required no.4: When Normal loss in the process (With salvage value)
Units
Rate
Process Cost Account Cost
Input
12,000
10
120,000 Output Normal loss (salvage value)
12,000
120,000
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
Spoiled goods (Normal loss) Account Rate Cost
2,000
2,000
Accounting Entries: 1) For Input: Same entry
5
10,000 Cash
10,000
2) For Output: Same entry
3) For Normal Loss - Salvage value: a) Recording of normal loss with salvage value: Spoiled goods (Normal loss) 10,000 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 spoiled goods and transferred at salvage value in it. This procedure will be made regularly and when the spoiled goods 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 P &L Account.
3 Normal Loss - Cost is NOT assigned but Salvage Value assigned to it.
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) / Expected output units = 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
Rate
12,000
Process Cost Account Cost 10
120,000 Output Normal loss (salvage value) Abnormal loss (cost of abnormal loss)
12,000
Units
120,000
Rate
Abnormal loss Account Cost
Process cost account
1,000
11
11,000 Cash Profit & loss account
1,000
Units Process cost account
11,000
Spoiled goods (Normal loss) Account Rate Cost
2,000
10,000 Cash
2,000
10,000
NORMAL LOSS: 1 Cost is NOT Assigned but the Salvage value is Assigned to it in Process a/c
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 credited. The balance is called "Loss on sale of abnormal loss" which will be transferred to P& L account.
5 Separate Normal loss (Spoiled goods) account will be prepared in same manner. ENTRIES For Input and Output: Same entries 1 For transfer of goods to Spoiled goods (Normal Loss) Spoiled goods Process account 2 On Sale of spoiled goods: Cash Profit & Loss a/c Profit & Loss a/c Spoiled goods
Debit Credit
(Loss) (Gain)
Debit Debit Credit Credit
Gain / loss can be happened in spoiled goods 3 For transfer of goods to Abnormal Loss: Abnormal loss account Process account
Debit Credit
4 On Sale of Abnormal Loss unit Cash Profit & Loss a/c Abnormal Loss
Debit Debit
(Loss)
Credit
Only loss will be happened in sale of abnormal loss units b/c salvage value is less cost value
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: Units Input Abnormal Gain
12,000
10
1,000
12
13,000
units Profit & loss account
Rate
Process Cost Account Cost
1,000
120,000 Output 12,000 Normal loss 132,000
Abnormal Gain Account Cost 12,000 Process account
1,000
12,000
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. 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 Process Cost Account Units Rate Cost
c)
Input Abnormal Gain
12,000
10
1,000
11
13,000
Units
120,000 Output 11,000 Normal loss 131,000
Rate
Abnormal Gain Account Cost
Profit & Loss account
1,000
11,000 Process account
1,000
11,000
Units Process Account
Rate
2,000
Normal Loss Account Cost 5
2,000
Units
10,000 Cash Profit & Loss Account 10,000
Rate
Profit & Loss Account Cost
Normal Loss Net Profit
5,000 Abnormal Gain 6,000 11,000
Accounting Entries Process account Abnormal Gain
11,000 11,000
Abnormal gain Profit & loss
11,000
Spoiled Goods Profit & Loss Normal Loss
5,000 5,000
11,000
10,000
b) Sale of normal loss Cash
5,000 Spoiled Goods
5,000
Abnormal gain Ltrs
Scrap value of spoiled output/ unit
-
-
-
-
-
-
-
5
-
5
1,000
-
1,000
Units
5
Rate
12,000 12,000
In this there is no loss in
Cost 10
120,000 120,000
units
Rate
10,000
Cost 12
120,000
2,000
-
12,000
120,000
uding normal loss)
ting condition and are
ed goods output, which
Debit Credit
mal loss because there is no value on
nt units
Rate 9,000 2,000
Cost 12.00
108,000 -
1,000
12
12,000
12,000 120,000
ding abnormal loss)
nt Units
Rate 1,000
Cost 12
1,000
12,000 12,000
bnormal or controllable loss. he value of goods output. he end of accounting year.
