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10

Process & Operation Costing


Question 1
Distinguish between job costing and process costing. (November,1996, 4 marks)
Answer
The main points of distinction between job costing and process costing are as below:
Job Costing Process Costing
1. Job costing is a specific order costing Process costing is a method of costing
used to ascertain the cost of a product at
each stage of manufacture
2. Cost here is determined on job basis Costs are accumulated for each process
separately for a given period of time.
3. Each job needs special treatment and no
two jobs are alike
Finished product of one process becomes
the raw material for the next process.
4. The cost of each job is compiled
separately by adding materials, labour and
overhead costs
The unit cost here is the average cost of
the process for a given period. Its correct
computation requires the measurement of
production at various stages of
manufacture.
5. Costs are computed when job is
completed
Costs are computed for each process at
the end of each period.
6. As each job is distinct or is of different
nature, more detailed supervision and
control are necessary
As the process operations are
standardised accumulation of costs and
supervision and control are comparatively
easier.
Question 2
Write a short note on unit costing method for ascertaining product cost
(November, 1995, 6 marks)
Cost Accounting
10.2
Answer
It is a form of process or operation costing. It is suitable where only one product or a few
grades of the same product involving a single process or operation is produced. Under this
system the expenditure is not analysed in as much detail as is necessary for job costing
because the whole of the expenditure is normally incurred for only one type of product but
where, however, articles produced vary in grades and sizes, it is necessary to analyse the
appropriate charges for ascertaining the cost of articles. On dividing the total expenditure by
the number of units produced, the cost per unit is ascertained. This system of costing is
suitable for breweries, cement works etc.
In all these cases, unit cost of articles produced requires to be ascertained.
The cost sheets are prepared periodically and usually contain information on the under
mentioned points:
(i) Cost of materials consumed with details.
(ii) Cost of labour with details.
(iii) Work indirect expenses with details.
(iv) Office and administrative expenses in lumpsum.
(v) Abnormal losses and gains are separated and not mixed with costs.
Question 3
"The value of scrap generated in a process should be credited to the process account."
Do you agree with this statement? Give reasons. (November, 1995, 2 marks)
Answer
This statement is not correct The value of scrap (as normal loss) received from its sale is
credited to the process account. But the value of scrap received from its sale under abnormal
conditions should be credited to Abnormal Loss Account.
Question 4
Explain normal wastage, abnormal wastage and abnormal gain and state, how they
should be dealt within process Cost Accounts. (November, 1998, 6 marks)
Answer
Normal wastage: It is defined as the loss of material which is inherent in the nature of
work. Such wastage can be estimated in advance on the basis of past experience or technical
specifications. If the wastage is within the specified limit, it is considered as normal. Suppose
a company states that the normal wastage in Process A will be 5% of input. In such a case
wastage upto 5% of input will be considered as normal wastage of the process.
When the wastage fetches no value, the cost of normal wastage is absorbed by good
production units of the process and the cost per unit of good production is increased
Process & Operation Costing
10.3
accordingly. If the normal wastage realises some value, the value is credited to the process
account to arrive at normal cost of normal output.
Abnormal wastage: It is defined as the wastage which is not inherent to manufacturing
operations. This type of wastage may occur to the carelessness of workers, a bad plant,
design etc. Such a wastage cannot be estimated in advance.
The units representing abnormal wastage are valued like good, units produced and
debited to the separate account which is known as abnormal wastage account. If the abnormal
wastage fetches some value, the same is credited to abnormal wastage account. The balance
of abnormal wastage account i.e. difference between value of units representing abnormal
wastage minus realisation value is transferred to Costing profit and loss account for .the year.
Abnormal gain: It is defined as unexpected gain in production under normal conditions. In
other words, if the actual process waste is less than the estimated normal waste, the
difference is considered as abnormal gain. Suppose, a Company states that 10% of its input
will be normal loss of process A. If input of this company is 100 units then its normal output
should be 90 units. If actual output is 95 units, then, 5 units will represent its abnormal gain!
These units which represents abnormal gain are valued like normal output of the process. The
concerned process account is debited with the quantity and value of abnormal gain. The
abnormal gain account is credited with the figure of abnormal gain amount. Abnormal gain
being the result of actual wastage, or loss being less than the normal. The scrap realisation
shown against normal wastage gets reduced by the scrap value of abnormal gain.
Consequently; there is an apparent loss by way of reduction in the scrap realisation
attributable to abnormal effectives. This loss is set off against abnormal effectives by debiting,
the account. The- balance; of this account becomes abnormal gain and is transferred to;
costing profit and loss account.
Question 5
Write short note on Abnormal gain in Process Costing (May, 1995,4 marks)
Answer
Abnormal Gain in Process Costing: If in a process the actual process loss (which is
inherent in a process) is less than the estimated normal loss, the difference is considered as
abnormal gain. Abnormal gain is accounted for in the same way as abnormal process loss.
The concerned process account is debited with the abnormal gain units and value, and
the abnormal gain account is credited. The abnormal gain account is debited with the figure of
reduced normal loss (in units) and value. The balance of the abnormal gain account is
transferred to the costing profit and loss account.
Question 6
Compare Process Costing with Job Costing (November, 1998, 4 marks)
Cost Accounting
10.4
Answer
Job costing and process costing are the two methods of cost accounting. Job costing is
applied where production is carried out under specific orders, depending upon customers
requirement. Here each job is considered as a cost unit and to some extent the cost centre
also.
Process costing is applied in cases where the identity of individual orders is lost in the
general flow of production. Industries to which process costing is applied produce uniform
products without reference to the specific requirements of customers.
The main points of comparison between job costing and process costing are as follows:
(i) Job costing is applicable to goods produced/ manufactured to customers specifications.
However, process costing is applicable to production consisting of succession of
continuous operations or processes.
(ii) Costs are accumulated by a job or work order irrespective of its time of completion under
job costing. When a job is finished all costs associated with it are charged to it in full.
Whereas under process costing costs are accumulated by processes for a particular
period regardless of the number of units produced.
(iii) Each job will be .different from the other under job costing whereas in the case of
process costing units of product are homogenous and indistinguishable, because goods
are produced on a mass scale.
(iv) Job is normally a single unit, the whole unit is taken as one for costing purposes. Even if
job consists of number of parts, cost of job is calculated only after all the parts, are
complete. As such there is no question of work-in-progress merely because some parts
are not yet completed. In the case of process costing, the unit of production may remain
incomplete at various stages of production. It is therefore necessary to compute at the
end of the period not only the cost of the finished units but of work in progress also.
(v) Job costing does not involve transfer of costs from one job to another. Where as in the
case of process costing transfer of output from one process to another involves the
transfer of its costs as well.
(vi) Job costs are ascertained only after the completion of job and not at the end of a
particular period. Whereas in the case of process costing costs are ascertained at the
end of the accounting period and not when the process is complete, since production is a
continuous flow constituting itself into cycle.
(vii) Since each job may be different from other therefore they will not involve the use of
identical material and labour, costs of jobs cannot be ascertained by averaging. In the
case of process costing since units of production are uniform and are at the same stage
of production therefore, costs are computed by averaging the total cost of each stage of
production.
Process & Operation Costing
10.5
(viii) Control becomes difficult in the case of job costing because each job is different from the
other. Whereas control over production and costs is easier in the case of process costing
since production is a standardised one.
Question 7
A company within the food industry mixes powdered ingredients in two different
processes to produce one product. The output of Process I becomes the input of Process 2
and the output of Process 2 is transferred to the packing department.
From the information given below, you are required to open accounts for Process 1,
Process 2, abnormal loss and packing department and to record the transactions for the week
ended 11
th
May,1985.
Process 1
Input:
Material A 6,000 kilograms at 50 paise per kilogram
Material B 4,000 kilograms at Rupee 1 per kilogram
Mixing Labour 430 hours at Rs.2 per hour
Normal Loss 5% of weight input, disposed off at 16 paise per kilogram
Output 9,200 kilograms.
No work in process at the beginning or end of the week.
Process 2
Input
Material C 6,600 kilograms at Rs. 1.25 per kilogram
Material D 4,200 kilograms at Re. 0.75 per kilogram
Flavouring Essence Rs. 330
Mixing Labour 370 hours at Rs. 2 per hour
Normal Waste 5% of weight input with no disposal value
Output 18,000 kilograms.
No work in process at the beginning of the week but 1,000 kilograms in process at the
end of the week and estimated to be only 50% complete so far as labour and overhead were
concerned.
Overhead of Rs. 3,200 incurred by the two processes to be absorbed on the basis of
mixing labour hours.
Cost Accounting
10.6
Answer
Process 1 Account
Per kg. Per kg. Kg.
Rs. Rs.
Kg.
Rs. Ps.
To Material A 6,000 0.50 3,000 By Normal Loss 500 0.16 80
To Material B 4,000 1.00 4,000 By Abnormal 300 1.00 300
Loss (See Note 2)
To Mixing Labour 860
(430 hours @
Rs.2.00 per
hour)
To Transfer to
Process 2
9,200 1.00 9,200
To Overhead _____ 1,720 _____ _____
10,000 9,580 10,000 9,580
Process 2 Account
Per Kg. Per kg. Kg.
Rs. Rs.
Kg.
Rs. Rs.
To Process 1 9,200 1.00 9,200 By Normal Waste 1,000
To Material C 6,600 1.25 8,250 To Work 1,000 1,160
To Material D 4,200 0.75 3,150 in-process
To Flavouring Essence 300 (See Note 3)
To Mixing Labour 740 To Packing Deptt. 18,000 1.22 21,690
(370 hours @
2.00 per hour)
To Overhead 1,480
(See Note 1) _____ _____ _____ _____
20,000 23,120 20,000 23,120
Abnormal Loss Account
Per Kg. Per kg. Kg.