o Abnormal loss account Debit Credit
Debit Credit
nt Units
Rate
Cost
10,000
11
110,000
2,000
5
10,000
alvage value) 12,000
120,000
. of Expected output units
Account Units
Rate 2,000
2,000
Cost 5
10,000
10,000
nt Units
Rate
Cost
9,000
11
99,000
2,000
5
10,000
1,000 ost of abnormal loss) 12,000
11
11,000
alvage value)
120,000
nt Units
Rate
Cost
1,000 ofit & loss account
5
1,000
5,000 6,000 11,000
Account Units
Rate
Cost
2,000
10,000
2,000
10,000
- normal loss unit).
nt Units
Rate
11,000
Cost 12
132,000
2,000 13,000
132,000
nt units
Cost 1,000
12,000
1,000
12,000
. of Expected output units
nt Units
Rate
Cost
11,000
11
121,000
2,000
5
10,000
13,000
131,000
nt Units
Rate
Cost
1,000
11,000
1,000
11,000
t Units
Rate
1,000 ofit & Loss Account
Cost 5
1,000
5,000 5,000 10,000
t Units
bnormal Gain
Rate
Cost 11,000
11,000
Solution of Example no. 5.2 on Page # 164 Units Input
Process A account Rate Cost
14,000
Output
Cost incurred: Material Conversion
210,000 144,000 Balance c/d
14,000
354,000
FOR PROCESS A: 1 Equivalent Production units: Material Units completed add: WIP (at end) - 50% EPU
Conversion
10,000 4,000 14,000
10,000 2,000 12,000
Cost incurred
210,000
144,000
Per unit cost
15.00
12.00
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 Material cost: Conversion cost:
4,000 (100% material and 50% conversion)
(4,000 units x 100% x 15) (4,000 units x 50% x 12) COST OF WORK IN PROCESS
3 Cost of Finished goods: Cost of finished goods: (10,000 units x 100% x 27)
270,000
60,000 24,000 84,000
Units Units received
Process B account Rate Cost
10,000
27
Cost incurred: Material Conversion
270,000 Output
108,000 171,000 Balance c/d
10,000
549,000
FOR PROCESS B: 1 Equivalent Production units: Material Units completed add: WIP (at end) - 50% EPU
Conversion
9,000 9,000
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
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 Inventory cost
1,000 50% (1,000 units x 27)
27,000
Material cost: Conversion cost:
(1,000 units x 0% x 12) (1,000 units x 50% x 18) COST OF WORK IN PROCESS
4 Cost of Finished goods: Cost of finished goods: (9,000 units x 100% x 57)
513,000
9,000 36,000
Units 10,000
Rate
Cost 27
270,000
4,000
84,000
14,000
354,000
and 50% conversion)
Units 9,000
Rate
Cost 57
513,000
1,000
36,000
10,000
549,000
Solution of Example 5.3: on Page # 166
Units Balance b/f Input
WEIGHTED AVERAGE METHOD Process X account Rate Cost
6,000
117,900
16,000
Cost incurred: Material Conversion
Output
192,000 225,000 Balance c/d
22,000
534,900
Calculation of Equivalent Production Units: Material Units completed and transferred out Add: Units in process (at end) EPU
18,000 4,000 22,000
Calculation of per unit cost: Cost Material: ( 72,000 + 192,000 ) Labour : ( 45,900 + 225,000 ) Total
Units - EPU
264,000
22,000
270,900 534,900
21,000
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
Cost incurred: Material Conversion
142,200 24.90
448,200 Output
60,000 259,200 Balance c/d
20,000
909,600
Calculation of Equivalent Production Units: Material Units completed and transferred out Add: Units in process (at end) EPU
12,000 12,000
Calculation of per unit cost:
Per unit cost from Process X: Units received from previous dept
Cost
Units
448,200
18,000
Cost incured on Work in process (at start) TOTAL Material cost incurred: On work in process at start During current period Total material Conversion cost incurred: On work in process at start During current period Total Conversion
91,800 540,000
2,000 20,000
12,000 60,000 EPU 72,000
12,000
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)
216,000 74,400 290,400
t Units
Rate
18,000
24.90
Cost
448,200
4,000
86,700
22,000
534,900
Conversion 18,000 3,000 21,000
Rate 12 12.90 24.90
448,200
t Units
Rate
12,000
51.60
Cost
619,200
8,000
290,400
20,000
909,600
Conversion 12,000 4,000 16,000
Rate
27.00
6.00
18.60 51.60