Rs. Rs.
Kg.
Rs. Rs.
To Process A/c 300 1.00 300 By Sale A/c 300 0.16 48
___ By Balance to P/L A/c 252
300 300
Process & Operation Costing
10.7
Packing Department Account
Per Kg. Per kg. Kg.
Rs. Rs.
Kg.
Rs. Rs.
To Process 2 A/c 18,000 1.22 21,960 By Balance 21.960
21,960 21,960
Notes:
1. Total overhead expenses : Rs. 3,200
Total labour hours in Process 1 and 2 = 800
Overhead absorption rate = Rs. 3,200/800 hours = Rs. 4 per labour hour
Overhead under Process 1 = 430 Rs. 4 = Rs. 1,720
Overhead under Process 2 = 370 Rs. 4 = Rs. 1,480
2. Cost of 9,500 Kg. of output is = (Rs. 9,580 Rs. 80) i.e., Rs. 9,500
Hence cost per kg. of output is Re. 1.00
3. Equivalent Units Statement of Output
Output Units Equivalent Units
Material Labour Overhead
Completed 18,000 18,000 18,000 18,000
WIP 1,000 1,000 500 550
(100% Material
50% Labour and
Overhead)
Normal Waste 1,000 _____ _____ _____
20,000 19,000 18,500 18,500
Cost Statement for the week ending 11
th
May 1985
Rs.
Material (Process 1) 9,200
Material C 8,250
Material D 3,150
Flavouring Essence 300
Total Material Cost 20,900
Total Mixing Labour Cost 740
Total Overhead Cost 1,480
Cost Accounting
10.8
Cost per Equivalent Unit
Material = Rs. 20,900 / 19,000 = Rs. 1.10
Labour = Rs. 740 / 18,500 = 0.04 P
Overhead = Rs. 1,480 / 18,500 = 0.08 P
W.I.P.
Material = 1,000 Rs. 1.10 = Rs. 1,100
Labour = 500 0.04 P = Rs. 20
Overhead = 500 0.08 P = Rs. 40
Rs. 1,160
Question 8
In a manufacturing unit, raw material passes through four processes I, II, III & IV and the
output of each process is the input of the subsequent process. The loss in the four processes
I, II, III & IV are respectively 25%, 20%, 20% and 16-2/3% of the input. If the end product at
the end of the process IV is 40,000 kg, what is the quantity of raw material required to be fed
at the beginning of Process I and the cost of the same at Rs. 4 per kg.?
Find out also the effect of increase or decrease in the material cost of the end product for
variation of every rupee in the cost of the raw material.
Answer
Statement of Production
(based on 100 kg. of input)
Process No. Input Kg. Loss Percentage Loss Kg. Output Kg.
I 100 25 25 75
II 75 20 15 60
III 60 20 12 48
IV 48 16
2
/3 8 40
Quantity of Raw Material required for 40,000 kg. of output
As is apparent from the above table, 40 kg of output requires 100 kg. of raw material to
be fed at the beginning of Process I.
Therefore 1 kg of output require 2.5 kg. of raw material to be fed at the beginning of the
process I.
Hence 40,000 kg. of output will require 1,00,000 kg. of raw material at the beginning of
the Process I.
Process & Operation Costing
10.9
Cost of Raw Material required: 1,00,000 kg. Rs. 5
= Rs. 5,00,000
Effect of increase or decrease in the material cost: For every increase or decrease of
Re.1, in the cost of raw material, the corresponding increase or decrease in the material cost
of 1 kg. of the end product is Rs. 2.50. Therefore the material cost of the end product /
finished product goes up or down by Rs. 2.50 per kg. as the cost of raw material goes up or
down by Re.1/- per kg.
Question 9
A company is manufacturing building bricks and fire bricks. Both the products require two
processes:
Brick-forming
Heat treating
Time requirements for the two bricks are:
Building
Bricks
Fire
Bricks
Forming per 100 Bricks 3 Hrs. 2 Hrs.
Heat treatment per 100 Bricks 2 Hrs. 5 Hrs.
Total costs of the two departments in one month were
Forming Rs. 21,200
Heat treatment Rs. 48,800
Production during the month was:
Building bricks 1,30,000 Nos.
Fire Bricks 70,000 Nos.
Prepare a statement of manufacturing costs for the two varieties of bricks.
Answer
Computation of Total Cost: It can be calculated in the case of brick forming and heat
treating by using the rte per hour as calculated in the statement or by using the following:
Cost of brick forming Building and Fire bricks can be determined by dividing the total cost
of forming i.e., Rs. 21,200 in the ratio 39:14.
Cost of forming Building bricks :
53
200 , 21 . Rs
39 = Rs. 15,600
Cost of forming Fire bricks :
53
200 , 21 . Rs
14 = Rs. 5,600
Cost Accounting
10.10
Cost of giving heat treatment to Building and Fire Bricks are determined by dividing the
total cost of heat treatment i.e., Rs. 48,800 in the ratio 26:35
Cost of heat treatment to Building Bricks
61
800 , 48 .. Rs
26 = Rs. 20,800
Cost of heat treatment to Fire Bricks :
61
800 , 48 . Rs
35 = Rs. 28,000
Manufacturing Cost Statement
(for two varieties of bricks)
Processes Building Bricks Fire Bricks
Total
time
(Hrs.)
Total
Cost (for
1,30,000
Nos.)
Total
time
(Hrs.)
Total
Cost (for
1,30,000
Nos.)
Time
per
100
Nos.
(Hrs.)`
Rate
per
Hr.
Cost
per
100
Nos.
Time
per
100
Nos.
(Hrs.)
Rate
per
Hr.
Cost
per
100
Nos.
Rs. Rs. Rs. Rs. Rs. Rs.
Brick
forming
3 3,900 4.00 15,600 12.00 2 1,400 4.00 5,600 8.00
Heat
treating
2 2,600 8.00 20,800 16.00 5 3,500 8.00 28,000 40.00
Total 6,500 36,400 28.00 4,900 33,600 48.00
Working Notes:
Computation of rate per hour
Brick forming : =
300 , 5
200 , 21 . Rs
= Rs. 4.00
(Total cost / Total hours)
Heat treating: =
100 , 6
800 , 48 . Rs
= Rs. 8.00
Question 10
An article passes through three successive operations from the raw material to the
finished product stage. The following data are available from the production records of a
particular month:

























P
r
o
c
e
s
s

&

O
p
e
r
a
t
i
o
n

C
o
s
t
i
n
g
4
4
2
Process & Operation Costing
10.11
Operation
No.
No. of Pcs.
Input
No. of Pcs.
Rejected
No. of Pcs.
Output
1 60,000 20,000 40,000
2 66,000 6,000 60,000
3 48,000 8,000 40,000
(i) Determine the input required to be introduced in the first operation in number of pieces in
order to obtain finished output of 100 pieces after the last operation.
(ii) Calculate the cost of raw material required to produce one piece of finished product,
given the following information.
Weight of the finished piece is 0.10 kg. and the price of raw material is Rs. 20 per kg.
Answer
Statement of Production
(for a month)
Input Rejections Output
Operations Total Total % Total
No. No. No. Rejection
to output
No.
1 60,000 20,000 50% 40,000
2. 66,000 6,000 10% 60,000
3. 48,000 8,000 20% 40,000
Input required for final output of 100 units:
No. of Pcs.
Output of process 3 100
Loss in process, 20% 20
Input to process 3 or output of process 2 120
Loss in process 2, 10% 12
Input to process 2 or output of process 1 132
Loss in process 1, 50% 66
Input in process 1 198
(iii) To produce 100 pieces of final output 198 pieces of initi al input is used. The weight of
one piece of finished output is 0.10 kg. Thus the weight of input to produce one piece of
output is 0.198 kg. The rate being Rs.20, the cost of materials for producing 1 piece is
Rs.3.96
i.e.,
100
198
0.10
Cost Accounting
10.12
Question 11
A Ltd. produces product 'AXE' which passes through two processes before it is
completed and transferred to finished stock. The following data relate to October 1981.
Process Finished stock
Particulars I II
Rs. Rs. Rs.
Opening stock 7,500 9,000 22,500
Direct materials 15,000 15,750
Direct wages 11,200 11,250
Factory overheads 10,500 4,500
Closing stock 3,700 4,500 11,250
Inter-process profit
Included in opening stock 1,500 8,250
Output of process I is transferred to process II.
at 25% profit on the transfer price.
Output of process II is transferred to finished stock at 20% profit on the transfer price.
Stocks in process are valued at prime cost. Finished stock is valued at the price at which it is
received from the process II. Sales during the period are Rs. 1,40,000.
Required:
Process cost accounts and finished goods account showing the profit element at each
stage.
Answer
Process I Account
Total
Rs.
Cost
Rs.
Profit
Rs.
Total
Rs.
Cost
Rs.
Profit
Rs.
Opening stock 7,500 7,500 Transfer 54,000 40,500 13,500
Direct materials 15,000 15,000 to process
Direct Wages 11,200 11,200 II Account
33,700 33,700
Less: Closing Stock 3,700 3,700
Prime cost 30,000 30,000
Overheads 10,500 10,500
Process cost 40,500 40,500
Profit 33
1
/3%
Process & Operation Costing
10.13
of total cost 13,500 13,500
(See working note 1) _____ _____ _____ _____ _____ _____
54,000 40,500 13,500 54,000 40,500 13,500
Process II Account
Total
Rs.
Cost
Rs.
Profit
Rs.
Total
Rs.
Cost
Rs.
Profit
Rs.
Opening stock 9,000 7,500 1,500 Transfer to
Transferred from
Process I
54,000 40,500
Finished
Stock A/c
112,500 75,750 36,750
Direct materials 15,750 15,750
Direct wages 11,250 11,250
90,000 75,000 15,000
Less: Closing
Stock
4,500 3,750 750
Prime cost 85,500 71,250 14,250
Overheads 4,500 4,500
Process cost 90,000 75,750
Profit 25% 22,500 22,500
on total cost
(See working note 1) ______ ______ ______ ______ ______ ______
1,12,500 75,750 36,750 1,12,500 75,750 36,750
Finished Stock Account
Total
Rs.
Cost
Rs.
Profit
Rs.
Total
Rs.
Cost
Rs.
Profit
Rs.
Opening stock 22,500 14,250 8,250 Sales 1,40,000 82,500 57,500
Transferred from
Process II 1,12,500 75,750 36,750
1,35,000 90,000 45,000
Less: Closing Stock 11,250 7,500 3,750
Finished Stock at
Cost Accounting
10.14
cost 1,23,750 82,500 41,250
Profit 16,250 12,250 ______ _____ _____
1,40,000 82,500 57,500 1,40,000 82,500 57,500
Working Notes
Let the transfer price, be 100 then profit is 25; i.e. cost price is 75
1. If cost is Rs. 75 then profit is Rs. 25
If cost is Rs. 40,500 then profit is
75
25
40,500 = Rs. 13,500
2. If cost is Rs. 80 then profit is Rs. 20
If cost is Rs. 90,000 then profit is
80
20
90,000 = Rs. 22,500
3. Out of Rs. 90,000 total cost, the profit is Rs. 15,000
If the cost is Rs. 4,500, the profit is
000 , 90
000 , 15
Rs. 4,500 = Rs. 750
Question 12
The following data pertains to Process I for March 1987 of Beta Limited :
Opening Work in Progress 1,500 units at Rs. 15,000
Degree of completion
Materials 100% ; Labour and Overheads 33
3
1
%
Input of Materials 18,500 Units at Rs. 52,000
Direct Labour Rs. 14,000
Overheads Rs. 28,000
Closing Work in Progress 5,000 units
Degree of Completion Materials 90%
and
Labour and Overheads 30%
Normal Process Loss is 10% of total
Input (opening work in progress units + units put in)
Scrap value Rs. 2.00 per unit
Units transferred to the next process 15,000 units.
Your are required to :
Process & Operation Costing
10.15
(a) Compute equivalent units of production.
(b) Compute cost per equivalent unit for each cost element i.e., materials,
labour and overheads.
(c) Compute the cost of finished output and closing work in progress.
(d) Prepare the process and other Accounts.
Assume: (I) FIFO Method is used by the Company.
(ii) The cost of opening work in progress is fully transferred to
the next process.
Answer
(a) Statement of Equivalent Units of Production
INPUT OUTPUT EQUIVALENT
Material
PRODUCTION
Labour &
Overhead
Particulars Units Particulars Units % Units % Units
Op. WIP 1,500 Work on Op. WIP 1,500
66
3
2
1,000
Introduced 18,500 Introduced and
completed in the
period
13,500 100 13,500 100 13,500
Transferred to next
process
15,000
Normal Loss 2,000
Closing WIP 5,000 90 4,500 30 1,500
22,000 18,000 16,000
_____
Less: Abnormal
Gain
2,000
_____
100 2,000
_____
100 2,000
_____
20,000 22,000 16,000 14,000
(b) Statement of Cost per Equivalent Unit for Each Cost Element
Cost Equivalent Units Cost per
Equivalent Unit
Rs. Rs. Rs.
Material 52,000
Less: Scrap Value 4,000 48,000 16,000 3
Cost Accounting
10.16
Labour 14,000 14,000 1
Overheads 28,000 14,000 2
(c) Statement of Cost of Finished Output and Closing Work in Progress
Particulars Elements Equivalent
Units
Cost per
Units
Cost of
Equivalent
Units
Total
Rs. Rs. Rs.
Opening WIP
(1,500 units)
15,000
Opening WIP Material NIL
Opening WIP Labour 1,000 1 1,000
Opening WIP Overhead 1,000 2 2,000 3,000
Units introduced and
completed during the
period
Material 13,500 3 40,500
" Labour 13,500 1 13,500
" Overhead 13,500 2 27,000 81,000
Total Cost of 15,000 Units of finished output 99,000
Closing WIP Material 4,500 3 13,500
(5,000 units) Labour 1,500 1 1,500
Overhead 1,500 2 3,000
Total cost of closing
WIP (5,000 units)
18,000
(d) Process Account I
Units Rs. Units Rs.
To Opening WIP 1,500 15,000 By Normal Loss 2,000 4,000
To Units introduced
(Direct Material)
18,500 52,000 By Transfer to next
process
15,000 99,000
To Direct Labour 14,000 By Closing WIP 5,000 18,000
To Overhead 28,000
To Abnormal Gain
(See working
note)
2,000
_____
12,000
_______ _____ _______
22,000 1,21,000 22,000 1,21,000
Process & Operation Costing
10.17
Abnormal Gain Account
Units Rs. Units Rs.
To Process A/c I 2,000 4,000 By Process I 2,000 12,000
To Profit & Loss A/c 8,000 _____
12,000 12,000
Working Note
Total cost of Abnormal Gain:
(2,000 Units) @ Rs. 6/- p.u. = Rs. 12,000
Question 13
The following data are available in respect of Process 1 for February 1990 :
(1) Opening stock of work in process : 800 units at a total cost of Rs. 4,000.
(2) Degree of completion of opening work in process:
Material 100%
Labour 60%
Overheads 60%
(3) Input of materials at a total cost of Rs. 36,800 for 9,200 units.
(4) Direct wages incurred Rs. 16,740
(5) Production overhead Rs. 8,370.
(6) Units scrapped 1,200 units. The stage of completion of these units was:
Materials 100%
Labour 80%
Overheads 80%
(7) Closing work in process; 900 units. The stage of completion of these units was:
Material 100%
Labour 70%
Overheads 70%
(8) 7,900 units were completed and transferred to the next process.
(9) Normal loss is 8% of the total input (opening stock plus units put in)
(10) Scrap value is Rs. 4 per unit.
You are required to :
(a) Compute equivalent production,
(b) Calculate the cost per equivalent unit for each element.
Cost Accounting
10.18
(c) Calculate the cost of abnormal loss (or gain), closing work in process and the units
transferred to the next process using the FIFO method,
(d) Show the Process Account for February 1990
Answer
(a) Statement of Equivalent Production (FIFO Method)
Material Labour Overheads
Input
(Units)
Output Unit %
Comp
letion
Units %
Compl
etion
Units %
Compl
etion
Units
800 Opening stock of
WIP
800 40 320 40 320
9,200 Finished 7,100 100 7,100 100 7,100 100 7,100
Closing WIP 900 100 900 70 630 70 630
Normal Loss 800
Abnormal Loss 400 100 400 80 320 80 320
8,400 8,370 8,370
(b) Statement of Cost per equivalent units
Elements Cost Equivalent
production
(Units)
Cost per
equivalent Unit
Rs. Rs. Rs.
Material Cost 36,800
Less: Scrap realisation
800 units
@ Rs. 4/- p.u.
3,200 33,600 8,400 4/-
Labour cost 16,740 8,370 2/-
Overhead Cost 8,370 8,370 1/-
Total Cost
(c) Cost of Abnormal Loss 400 Units
Rs.
Material cost of 400 equivalent units @ Rs. 4/- p.u. 1,600
Labour cost of 320 equivalent units @ Rs. 2/- p.u. 640
Overhead cost of 320 equivalent units @ Rs. 1/- p.u. 320
2,560
Cost of closing WIP 900 Units
Material cost of 900 equivalent units @ Rs. 4/- p.u. 3,600
Process & Operation Costing
10.19
Labour cost of 630 equivalent units @ Rs.2/- p.u. 1,260
Overhead cost of 630 equivalent @ Rs. 1/- p.u. 630
5,490
Cost of 7,900 units transferred to next process
(i) Cost of opening WIP Stock b/f 800 units 4,000
(ii) Cost incurred on opening WIP stock
Material cost
Labour cost 320 equivalent units @ Rs. 2/- p.u. 640
Overhead cost 320 equivalent units @ Rs. 1/- p.u. 320
960
(iii) Cost of 7,100 completed units
7,100 units @ Rs.7/- p.u. 49,700
Total cost [(i) + (ii) + (iii))] 54,660
(d) Process Account for February, 1990
Units Rs. Units Rs.
To Opening WIP
Stock
800 4,000 By Cost of Finished
goods
7,900 54,660
To Materials 9,200 36,800
To Labour 16,740 By Closing WIP 900 5,490
To Overhead 8,370 By Abnormal Loss 400 2,560
_____ _____ By Normal Loss 800 3200
10,000 65,910 10,000 65.,910
Question 14
A company manufactures a product which involves two consecutive processes, viz.
Pressing and Polishing. For the month of October, 1991, the following information is available:
Pressing Polishing
Opening Stock
Input of units in process 1,200 1,000
Units completed 1,000 500
Units under process 200 500
Materials Cost Rs., 96,000 Rs. 8,000
Conversion Cost Rs. 3,36,000 Rs. 54,000
Cost Accounting
10.20
For incomplete units in process, charge materials cost at 100 percent and conversion
cost at 60 percent in the Pressing Process and 50 percent in Polishing Process. Prepare a
statement of cost and calculate the selling price per unit which will result in 25 percent profit
on sale price.