619,200
Solution of Example 5.3: on Page # 168
Units Balance b/f Input
Rate
FIFO Process X account 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 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 18,000 (6,000) 12,000 4,000 16,000
18,000 (6,000) 12,000 2,400 3,000 17,400
Calculation of per unit cost: Cost
Units
Rate
Material cost incurred:
192,000
16,000
12.00
Conversion cost incurred:
225,000
17,400
12.93
TOTAL PER UNIT COST
24.93
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 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
Total cost incurred to complete 100% (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 Per unit cost from Process X:
Units
Rate
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) 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
24.89
Cost
448,107
86,793
534,900
onversion
148,932
299,160 448,107
Rate
53.20
Cost
638,387
271,120
909,507
Example # 5A.1, on Page # 175 1 2 3 4 5
WIP (at start) Units put into process units completed WIP (at end) - 50% completed units lost (normal)
1,000 600 300 100
lost at end
6 Material cost 7 Conversion cost
Introduce at start
Units Balance b/f Input
Rate
5,000 3,400
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
Units completed and transferred out Add: Work in process (at end) - work this period Add: Unit lost EPU
600
600
300 100 1,000
150 100 850
Calculation of per unit cost: Cost
Units
Rate
Material cost incurred:
5,000
1,000
5.00
Conversion cost incurred:
3,400
850
4.00
TOTAL PER UNIT COST
9.00
Cost of Work in Process (at end) Material cost
(300 units x 100% x 5)
1,500
Conversion cost (300 units x 50% x 4) Cost of Work in Process (at end)
600 2,100
Cost of Finished goods: 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
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)
Cost of normal loss on good units (per unit)
500 212.50 712.50
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
5,550 475 6,025
Cost of Ending WIP: 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
237.50
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
10.50
6,300
2,100
8,400
5,400 900 6,300
00 are declared as a oss which is 712.50 is transfer 600 finished good and
Rate
Cost
10.04
6,025
2,375
8,400
Solution of 5A-2, on Page # 177 WIP (at start) 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 8,000 4,000 Balance c/d
1,000
Units Process account
Units
50 250
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
600
600
Add: Work in process (at end) - work this period
250
50
Add: Abnormal loss Add: Unit lost (Normal Loss) EPU
50
50
100 1,000
100 800
Calculation of per unit cost: Cost Material cost incurred: Conversion cost incurred:
Units
8,000 4,000
Rate
1,000 800
8.00 5.00
TOTAL PER UNIT COST
13.00
Cost of Work in Process (at end) Material cost (250 units x 100% x 8) Conversion cost (250 units x 20% x 5) Cost of Work in Process (at end)
2,000 250 2,250
Cost of Finished goods: From Current Production (600 units) Cost incurred (600 units x 100% x 13) Add: Cost of normal loss
(100 units x 13) COST OF FINISHED GOODS
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 Input Cost incurred: Material Conversion
Rate -
1,000
Process account Cost -
Units
Output
600
Normal loss
100
Abnormal loss 8,000 4,000 Balance c/d
50 250
1,000
Units Process account
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 Units completed and transferred out Add: Work in process (at end) - work this period Add: Abnormal loss Add: Unit lost EPU
Conversion 600 250 50 100 1,000
600 50 50 100 800
Calculation of per unit cost: Cost Material cost incurred: Conversion cost incurred:
8,000 4,000
Units 1,000 800
TOTAL PER UNIT COST
Cost of normal loss per unit: Amount of normal loss Expected good output
2,000 250 2,250
(100 units x 13= 1,300) 1,300 650
2.00
8.00 5.00 13.00