Answer
Statement of Cost
(i) Pressing process:
Elements of cost Cost
Rs.
Equivalent Production Units
(Refer to Working Note 1)
Cost per
unit
(Rs.)
Material cost 96,000 1,200 80
Conversion cost 3,36,000 1,120 300
Total 380
Cost of 1,000 completed units @ Rs. 380/- p.u. = Rs. 3,80,000
Cost of 200 units under Work-in-Process:
Material cost = 200 Rs. 80 = Rs. 16,000
Conversion cost = 120 Rs. 300 = Rs. 36,000
Total = Rs. 52,000
(ii) Polishing Process
Element of cost Cost
Rs.
Equivalent Production Units
(Refer to Working Note 1)
Cost per
unit
(Rs.)
Cost of units
introduced (Rs.) 3,80,000
Material cost (Rs.) 8,000 3,88,000 1,000 388
Conversion cost 54,000 750 72
460
Total Cost of 500 completed units @ Rs. 460 p.u. = Rs. 2,30,000
Material cost = 500 Rs. 388 = Rs. 1,94,000
Conversion cost = 250 Rs. 72 = Rs. 18,000
Total = Rs. 2,12,000
Process & Operation Costing
10.21
Selling price per unit
Cost per unit Rs. 460.00
Profit @ 25% on sale price Rs. 153.33
Or 33
3
1
% on cost
Selling price (p.u.) Rs. 613.33
Working Note
1. Statement of equivalent production of pressing process:
Input
(Units)
Output Units Equivalent units
Material Conversion
Qty.
(Units)
% Qty.
(Units)
%
1,200 Completed 1,000 1,000 100 1,000 100
Work in process 200 200 100 120 60
1,200 1,200 1,200 1,120
2. Statement of equivalent production of polishing process
Input
(Units)
Output Units Equivalent units
Material Conversion
Qty. (units) % Qty. (units) %
1,000 Completed 500 500 100 500 100
Work in process 500 500 100 250 50
1,000 1,000 1,000 750
Question 15
A product passes through three processes A, B and C. The details of expenses
incurred on the three processes during the year 1992 were as under:
Process A B C
Units issued / introduced
cost per unit Rs. 100
10,000
Rs. Rs. Rs.
Sundry Materials 10,000 15,000 5,000
Labour 30,000 80,000 65,000
Direct Expenses 6,000 18,150 27,200
Selling price per unit of output 120 165 250
Cost Accounting
10.22
Management expenses during the year were Rs. 80,000 and selling expenses were Rs.
50,000 These are not allocable to the processes.
Actual output of the three processes was:
A 9,300 units, B-5, 400 units and C-2, 100 units. Two third of the output of Process A
and one half of the output of Process B was passed on to the next process and the balance
was sold. The entire output of process C was sold.
The normal loss of the three processes, calculated on the input of every process was:
Process A-5%; B-15% and C-20%
The Loss of Process A was sold at Rs. 2 per unit, that of B at Rs. 5 per unit and of
Process C at Rs. 10 per unit.
Prepare the Three Processes Accounts and the Profit and Loss Account.
Answer
Process A Account
Dr. Cr.
Particulars Units Rs. Particulars Units Rs.
To Units brought in
(Rs.10010,000)
10,000 10,00,000 By Normal Loss
(5% of 10,000 units
500 1,000
To Sundry Materials 10,000 @ Rs. 2/- p.u.)
To Labour 30,000 By Abnormal loss 200 22,000
To Direct expenses 6,000 (Working note 1)
Process B A/c 6,200 6,82,000
(Output to be
transferred
Rs. 110 6,200)
(Working Note 1)
_____ _______
By Profit & Loss A/c
(Rs. 100 3,100
units)
(Working Note 1)
3,100
_____
3,41,000
_______
10,000 10,46,000 10,000 10,46,000
Process B Account
Dr. Cr.
Particulars Units Rs. Particulars Units Rs.
To Process A A/c
To Sundry Materials
To Labour
6,200 6,82,000
15,000
80,000
By Normal Loss
(15% of 6,200 Units
= 930 units
930 4,650
Process & Operation Costing
10.23
To Direct expenses 18,150 @ Rs. 5/- p.u.)
To Abnormal gain
(Working Note 2)
130 19,500 By Process C A/c
(Output to be
transferred)
Rs. 150 2,700
(Working Note 2)
2,700 4,05,000
____ _______
By Profit & Loss A/c
(Rs. 150 2,700)
2,700
____
4,05,000
_______
6,330 8,14,650 6,330 8,14,650
Process C Account
Dr. Cr.
Particulars Units Rs. Particulars Units Rs.
To Process B A/c
To Sundry Materials
To Labour
To Direct expenses
2,700 4,05,000
5,000
65,000
27,200
By Normal Loss
(20% of 2,700
units = 540 units
@ Rs. 10/- p.u.)
540 5,400
By Abnormal Loss
(Working Note 3)
60 13,800
_____ _______
By Profit & Loss A/c
(Rs.230 2,100
units) (Working
Note 3)
2,100
____
4,83,000
_______
2,700 5,02,200 2,700 5,02,200
Profit & Loss Account
Dr. Cr.
Particulars Units Rs. Particulars Units Rs.
To Process A A/c 3,100 3,41,000 By Sale 3,100 3,72,000
To Process B A/c 2,700 4,05,000 (Process A's Output
To Process C A/c 2,100 4,83,000 @ Rs. 120/- p.m.)
To Management By Sale 2,700 4,45,500
Expenses 80,000 (Process B's Output
To Selling Expenses 50,000 @ Rs. 165/- p.u.)
To Abnormal Loss A/c 34,800 By Sale 2,100 5,25,000
Cost Accounting
10.24
(Working Note 4) (Process C's Output
@ Rs. 250/- p.u.)
By Abnormal gain A/c
(Working Note 5)
18,850
____ ________ By Net Loss ____ 32,450
7,900 13,93,800 7,900 13,93,800
Working Notes
1. (i) Per unit cost of normal production under process A:
output production Normal
output normal of t cos Normal
=
=
units 500 , 9
000 , 1 . Rs 000 , 46 , 10 . Rs
= Rs. 110
(ii) Value of Abnormal loss under process A:
Abnormal loss units = Normal production Actual production
= 9,500 9,300 = 200 units
Value of Abnormal Loss
= Per unit cost of normal production Abnormal loss units
= Rs. 110 200 Rs. 22,000.
2. (i) Per unit cost of normal production under process B:
= 150 . Rs
270 , 5
500 , 90 , 7 . Rs
270 , 5
) 659 , 4 . Rs 150 , 95 , 7 . Rs (
= =
(ii) Value of Abnormal gain under process B:
Abnormal gain units = Normal loss Actual loss
= 930 800 = 130 units
= Per unit cost of normal production Abnormal gain units
= Rs. 150 130 units = Rs. 19,500.
3. (i) Per unit cost of normal production under process C:
= 230 . Rs
units 160 , 2
800 , 96 , 4 . Rs
units 160 , 2
) 400 , 5 . Rs 200 , 02 , 5 . Rs (
= =
Process & Operation Costing
10.25
(ii) Value of Abnormal loss under process C:
Abnormal loss units
= Normal production Actual production
= 2,160 units 2,100 units = 60 units
= Rs. 230 60 units = Rs. 13,800
4. Abnormal Loss Account
Dr. Cr.
Units Cost
p.u.
Rs.
Amount
Rs.
Particulars Units Cost
p.u.
Rs.
Amount
Rs.
To Process A A/c 200 110 22,000 By Sale
proceeds of
Process A Loss
200 2 400
To Process C A/c 60 230 13,800 By Sale
proceeds of
Process C loss
60 10 600
____ _____ By Profit & Loss A/c ___ 34,800
260 35,800 260 35,800
5. Abnormal Gain Account
Dr. Cr.
Units Cost
p.u.
Amount Particulars Units Cost
p.u.
Amount
Rs. Rs. Rs. Rs.
To Normal loss
shortfall
130 5 650 By Process B 130 150 19,500
To Profit & Loss A/c 18,850 _____
19,500 19,500
Question 16
Following data are available for a product for the month of July, 1993.
Process I Process II
Opening work-in-progress NIL NIL
Rs. Rs.
Cost Incurred during the month:
Direct materials 60,000
Labour 12,000 16,000
Factory overheads 24,000 20,000
Cost Accounting
10.26
Units of production:
Received in Process 40,000 36,000
Completed and transferred 36,000 32,000
Closing work-in-progress 2,000 ?
Normal loss in process 2,000 1,500
Production remaining in Process has to be valued as follows:
Materials 100%
Labour 50%
Overheads 50%
There has been no abnormal loss in Process II
Prepare process accounts after working out the missing figures and with detailed
workings.
Answer
Statement of equivalent production units (Process I)
TABLE 1
Equivalent Production
Material Labour and Overhead
Particulars Units
Introduced
Units
Out
%
Completion
Units %
Completion
Units
Units in 40,000
Units completed
and transferred to
Process-II
36,000 100 36,000 100 36,000
Normal loss 2,000
Closing work-in-
progress
2,000 100 2,000 50 1,000
Total 40,000 40,000 38,000 37,000
Computation of cost per equivalent unit for each cost element
TABLE 2
Total Cost
Rs.
Equivalent
Units
Cost per
Equivalent Unit
Rs.
Direct materials 60,000 38,000 1.5780
Labour 12,000 37,000 0.3243
Factory overheads 24,000 37,000 0.6487
Total 2.5519
Process & Operation Costing
10.27
Process 1 Account
Units Rs. Units Rs.
To Units introduced
(Direct materials)
40,000 60,000 By Normal Loss 2,000 NIL
To Labour 12,000 By Process III
transferred (Refer to
Working Note-1)
36,000 91,869
To Factory overheads
_____
24,000
_____
By Work in-process
(Refer to Working
Note 2)
2,000
_____
4,131
_____
40,000 96,000 40,000 96,000
Statement of equivalent production units (Process II)
TABLE 3
Equivalent Production
Material Labour and Overheads
Particulars Units
Introduced
Units
Out
%
Completion
Units %
Completion
Units
Units transferred
from process-I
36,000 32,000 100 32,000 100 32,000
Normal loss 1,500
Closing work-in-
process
2,500 100 2,500 50 1,250
36,000 36,000 34,500 33,250
Computation of cost per equivalent unit for each cost element
TABLE 4
Total Cost
Rs.
Equivalent
Units
Cost per Equivalent
Units
Rs.
Cost of 36,000 units transferred
from Process I
91,869 34,500 2.6629
Labour 16,000 33,250 0.4812
Factory overheads 20,000 33,250 0.6015
Total 3.7456
Cost Accounting
10.28
Process-II Account
Units Rs. Units Rs.
To Units introduced
(Transferred
from Process-I)
36,000 91,869 By Normal Loss
By Finished stock
transferred
1,500
32,000

1,19,859
To Labour 16,000 (Refer to Working
Note 3)
To Factory overheads
_____
20,000
_____
By Work-in-process
(Refer to Working
Note 4)
2,500
_____
8,010
_____
36,000 1,27,860 36,000 1,27,869
Working Notes:
1. Cost of 36,000 completed units in Process I:
= 36,000 Cost per unit (Refer to Table 2)
= 36,000 Rs. 2.5519 = Rs. 91,869.
2. Cost of 2,000 units under work-in-process in Process-I:
= Cost of 2,000 equivalent units of material + Cost of 1,000 equivalent units of labour
and overheads (Refer to Tables 1 and 2).
= 2,000 Rs. 1.5789 + 1,000 Rs.0.3243 + 1,000 Rs. 0.6487
= Rs. 4,131
3. Cost of 32,000 units of finished stock in Process-II:
= 32,000 Cost per unit (Refer to Table 3)
= 32,000 Rs. 3.7456 = Rs. 1,19,589
4. Cost of 2,500 units under work-in-process in Process-II:
= Cost of 2,500 equivalent units of material + Cost of 1,250 equivalent units of labour
and overhead (Refer to Tables 3 and 4)
= 2,500 Rs. 2.6629 + 1,250 Rs. 0.4812 + 1,250 Rs. 0.6015
= Rs. 6657.25 + Rs. 601.50 + Rs. 751.88
= Rs. 8,010.63.
Question 17
In a manufacturing company, a product passes through 5 operations. The output of the
5
th
operation becomes the finished product. The input, rejection, output and labour and
overheads of each operation for a period are as under:
Process & Operation Costing
10.29
Operation Input
(units)
Rejection
(units)
Output
(units)
Labour and
Overhead
(Rs.)
1 21,600 5,400 16,200 1,94,400
2 20,250 1,350 18,900 1,41,750
3 18,900 1,350 17,550 2,45,700
4 23,400 1,800 21,600 1,40,400
5 17,280 2,880 14,400 86,400
You are required to:
(i) Determine the input required in each operation for one unit of final output.
(ii) Calculate the labour and overhead cost at each operation for one unit of final output and
the total labour and overhead cost of all operations for one unit of final output.
(November,1996,8 marks)
Answer
(i) Statement of Input required in each operation for one unit of final output:
(Refer to Working Note)
Operation Output
(Units)
Rejection of
output in %
Input
required
5 1 20 1.20
100
120
1
4 1.20 8.33 1.30
100
33 . 108
20 . 1
3 1.30 7.69 1.40
100
69 . 107
30 . 1
2 1.40 7.14 1.50
100
14 . 107
40 . 1
1 1.50 33.33 2.00
100
33 . 133
50 . 1
Cost Accounting
10.30
Working Note:
Input required for final output
Operation Input
(units)
Rejection
(units)
Output
(units)
Rejection
as %
of output
Input
required for
final output
1 21,600 5,400 16,200 33.33 2.00
2 20,250 1,350 18,900 7.14 1.50
3 18,900 1,350 17,550 7,69 1.40
4 23,400 1,800 21,600 8.33 1.30
5 17,280 2,880 14,400 20.00 1.20
(ii) Statement of labour and overhead cost
at each operation for one unit of final output
Operation Input
(Units)
(Rs.)
Labour &
Overheads)
(Rs.)
Labour &
Overhead
per unit of
input
(Rs.)
Input units
required for
one unit of
final output
Labour and
Overhead
cost per unit
of final
output
(Rs.)
(a) (b) (c) (d) = (c)/(b) (e) (f) = (d)(e)
1 21,600 1,94,400 9 2.00 18.00
2 20,250 1,41,750 7 1.50 10.50
3 18,900 2,45,700 13 1.40 18.20
4 23,400 140,400 6 1.30 7.80
5 17,280 86,400 5 1.20 6.00
60.50
Total labour and overhead cost of all operations for one unit of final output is Rs. 60.50
Question 18
From the following information for the month of October, 2003, prepare Process III cost
accounts:
Opening WIP in Process III 1,800 units at Rs. 27,000
Transfer from Process II 47,700 units at Rs. 5,36,625
Transferred to Warehouse 43,200 units
Process & Operation Costing
10.31
Closing WIP of Process III 4,500 units
Units scrapped 1,800 units
Direct material added in Process III Rs. 1,77,840
Direct Wages Rs.87,840
Production overheads Rs. 43,920
Degree of completion:
Opening Stock Closing Stock Scrap
Material 80% 70% 100%
Labour 60% 50% 70%
Overheads 60% 50% 70%
The normal loss in the process was 5% of the production and scrap was sold @ Rs. 6.75
per unit. (November, 2003, 10 marks)
Answer
Statement of Equivalent Production
(Process III)
Equivalent production
Input
_____________
Output
_______________
Material A
__________
Material B
__________
Labour &
overheads
Details Quantity
Units
Quantity
units
Quantity
units
% Quantity
units
% Quantity
units
%
Op WIP 1,800 Work on
Op. WIP
1,800 360 20 720 40
Process II
Transfer
47,700 Introduced
&
completed
during the
month
41,400 41,400 100 41,400 100 41,400 100
Normal loss
(5% of
45,000
units)
2,250
Cl. WIP 4,500 4,500 100 3,150 70 2,250 50
49,950 45,900 44,910 44,370
Abnormal
gain
450 450 100 450 100 450 100
49,500 49,500 45,450 44,460 43,920
Cost Accounting
10.32
Working note
Production units:
Production units = Opening units + Units transferred from process II Closing units
= 1,800 units + 47,700 units 4,500 units = 45,000 units
Statement of cost
Cost Equivalent Cost per
equivalent units
Rs. Rs.
(a) (b) (a) / (b)
Material A 5,36,625
(Transfer from previous process)
Less: Scrap value of normal loss
(2,250 units Rs 6.75)
15,187
5,21,438 45,450 11.4728
Material B 1,77,840 44,460 4.0000
Labour 87,840 43,920 2.0000
Overheads 43,920 43,920 1.0000
8,31,037.50 18.4728
Statement of apportionment of process cost
Rs.
Opening WIP Material A 27,000
Completed opening WIP units
1,800
Material B 360 units Rs.4 = Rs. 1,440
Wages 720 units Rs.2 = Rs. 1,440
Overheads 720 units Re. 1 = Rs. 720 3,600
Introduced & completed
41,400 units
41,400 units Rs. 18.4728 7,64,773
______
Total cost of 43,200 finished
goods units
7,95,373
Closing WIP Units 4,500 Material A 4,500 units Rs. 11.4728 51,628
Material B 3,150 units Rs.4 12,600
Wages 2,250 units Rs.2 4,500
Overheads 2,250 units Re.1 2,250
70,978
Abnormal gain units 450 450 units Rs. 18.4728 8313
Process & Operation Costing
10.33
Process III A/c
Units Rs. Units Rs.
To Balance b/d 1,800 27,000 By Normal Loss 2,250 15,187
To Process II A/c 47,700 5,36,625 By Finished goods
stock
43,200 7,95,373
To Direct material 1,77,840
To Direct Wages 87,840
To Production overheads 43,920 By Closing WIP 4,500 70,978
To Abnormal gain 450 8,313 _____ _______
49,950 8,81,538 49,950 8,81,538
Question 19
The following information is given in respect of Process No.3 for the month of January
2001.
Opening stock 2,000 units made up of
Direct Materials I Rs. 12,350
Direct Materials II Rs. 13,200
Direct Labour Rs. 17,500
Overheads Rs. 11,000
Transferred from Process No.2: 20,000 units @ Rs. 6.00 per unit
Transferred to Process No.4: 17,000 units
Expenditure incurred in Process No.3
Direct Materials Rs. 30,000
Direct Labour Rs. 60,000
Overheads Rs. 60,000
Scrap 1,000 units Direct Materials 100%, Direct Labour 60%. Overheads 40%. Normal
loss 10% of production.
Scrapped units realised Rs. 4 per unit.
Closing Stock: 4,000 units Degree of completion: Direct Materials 80%, Direct Labour
60% and overheads 40%.