Cost of Work in Process (at end) Material cost (250 units x 100% x 8) Conversion cost (250 units x 20% x 5) Cost of Work in Process (at end)
Rate
Cost of normal charged to Finished goods Cost of normal loss charged to abnormal loss
(600 units x 2) (50 units x 2)
1,200 100
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
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)
Cost of normal loss on good units (per unit) Cost of normal loss / Expected good output 712.50 0.7917 900
500 212.50 712.50
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
5,550 475 6,025
Cost of Ending WIP: 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
Output Normal loss 5,000 3,400 Balance c/d
1,000
Units
8,400
600 100 300
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
Cost
15.00 15.00
9,000 750 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) on Page # 194 ### ### ### ### ### ###
At specific level material is added whereas conversion is added uniformly. Inspection at the end of process upto 10% of good output is consider to be normal loss. Reworked- 500 rolls Rework cost is charged to Process overhead. (FIFO) Dyeing dept WIP (at start) 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
### ### ### ### ###
Spoiled goods 550 rolls WIP at end 800 rolls 80% material and 40% direct labor Direct material cost incured 72085 and direct labor 11718 FOH 3.5 per direct labor cost 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
(550 rolls - 530 rolls)
20 rolls.
Total units completed Less: Re-worked units Less: Units in process (at start) Units compeleted and transferred out
Material Conversion 5,800 5,800 (500) (500) (1,000) (1,000) 4,300 4,300
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% of D.L
300 640 5,240 530 20 5,790
Units
72,085 11,718 41,013 124,816
250 400 320 5,270 530 20 5,820
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 3
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 ( Normal Loss )
i) Cost of Normal Loss:
805.36 2,818.76
(530 units x 100% x 21.5102) Total Cost of Finish Goods ii) Cost of Abnormal Loss: (20 units x 100% x 21.5102)
d) Cost of Work in Process (at end) Material (800 units x 80% x 12.4499) Labor (800 units x 40% x 2.0134) FOH (800 units x 40% x 7.0469) Total Cost of Accounted For
7,967.936 644.288 2,255.008
Process Account Units Bal b/d
Cost
1,000
Reworked
Units
32,790 Good Output
500
Started
5,650
Material Labor FOH (Applied)
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
Cost
157,606 Process Account
Units Bal b/d Reworked Started
Cost
1,000
Units
32,790 Completed units
Cost
5,800
146,308
500 5,650
Material Labor FOH (Applied)
Normal Loss 72,085 Abnormal Loss 11,718 41,013 Bal c/d
7,150
157,606
530
-
20
430
800
10,867
7,150
157,605
20 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
11,400 146,308
430
10,867 157,605
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
Calculation of Equivalent Production Units: 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
13.000
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
Conversion 9,000 1,400 450 550 11,400
Rate 7.00
2.00 4.00 13.00
D GOODS
117,000 117,000
Particular
Input
Output
Ltrs
Ltrs
Normal Loss Ltrs
Abnormal Loss 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 SV
12,000
11,000 2,000 (1/6)
-
7 Abnormal gain - with SV
12,000
11,000 2,000 (1/6)
-
1,000 1,000
Required no.1 When No losses in the process Process Cost Account Units Rate Input
12,000 12,000
Cost 10
120,000 Output 120,000
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 Input
12,000
Cost 10
120,000 Output Normal loss
12,000
120,000
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. 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 Raw material Accured payrol FOH (Applied)
For Output Finished goods Work in process
Debit Credit Credit Credit
No entry for normal loss because there is no val normal loss units.