Prepare Process No.3 Account using average price method, alongwith necessary
supporting statements. (May,2001, 10 marks)
Cost Accounting
10.34
Answer
Statement of Equivalent Production
(Average cost method)
Total
Unit
Material I Material II Labour Overhead Particulars
% Units % Units % Units % Units
Units
completely
processed
17,000 100 17,000 100 17,000 100 17,000 100 17,000
Normal Loss
10% of
(2,000 units
+ 20,000
units 4,000
units) (Refer
to working
note)
1,800
Abnormal gain -800 100 -800 100 -800 100 -800 100 -800
Closing stock 4,000 100 4,000 80 3,200 60 2,400 40 1,600
22,000 20,200 19,400 18,600 17,800
Statement of Cost
Cost
Rs.
Equivalent
Units
Rate/Equivalent (Unit)
(Rs.)
Material I:
Opening balance
2,000 units
12,350
Cost of 20,000 units
@ Rs. 6/- per unit
1,20,000
Less: Scrap realized
(1,800 units Rs. 4)
(7,200)
______ _____ _____
1,25,150 20,200 6,1955
Material II:
Opening Stock 13,200
In Process II 30,000 _____ _____
43,200 19,400 2.2268
Labour
Opening labour 17,500
In Process II 60,000 _____ _____
77,500 18,600 4.1667
Process & Operation Costing
10.35
Overhead:
Opening stock 11,000
In Process II 60,000 _____ _____
71,000 17,800 3.9888
16.5778
Statement of Evaluation
Cost of 17,000 finished goods units 2,81,822.60 or Rs.2,81,822 (say)
(17,000 units Rs. 16.5778)
Cost of 800 abnormal units 13,262.24 or 13,262 (say)
(800 units Rs. 16.5778)
Cost of 4,000 closing work-in-progress units 48,289.92 or 48,290 (say)
Rs.
Material I 4,000 units Rs. 6.1955 = 24,782.00
Material II 3,200 units Rs. 2.2268 = 7,125.76
Labour 2,400 units Rs. 4.1667 = 10,000.08
Overhead 1,600 units Rs. 3,988 = 6,382.08
48,289.92
Process 3 A/c
Dr. Cr.
Particulars Units Rs. Particulars Units Rs.
To Opening WIP 2,000 54,050 By Normal Loss 1,800 7,200
To Process 2 20,000 1,20,000 By Finished goods units 17,000 2,81,822
By Closing balance 4,000 48,290
To Direct Material II 30,000
To Direct Labour 60,000
To Overhead 60,000
To Abnormal gain 800 13,262 _____ _______
22,800 3,37,312 22,800 3,37,312
Working Note: Normal loss given is 10% of production. The word production here means
those units which come upto the state of inspection. In that case, opening
stock plus receipts minus closing stock of WIP will represent units of
production (2,000 units + 20,000 units 4,000 units). In this case the
units of production comes to 18,000 units and hence 1,800 units as
normal loss units.
Cost Accounting
10.36
Question 20
JKL Limited produces two products J and K together with a by-product L from a single
main process (process I). Product J is sold at the point of separation for Rs. 55 per kg.
Whereas product K is sold for Rs. 77 per kg. After further processing into product K2. By-
product L is sold without further processing for Rs. 19.25 per kg.
Process I is closely monitored by a team of chemists, who planned the output per 1,000
kg of input materials to be as follows:
Product J 500 kg
Product K 350 kg.
Product L 100 kg.
Toxic waste 50 kg.
The toxic waste is disposed at a cost of Rs. 16.50 per kg. And arises at the end of
processing.
Process II which is used for further processing of product K into product K2, has the
following cost structure:
Fixed costs Rs. 2,64,000 per week
Variable cost Rs. 16.50 per kg. processed
The following actual date relate to the first week of the month:
Process I
Opening work-in-progress NIL
Material input 40,000 kg costing Rs. 6,60,000
Direct Labour Rs.4,40,000
Variable overheads Rs. 1,76,000
Fixed overheads Rs. 2,64,000
Outputs:
Product J 19,200 kg.
Product K 14,400 kg.
Product L 4,000 kg.
Toxic waste 2,400 kg.
Closing work-in-progress NIL
Process & Operation Costing
10.37
Process II
Opening work-in-progress NIL
Input of product K 14,400 kg.
Output of product K2 13,200 kg.
Closing work-in-progress (50% converted
and conversion costs were incurred in
accordance with the planned cost
structure) 1,200 kg.
Required
(i) Prepare Process I account for the first week of the month using the final sales value
method of attribute the pre-separation costs to join products.
(ii) Prepare the toxic waste account and Process II account for the first week of the month.
(iii) Comment on the method used by the JKL Limited to attribute the pre-separation costs to
joint products.
(iv) Advise the management of JKL Limited whether or not, on purely financial grounds it
should continue to process product K into product K2.
(a) If product K could be sold at the point of separation for Rs. 47.30 per kg; and
(b) If the 60% of the weekly fixed costs of Process II were avoided by not processing
product K further. (May,2004, 10 marks)
Answer
(i) Process I account
Particulars Qty in
Kg.
Rate /
Kg. Rs.
Amount
Rs.
Particulars Qty in
Kg.
Rate/
Kg.Rs.
Amount
Rs.
To Material input 40,000 16.50 6,60,000 By Product L sales 4,000 19.25 77,000
To Direct Labour 4,40,000 By Normal loss 2,000 (-)
16.50
(-) 33,000
To Variable
overheads
1,76,000 By Abnormal Loss* 400 44 17,600
To Fixed
overheads
2,64,000 By Joint Product J (Refer
to working note 2)
19,200 7,21,171
_____ _______
By Joint product K (Refer
to working note 2)
14,400
_____
7,67,229
_______
40,000 15,40,000 40,000 15,40,000
Cost Accounting
10.38
Valuation of abnormal loss per kg. =
85 . 0 . Kgs 000 , 40
000 , 33 . Rs 000 , 77 . Rs 000 , 40 , 15 . Rs

+
(Using physical measure method) = Rs. 14,96,000 / 34,000 kgs.
= Rs. 44 per kg.
(ii) Toxic Waste Account
Particulars Qty.
in Kg.
Rate
/ Kg.
Rs.
Amount
Rs.
Particulars Qty. in
Kg.
Rate/
Kg. Rs.
Amount
Rs.
To Process I A/c 2,000 16.50 (-)33,000 By Balance 16.50 (-)33,000
Process II Account
Particulars Qty. in
Kg.
Rate /
Kg.
Amount Particulars Qty. in
Kg.
Rate/
Kg.
Amount .
Rs. Rs. Rs. Rs.
To Process I
A/c (Product K)
14,400 52,585 7,57,236 By Product
K2 account
13,200 11,73,924
To Variable
overheads
To Fixed
overheads
16.50 2,37,600
2,64,000
By Closing
WIP (Refer
to working
note 3)
1,200 84,912
________
12,58,836 12,58,836
Working notes:
1. Calculation of joint cost of the output:
= Rs. 15,40,000 Rs. 77,000 Rs. (-) 33,000 Rs. 17,600
= Rs. 14,78,400
2. Allocation of joint cost over joint products J & K
(By using final sales value method)
Products Quantity
(Kgs.)
Sales Value
Rs.
Joint Cost
Rs.
J 19,200 10,56,000
(19,200 kg Rs. 55)
7,21,171
K 14,400 11,08,800
(14,400 kgs x Rs.77)
7,57,229
Total 21,64,800 14,78,400
Process & Operation Costing
10.39
3. Valuation of 1,200 Kgs. of Closing WIP :
Material I 100% complete Rs.
(1200 kgs x Rs.52.5858) 63,103
Fixed & variable overheads
|
|
.
|

\
|
units 800 , 13
600 , 01 , 5 . Rs
x 600 units 21,809
Total valuation of 1,200 kgs of closing WIP 84,912
(iii) Comment on the method used by the JKL Ltd :
(To attribute the pre-separation costs to joint products)
For attributing the joint costs over joint products J and K , JKLF Ltd., used the basis of
final sales value. This is one of the popular method used in the industry.
Other methods can also be used for the purpose. Some of these are as follows:
Physical Measure Method (if both the products are equally complex).
Constant Gross Margin Percentage method.
Net Realization Value Method.
(iv) Advise to the management of JKL Ltd.:
Rs.
Incremental sales revenue per kg. from further processing 29.70
Less: Incremental variable cost per kg. of further processing 16.50
Incremental contribution per kg from further processing 13.20
At an output of 14,400 kgs the incremental contribution is: 1,90,080
Less: Avoidable fixed cost 1,58,400
(60% x Rs. 2,64,000) _____
Net benefit (Rs.) 31,680
Break-even point =
. kg per on contributi l Incrementa
costs fixed Avoidable
=
20 . 13 . Rs
400 , 58 , 1 .. Rs
= 12,000 kgs.
Hence further processing should be undertaken if output is expected to exceed 12:000
kgs. per week.
Question 21
A product passes through two processes. The output of Process I becomes the input of
Process II and the output of Process II is transferred to warehouse. The quantity of raw
Cost Accounting
10.40
materials introduced into Process I is 20,000 kg. at Rs. 10 per kg. The cost and output data for
the month under review are as under:
Process I Process II
Direct Materials Rs. 60,000 Rs. 40,000
Direct Labour Rs. 40,000 Rs. 30,000
Production overheads Rs. 39,000 Rs. 40,250
Normal Loss 8% 5%
Output 18,000 17,400
Loss realisation of Rs. / Unit 2.00 3.00
The company's policy is to fix the Selling price of end product is such a way as to yield a
Profit of 20% on Selling price.
Required
(i) Prepare the Process Accounts
(ii) Determine the Selling price per unit of the end product. (November,2002, 9 marks)
Answer
(i) Process I Account
Dr. Cr.