Required no.3: When Abnormal loss in the process (With NO salvage value) Process Cost Account units Rate Cost Input
12,000
10
120,000 Output Normal loss
Abnormal Loss 12,000
120,000
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
Abnormal loss Account Cost 12
1,000 1 2 3 4
12,000 Profit and loss a/c 12,000
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 Abnormal Loss: a) Transferred from Process account to Abnormal loss account
For Output Same entry
Abnormal loss account Process cost account b) Transferred to Profit and loss account: Profit and loss account Abnormal loss account For normal loss: No entry will be made
Required no.4: When Normal loss in the process (With salvage value)
Units
Rate
Process Cost Account Cost
Input
12,000
10
120,000 Output Normal loss (salvage value)
12,000
120,000
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
Spoiled goods (Normal loss) Account Rate Cost
2,000
2,000
Accounting Entries: 1) For Input: Same entry
5
10,000 Cash
10,000
2) For Output: Same entry
3) For Normal Loss - Salvage value: a) Recording of normal loss with salvage value: Spoiled goods (Normal loss) 10,000 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 spoiled goods and transferred at salvage value in it. This procedure will be made regularly and when the spoiled goods 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 P &L Account.
3 Normal Loss - Cost is NOT assigned but Salvage Value assigned to it.
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) / Expected output units = 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
Rate
12,000
Process Cost Account Cost 10
120,000 Output Normal loss (salvage value) Abnormal loss (cost of abnormal loss)
12,000
Units
120,000
Rate
Abnormal loss Account Cost
Process cost account
1,000
11
11,000 Cash Profit & loss account
1,000
Units Process cost account
11,000
Spoiled goods (Normal loss) Account Rate Cost
2,000
10,000 Cash
2,000
10,000
NORMAL LOSS: 1 Cost is NOT Assigned but the Salvage value is Assigned to it in Process a/c
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 credited. The balance is called "Loss on sale of abnormal loss" which will be transferred to P& L account.
5 Separate Normal loss (Spoiled goods) account will be prepared in same manner. ENTRIES For Input and Output: Same entries 1 For transfer of goods to Spoiled goods (Normal Loss) Spoiled goods Process account 2 On Sale of spoiled goods: Cash Profit & Loss a/c Profit & Loss a/c Spoiled goods
Debit Credit
(Loss) (Gain)
Debit Debit Credit Credit
Gain / loss can be happened in spoiled goods 3 For transfer of goods to Abnormal Loss: Abnormal loss account Process account
Debit Credit
4 On Sale of Abnormal Loss unit Cash Profit & Loss a/c Abnormal Loss
Debit Debit
(Loss)
Credit
Only loss will be happened in sale of abnormal loss units b/c salvage value is less cost value
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: Units Input Abnormal Gain
12,000
10
1,000
12
13,000
units Profit & loss account
Rate
Process Cost Account Cost
1,000
120,000 Output 12,000 Normal loss 132,000
Abnormal Gain Account Cost 12,000 Process account
1,000
12,000
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. 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 Process Cost Account Units Rate Cost
c)
Input Abnormal Gain
12,000
10
1,000
11
13,000
Units
120,000 Output 11,000 Normal loss 131,000
Rate
Abnormal Gain Account Cost
Profit & Loss account
1,000
11,000 Process account
1,000
11,000
Units Process Account
Rate
2,000
Normal Loss Account Cost 5
2,000
Units
10,000 Cash Profit & Loss Account 10,000
Rate
Profit & Loss Account Cost
Normal Loss Net Profit
5,000 Abnormal Gain 6,000 11,000
Accounting Entries Process account Abnormal Gain
11,000 11,000
Abnormal gain Profit & loss
11,000
Spoiled Goods Profit & Loss Normal Loss
5,000 5,000
11,000
10,000
b) Sale of normal loss Cash
5,000 Spoiled Goods
5,000
Abnormal gain Ltrs
Scrap value of spoiled output/ unit
-
-
-
-
-
-
-
5
-
5
1,000
-
1,000
Units
5
Rate
12,000 12,000
In this there is no loss in
Cost 10
120,000 120,000
units
Rate
10,000
Cost 12
120,000
2,000
-
12,000
120,000
uding normal loss)
ting condition and are
ed goods output, which
Debit Credit
mal loss because there is no value on
nt units
Rate 9,000 2,000
Cost 12.00
108,000 -
1,000
12
12,000
12,000 120,000
ding abnormal loss)
nt Units
Rate 1,000
Cost 12
1,000
12,000 12,000
bnormal or controllable loss. he value of goods output. he end of accounting year.