Kgs. Rate
/ Kg.
Amount Particulars Kgs. Rate/
Kg.
Amount.
Rs. Rs. Rs. Rs.
To Raw material 20,000 10 2,00,000 By Normal loss 1,600 2.00 3,200
To Direct material
To Direct labour
60,000
40,000
By Abnormal
loss (Refer
to working
notes 1 &
2)
400 18.25 7,300
To Production
overheads _____ 39,000
By Transfer to
Process II
18,000 18.25 3,28,500
20,000 3,39,000 20,000 3,39,000
Process II Account
Dr. Cr.
Kgs. Rate
/ Kg.
Amount Particulars Kgs. Rate/
Kg.
Amount
Rs.
Rs. Rs. Rs.
To Process I Account 18,000 18.25 3,28,500 By Normal loss 900 3.00 2.700
Process & Operation Costing
10.41
To Direct materials 40,000 By Transfer to
warehouse
17,400 25.50 4,43,700
To Direct labour 30,000
To Production overheads 40,250
To Abnormal gain 300 25.50 7,650 _____ ______
(Refer to working notes 3 & 4) 18,300 446400 18300 446400
Working notes
1. Abnormal loss in Process I:
Required production (20,000 kgs. 1,600 kgs.) 18,400
Actual production (in kgs.) 18,000
Abnormal loss (in kgs.) 400
2. Value of abnormal loss in Process I:
=
|
|
.
|

\
|
output Normal
output normal of t cos Normal
Abnormal loss.
=
|
|
.
|

\
|
. kgs 400 , 18
800 , 35 , 3 . Rs
400 kgs. = Rs. 18.25 400 kgs. = 7,300
3. Abnormal gain in Process II:
Required production (18,000 kgs. 900 kgs.) 17,100
Actual production 17,400
Abnormal gain (in kgs.) 300
(4) Value of abnormal gain in Process I:
=
|
|
.
|

\
|
kgs 100 , 17
050 , 36 , 4 . Rs
300 Kgs. = Rs. 25.50 3,000 kgs. = Rs.7,650.00
(ii) Determination of selling price of the end product:
If the cost price of end product is Rs. 80 the units S.P. is Rs. 100
If the cost price of end product is Re.1, the unit S.P. is
80
100
If the cost price is Rs. 25.50, then the S.P. of the end product is 50 . 25
80
100

= Rs. 31.875
Cost Accounting
10.42
Question 22
RST Ltd. manufactures plastic moulded chairs. Three models of moulded chairs, all
variation of the same design are Standard, Deluxe and Executive. The company uses an
operation-costing system.
RST Ltd. has extrusion, form, trim and finish operations. Plastic sheets are produced by
the extrusion operation. During the forming operation, the plastic sheets are moulded into
chair seats and the legs are added. The standard model is sold after this operation. During the
trim operation, the arms are added to the Deluxe and Executive models and the chair edges
are smoothed. Only the executive model enters the finish operation, in which padding is
added. All of the units produced receive the same steps within each operation. In April, 2003
units of production and direct material cost incurred are as follows:
Units
Produced
Extrusion
Materials
(Rs.)
Form
Materials
(Rs.)
Trim
Materials
(Rs.)
Finish
Materials
(Rs.)
Standard Model 10,500 1,26,000 42,000 0 0
Deluxe Model 5,250 63,000 21,000 15,750 0
Executive Model 3,500 42,000 14,000 10,500 21,000
19,250 2,31,000 77,000 26,250 21,000
The total conversion costs for the month of April, 2003 are:
Extrusion
Operation
Form
Operation
Trim
Operation
Finish
Operations
Total conversion costs Rs. 6,06,375 Rs. 2.97,000 Rs. 1,55,250 Rs. 94,500
Required:
(i) For each product produced by RST Ltd. during April.2003, determine the unit cost and
the total cost
(i) Now consider the following information for May. All unit costs in May are identical to the .
April unit costs calculated as above in (i). At the end of May, 1,500 units of the Deluxe
model remain in work-in-progress. These units are 100% complete as to materials and 65
% complete in the trim operation. Determine the cost of the Deluxe model work-in-
process inventory at the end o
f
May. (May,2003, 6+3=9 marks)
Answer
Working notes:
1. Statement of equivalent production units of Extrusion, Form, Trim and Finish
Process & Operation Costing
10.43
materials for Standard, Deluxe and Executive model of chairs.
Extrusion
materials
Form
materials
Trim
materials
Finish
materials
units units units units
Equivalent units of materials
required to produce three
brands of plastic moulded
chairs
19,250 19,250 8,750 3,500
2. Statement of material and conversion cost per equivalent unit:
Extrusion Form Trim Finish
Equivalent units: (A)
(Refer to working note 1)
19,250 19,250 8,750 3,500
Material costs (Rs.): (B) 2,31,000 77,000 26,250 21,000
Conversion costs of different
operations performed on
material (Rs.) : (C)
6,06,375 2,97,000 1,55,250 94,500
Material cost per equivalent
unit (Rs.): (B/A)
12 4 3 6
Conversion cost per
equivalent unit (Rs.): (C/A)
31.50 15.43 17.74 27
(i) Statement of Unit and Total cost Model-wise
(Refer to working notes 1 & 2)
Standard
Model cost
Deluxe
Model Cost
Executive
Model
Rs. Rs. Rs.
Extrusion material 12.00 12.00 12.00
Form material 4.00 4.00 4.00
Trim material 3.00 3.00
Finish material - - 6..00
Extrusion conversion 31.50 31.50 31.50
Form conversion 15.43 15.43 15.43
Trim conversion 17.74 17.74
Finish conversion 27
Total unit cost 62.93 83.67 116.67
Total Cost 6,60,765
(10,500
unitsRs.62.93)
4,39,267.5
(5,250 units
Rs.83.67)
4,08,345
(3,500 units
Rs.116.67)
Cost Accounting
10.44
(ii) Statement of cost of 1,500 units of the Deluxe Model of the chairs lying in
Work-in-progress inventory at the end of May 2003
Equivalent
units
Unit cost
(Refer to
working note
2)
Rs.
Total Cost
(1) (2) (3)=(1) (2)
Extrusion materials 1,500 12 18,000
Form materials 1,500 4 6,000
Trim materials 1,500 3 4,500
Extrusion materials conversion 1,500 31.50 47,250
Form materials conversion 1,500 15.43 23,145
Trim materials conversation 975 17.74 17,296.50
(1,500 units 65%) _________
Total cost of 1,500 units of 1,16,191.50
Delux Model of chairs lying in WIP
Question 23
Process 2 receives units from Process I and after carrying out work on the units transfers
them to Process 3. For the accounting period the relevant data were as follows:
Opening WIP 200 units (25% complete) valued at Rs. 5,000
800 Units received from Process I valued at Rs. 8,600
840 units were transferred to Process 3
Closing WIP 160 units (50% complete)
The costs of the period were Rs. 33.160 and no units were scrapped.
Required:
Prepare the process Account for Process 2 using the Average Cost method of valuation.
(November,1995, 6 marks)
Answer
Process 2 Account
Units Rs. Units Rs.
To Opening WIP
To Process 1 A/c
To Process Cost
200
800
5,000
8,600
33,160
By Transfer to
Process 3 (Refer
to W. note No.3)
840 42,694
By Closing WIP 160 4,066
Process & Operation Costing
10.45
____ _____
(Refer to W. note
No.3)
____ _____
1,000 46,760 1,000 46,700
Working Notes
1. Computation of Equivalent Units
Equivalent Production
Material Labour and Overhead
Units In Particulars Units
out
%
Comp-
letion
Units %
Comp-
letion
Units %
Comp-
letion
Units
1000 Completed
units
840 100 840 100 840 100 840
WIP 160 50 80 50 80 50 80
1000 1000 920 920 920
2. Average cost per completed units
Rs.
Cost of 200 opening WIP units 5,000
Cost of 800 units received from Process I 8,600
Cost of the period 33,160
Total cost 46,760
Equivalent units = 920
(Refer to Working Note No.1)
Average cost per completed unit =
units 920
760 , 46 . Rs
= Rs. 50.826
Rs.
3. Cost of 840 completed units transferred to Process 3 42,694
(840 units Rs. 50,826)
Cost of 160 WIP units which are 50% complete 4,066
(80 units Rs. 50,826)
Cost Accounting
10.46
Question 24
The input to a purifying process was 16,000 kgs. of basic material purchased @ Rs. 1.20
per kg. Process wages amounted to Rs.720 and overhead was applied @ 240% of the labour
cost. Indirect materials of negligible weight were introduced into the process at a cost of Rs.
336. The actual output from the process weighed 15,000 kgs. The normal yield of the process
is 92%. Any difference in weight between the input of basic material and output of purified
material (product) is sold @ Re. 0.50 per kg.
The process is operated under a licence which provides for the payment of royalty @
Re.0.15 per kg. of the purified material produced.
Prepare:
(i) Purifying Process Account (3 marks)
(ii) Normal Wastage Account (3 marks)
(iii) Abnormal Wastage / Yield Account (May, 1996, 2 marks)
(iv) Royalty Payable Account (1 marks)
Answer
(i) Purifying Process Account
Dr. Cr.
Qty.
kg.
Rate
per
kg.
Rs.
Amount
Rs.
Qty.
kg.
Rate
per
kg.
Rs.
Amount
Rs.
To Basic material 16,000 1.20 19,2000 By Normal
wastage 8%
of 1,60,000 Kg.