o Abnormal loss account Debit Credit
Debit Credit
nt Units
Rate
Cost
10,000
11
110,000
2,000
5
10,000
alvage value) 12,000
120,000
. of Expected output units
Account Units
Rate 2,000
2,000
Cost 5
10,000
10,000
nt Units
Rate
Cost
9,000
11
99,000
2,000
5
10,000
1,000 ost of abnormal loss) 12,000
11
11,000
alvage value)
120,000
nt Units
Rate
Cost
1,000 ofit & loss account
5
1,000
5,000 6,000 11,000
Account Units
Rate
Cost
2,000
10,000
2,000
10,000
- normal loss unit).
nt Units
Rate
11,000
Cost 12
132,000
2,000 13,000
132,000
nt units
Cost 1,000
12,000
1,000
12,000
. of Expected output units
nt Units
Rate
Cost
11,000
11
121,000
2,000
5
10,000
13,000
131,000
nt Units
Rate
Cost
1,000
11,000
1,000
11,000
t Units
Rate
1,000 ofit & Loss Account
Cost 5
1,000
5,000 5,000 10,000
t Units
bnormal Gain
Rate
Cost 11,000
11,000
Solution of Example no. 5.2 on Page # 164 Units Input
Process A account Rate Cost
14,000
Output
Cost incurred: Material Conversion
210,000 144,000 Balance c/d
14,000
354,000
FOR PROCESS A: 1 Equivalent Production units: Material Units completed add: WIP (at end) - 50% EPU
Conversion
10,000 4,000 14,000
10,000 2,000 12,000
Cost incurred
210,000
144,000
Per unit cost
15.00
12.00
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 Material cost: Conversion cost:
4,000 (100% material and 50% conversion)
(4,000 units x 100% x 15) (4,000 units x 50% x 12) COST OF WORK IN PROCESS
3 Cost of Finished goods: Cost of finished goods: (10,000 units x 100% x 27)
270,000
60,000 24,000 84,000
Units Units received
Process B account Rate Cost
10,000
27
Cost incurred: Material Conversion
270,000 Output
108,000 171,000 Balance c/d
10,000
549,000
FOR PROCESS B: 1 Equivalent Production units: Material Units completed add: WIP (at end) - 50% EPU
Conversion
9,000 9,000
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
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 Inventory cost
1,000 50% (1,000 units x 27)
27,000
Material cost: Conversion cost:
(1,000 units x 0% x 12) (1,000 units x 50% x 18) COST OF WORK IN PROCESS
4 Cost of Finished goods: Cost of finished goods: (9,000 units x 100% x 57)
513,000
9,000 36,000
Units 10,000
Rate
Cost 27
270,000
4,000
84,000
14,000
354,000
and 50% conversion)
Units 9,000
Rate
Cost 57
513,000
1,000
36,000
10,000
549,000
Solution of Example 5.3: on Page # 166
Units Balance b/f Input
WEIGHTED AVERAGE METHOD Process X account Rate Cost
6,000
117,900
16,000
Cost incurred: Material Conversion
Output
192,000 225,000 Balance c/d
22,000
534,900
Calculation of Equivalent Production Units: Material Units completed and transferred out Add: Units in process (at end) EPU
18,000 4,000 22,000
Calculation of per unit cost: Cost Material: ( 72,000 + 192,000 ) Labour : ( 45,900 + 225,000 ) Total
Units - EPU
264,000
22,000
270,900 534,900
21,000
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
Cost incurred: Material Conversion
142,200 24.90
448,200 Output
60,000 259,200 Balance c/d
20,000
909,600
Calculation of Equivalent Production Units: Material Units completed and transferred out Add: Units in process (at end) EPU
12,000 12,000
Calculation of per unit cost:
Per unit cost from Process X: Units received from previous dept
Cost
Units
448,200
18,000
Cost incured on Work in process (at start) TOTAL Material cost incurred: On work in process at start During current period Total material Conversion cost incurred: On work in process at start During current period Total Conversion
91,800 540,000
2,000 20,000
12,000 60,000 EPU 72,000
12,000
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)
216,000 74,400 290,400
t Units
Rate
18,000
24.90
Cost
448,200
4,000
86,700
22,000
534,900
Conversion 18,000 3,000 21,000
Rate 12 12.90 24.90
448,200
t Units
Rate
12,000
51.60
Cost
619,200
8,000
290,400
20,000
909,600
Conversion 12,000 4,000 16,000
Rate
27.00
6.00
18.60 51.60
619,200
Solution of Example 5.3: on Page # 168
Units Balance b/f Input
Rate
FIFO Process X account 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 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 18,000 (6,000) 12,000 4,000 16,000
18,000 (6,000) 12,000 2,400 3,000 17,400
Calculation of per unit cost: Cost
Units
Rate
Material cost incurred:
192,000
16,000
12.00
Conversion cost incurred:
225,000
17,400
12.93
TOTAL PER UNIT COST
24.93
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 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
Total cost incurred to complete 100% (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 Per unit cost from Process X:
Units
Rate
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) 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
24.89
Cost
448,107
86,793
534,900
onversion
148,932
299,160 448,107
Rate
53.20
Cost
638,387
271,120
909,507
Example # 5A.1, on Page # 175 1 2 3 4 5
WIP (at start) Units put into process units completed WIP (at end) - 50% completed units lost (normal)
1,000 600 300 100
lost at end
6 Material cost 7 Conversion cost
Introduce at start
Units Balance b/f Input
Rate
5,000 3,400
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
Units completed and transferred out Add: Work in process (at end) - work this period Add: Unit lost EPU
600
600
300 100 1,000
150 100 850
Calculation of per unit cost: Cost
Units
Rate
Material cost incurred:
5,000
1,000
5.00
Conversion cost incurred:
3,400
850
4.00
TOTAL PER UNIT COST
9.00
Cost of Work in Process (at end) Material cost
(300 units x 100% x 5)
1,500
Conversion cost (300 units x 50% x 4) Cost of Work in Process (at end)
600 2,100
Cost of Finished goods: 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
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)
Cost of normal loss on good units (per unit)
500 212.50 712.50
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
5,550 475 6,025
Cost of Ending WIP: 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
237.50
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
10.50
6,300
2,100
8,400
5,400 900 6,300
00 are declared as a oss which is 712.50 is transfer 600 finished good and
Rate
Cost
10.04
6,025
2,375
8,400
Solution of 5A-2, on Page # 177 WIP (at start) 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 8,000 4,000 Balance c/d
1,000
Units Process account
Units
50 250
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
600
600
Add: Work in process (at end) - work this period
250
50
Add: Abnormal loss Add: Unit lost (Normal Loss) EPU
50
50
100 1,000
100 800
Calculation of per unit cost: Cost Material cost incurred: Conversion cost incurred:
Units
8,000 4,000
Rate
1,000 800
8.00 5.00
TOTAL PER UNIT COST
13.00
Cost of Work in Process (at end) Material cost (250 units x 100% x 8) Conversion cost (250 units x 20% x 5) Cost of Work in Process (at end)
2,000 250 2,250
Cost of Finished goods: From Current Production (600 units) Cost incurred (600 units x 100% x 13) Add: Cost of normal loss
(100 units x 13) COST OF FINISHED GOODS
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 Input Cost incurred: Material Conversion
Rate -
1,000
Process account Cost -
Units
Output
600
Normal loss
100
Abnormal loss 8,000 4,000 Balance c/d
50 250
1,000
Units Process account
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 Units completed and transferred out Add: Work in process (at end) - work this period Add: Abnormal loss Add: Unit lost EPU
Conversion 600 250 50 100 1,000
600 50 50 100 800
Calculation of per unit cost: Cost Material cost incurred: Conversion cost incurred:
8,000 4,000
Units 1,000 800
TOTAL PER UNIT COST
Cost of normal loss per unit: Amount of normal loss Expected good output
2,000 250 2,250
(100 units x 13= 1,300) 1,300 650
2.00
8.00 5.00 13.00
Cost of Work in Process (at end) Material cost (250 units x 100% x 8) Conversion cost (250 units x 20% x 5) Cost of Work in Process (at end)
Rate
Cost of normal charged to Finished goods Cost of normal loss charged to abnormal loss
(600 units x 2) (50 units x 2)
1,200 100
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
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)
Cost of normal loss on good units (per unit) Cost of normal loss / Expected good output 712.50 0.7917 900
500 212.50 712.50
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
5,550 475 6,025
Cost of Ending WIP: 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
Output Normal loss 5,000 3,400 Balance c/d
1,000
Units
8,400
600 100 300
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
Cost
15.00 15.00
9,000 750 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) on Page # 194 ### ### ### ### ### ###
At specific level material is added whereas conversion is added uniformly. Inspection at the end of process upto 10% of good output is consider to be normal loss. Reworked- 500 rolls Rework cost is charged to Process overhead. (FIFO) Dyeing dept WIP (at start) 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
### ### ### ### ###
Spoiled goods 550 rolls WIP at end 800 rolls 80% material and 40% direct labor Direct material cost incured 72085 and direct labor 11718 FOH 3.5 per direct labor cost 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
(550 rolls - 530 rolls)
20 rolls.
Total units completed Less: Re-worked units Less: Units in process (at start) Units compeleted and transferred out
Material Conversion 5,800 5,800 (500) (500) (1,000) (1,000) 4,300 4,300
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% of D.L
300 640 5,240 530 20 5,790
Units
72,085 11,718 41,013 124,816
250 400 320 5,270 530 20 5,820
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 3
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 ( Normal Loss )
i) Cost of Normal Loss:
805.36 2,818.76
(530 units x 100% x 21.5102) Total Cost of Finish Goods ii) Cost of Abnormal Loss: (20 units x 100% x 21.5102)
d) Cost of Work in Process (at end) Material (800 units x 80% x 12.4499) Labor (800 units x 40% x 2.0134) FOH (800 units x 40% x 7.0469) Total Cost of Accounted For
7,967.936 644.288 2,255.008
Process Account Units Bal b/d
Cost
1,000
Reworked
Units
32,790 Good Output
500
Started
5,650
Material Labor FOH (Applied)
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
Cost
157,606 Process Account
Units Bal b/d Reworked Started
Cost
1,000
Units
32,790 Completed units
Cost
5,800
146,308
500 5,650
Material Labor FOH (Applied)
Normal Loss 72,085 Abnormal Loss 11,718 41,013 Bal c/d
7,150
157,606
530
-
20
430
800
10,867
7,150
157,605
20 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
11,400 146,308
430
10,867 157,605
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
Calculation of Equivalent Production Units: 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
13.000
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
Conversion 9,000 1,400 450 550 11,400
Rate 7.00
2.00 4.00 13.00
D GOODS
117,000 117,000
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