1,280 0.50 640.00
To Wages 720
To Overheads
240% of Rs. 720
1,728 By Purified
stock
15,000 1.60 24,000
To Indirect
materials
336
To Royalty
payable on
normal yield
14,720 kg 0.15
2,208
To Abnormal
yield 280 1.60
448
______ ______ ______
16,280 24,640 16,280 24,640
Process & Operation Costing
10.47
(ii) Normal Wastage Account
Dr. Cr.
Qty.
kg.
Rate
per
kg.
Rs.
Amount
Rs.
Particulars Qty.
Kg.
Rate
per
kg.
Rs.
Amount
Rs.
To Purifying
process (Normal
wastage)
1,280 0.50 640 By Purifying
Process (Ab.
Yield) reduction
280 0.50 140
____ ___
By Cash sale of
wastage 1,000 0.50 500
1,280 640 1,280 640
(iii) Abnormal Yield Account
Dr. Cr.
Qty.
kg.
Rate
per
kg.
Rs.
Amount
Rs.
Particulars Qty.
kg.
Rate
per
kg.
Rs.
Amount
Rs.
To Normal
Wastage A/c
280 0.50 140 By Purifying
Process A/c
280 1.60 448
To Royalty payable
(on abnormal
yield)
0.15 42
To Balance (Profit
& Loss A/c
___ 266 ___ ___
280 448 280 448
(iv) Royalty Payable Account
Dr. Cr.
Qty.
kg.
Rate
per
kg.
Rs.
Amount
Rs.
Particulars Qty.
kg.
Rate
per
kg.
Rs.
Amount
Rs.
To Balance 15,000 0.15 2,250 By Purifying
Process A/c
14,720 0.15 2,208
_____ _____
By Abnormal
yield A/c
280 0.15 42
15,000 2,250 15,000 2,250
Cost Accounting
10.48
Question 25
The following data relate to Process Q
(i) Opening work-in-process 4,000 units
Degree of completion:
Materials 100% Rs. 24,000
Labour 60% Rs. 14,400
Overheads 60% Rs. 7,200
(ii) Received during the month of April, 1998 from process P.
40,000 Units. Rs. 1,71,000
(iii) Expenses incurred in Process Q during the month:
Material Rs. 79,000
Labour Rs. 1,38,230
Overheads Rs. 69,120
(iv) Closing work-in-process 3,000 units
Degree of completion:
Material 100%
Labour & Overheads 50%
(v) Units scrapped 4,000 units
Degree of completion:
Materials 100%
Labour & Overheads 80%
(vi) Normal loss: 5% of current input.
(vii) Spoiled goods realised Rs. 1.50 each on sale.
(viii) Completed units are transferred to warehouse;
Required
Prepare:
(i) Equivalent units statement
(ii) Statement of cost per equivalent unit and total costs.
(iii) Process Q Account
(iv) Any other account necessary (May, 1998,12 marks)
Process & Operation Costing
10.49
Answer
(i) Equivalent units Statement
(using FIFO method)
Equivalent Production
Materials Labour Overheads
Units
in
Particulars Units
out
%
comple-
tion
Units %
comple-
tion
Units %
comple-
tion
Units
4,000 Opening
work in-
progress
units,
completed
and
transferred
to
warehouse
4,000 40 1,600 40 1,600
40,000 Units
completed
and
transferred
to
warehouse
33,000 100 33,000 100 33,000 100 33,000
Closing
work-in
progress
3,000 100 3,000 50 1,500 50 1,500
Normal loss 2,000
Abnormal loss 2,000 100 2,000 80 1,600 80 1,600
38,000 37,700 37,700
(ii) Statement of Cost per equivalent unit and total cost
Current process Q Previous
Process P
Material Labour and
overheads
Total
Costs (Rs.) 1,71,000 79,000 2,07,350
Less: Recovery from the sale
of 2,000 units @
Rs.1.50 p.u. of normal
loss (Rs.)
3,000
1,71,000 76,000 2,07,350
Equivalent units: 38,000 37.700
Cost Accounting
10.50
Cost per equivalent unit (Rs.) 6.50 5.50 12.00
|
.
|

\
| +
000 , 38
000 , 76 . Rs 000 , 71 , 1 . Rs
700 , 37
350 , 07 , 2 . Rs
Total cost of 37,000 completed units transferred to warehouse.
Cost of 4,000 completed opening units (Rs.) 54,400
(Rs. 45,600 + Rs. 8,800)
(1,600 units Rs. 5.50)
Cost of 33,000 completed units (Rs.) 3,96,000
(33,000 units Rs. 12)
Total cost of 37,000 completed units (Rs.) 4,50,400
Cost of 3,000 Closing W.I.P. Units (Rs.) 27,750
(Rs. 19,500 + Rs. 8,250)
{ (3,000 units Rs. 6.50) + (1,500 units Rs. 5.50) }
Cost of 2,000 abnormal loss unit (Rs.) 21,800
(Rs. 13,000 + Rs. 8,800) Rs. 4,99,950
(iii) Process Q Account
Dr. Cr.
Particulars Units Rs. Particulars Units Rs.
To Op. W.I.P. 4,000 45,600 By Normal loss 2,000 3,000
To Units received 40,000 1,71,000 By Completed units
(Refer to (ii) Part)
37,000 4,50,400
To Expenses incurred
Materials 79,000
By Cl. W.I.P.
(Refer to (ii) part)
3,000 27,750
Labour 1,38,230 By Abnormal Loss 2,000 21,800
Overheads ______ 69,120 (Refer to (ii) part) _____ _______
44,000 5,02,950 44,000 5,02,950
(iv) Any other account necessary is abnormal loss account:
Abnormal Loss Account
Dr. Cr.
Particulars Units Amount
Rs.
Particulars Units Amount
Rs.
To Process Q
Account
2,000 21,800 By Sale 2,000 3,000
_____
By Balance
(To Profit & Loss A/c)
18,800
_____
21,800 21,800
Process & Operation Costing
10.51
Question 26
Following information is available regarding process A for the month of February, 1999:
Production Record.
Units in process as on 1.2.1999 4,000
(All materials used, 25% complete for labour and overhead)
New units introduced 16,000
Units completed 14,000
Units in process as on 28.2.1999 6,000
(All materials used, 33-1/3% complete for labour and overhead)
Cost Records
Work-in-process as on 1.2.1999 Rs.
Materials 6,000
Labour 1,000
Overhead 1,000
8,000
Cost during the month
Materials 25,600
Labour 15,000
Overhead 15,000
55,600
Presuming that average method of inventory is used, prepare:
(i) Statement of equivalent production.
(ii) Statement showing cost for each element.
(iii) Statement of apportionment of cost.
(iv) Process cost account for process A. (May, 1999,10 marks)
Answer
(i) Statement of equivalent production
(Average cost method)
Particulars Equivalent Production
Materials Labour Overheads Input
(Units)
Output Units
%
comple-
tion
Equi-
valent
units
%
comple-
tion
Equi-
valent
units
%
comple-
tion
Equi-
valent
units
20,000 Completed 14,000 100 14,000 100 14,000 100 14,000
_____ WIP 6,000 100 6,000 33-1/3 2,000 33-1/3 2,000
20,000 20,000 20,000 16,000 16,000
Cost Accounting
10.52
(ii) Statement showing cost for each element
Particulars Materials Labour Overhead Total
Cost of opening work-in-progress (Rs.) 6,000 1,000 1,000 8,000
Cost incurred during the month (Rs.) 25,600 15,000 15,000 55,600
Total cost (Rs.) : (A) 31,600 16,000 16,000 63,600
Equivalent units : (B) 20,000 16,000 16,000
Cost per equivalent unit (Rs.) : C=(A/B) 1.58 1 1 3.58
(iii) Statement of apportionment of cost
Rs. Rs.
Value of output transferred: (a) 14,000 units @ Rs. 3.58 50,120
Value of closing work-in-progress: (b)
Material
Labour
Overhead
6,000 units @ Rs. 1.58
2,000 units @ Re. 1
2,000 units @ Re. 1
9,480
2,000
2,000 13,480
Total cost : (a+b) 63,600
(iv) Process cost account for process A:
Process A Cost Account
Units Rs. Units Rs.
To Opening WIP 4,000 8,000 By Completed units 14,000 50,120
To Materials 16,000 25,600 By Closing WIP 6,000 13,480
To Labour 15,000
To Overhead _____ 15,000 _____ _____
20,000 63,600 20,000 63,600
Quotation 27
Explain briefly the procedure for the valuation of Work-in-process.
(November,2002, 2 marks)
Process & Operation Costing
10.53
Answer
Valuation of Work-in process:
The valuation of work-in-process can be made in the following three ways, depending
upon the assumptions made regarding the flow of costs.
First-in-first out (FIFO) method
Last-in-first out (LIFO) method
- Average cost method
A brief account of the procedure followed for the valuation of work-in-process under the
above three methods is as follows;
FIFO method: According to this method the units first entering the process are
completed first. Thus the units completed during a period would consist partly of the units
which were incomplete at the beginning of the period and partly of the units introduced during
the period.
The cost of completed units is affected by the value of the opening inventory, which is
based on the cost of the previous period. The closing inventory of work-in-process is valued at
its current cost.
LIFO method: According to this method units last entering the process are to be
completed first. The completed units will be shown at their current cost and the closing-work in
process will continue to appear at the cost of the opening inventory of work-in-progress along
with current cost of work in progress if any.
Average cost method: According to this method opening inventory of work-in-process and
its costs are merged with the production and cost of the current period, respectively. An
average cost per unit is determined by dividing the total cost by the total equivalent units, to
ascertain the value of the units completed and units in process.
Question 28
Explain equivalent units (May, 2002, 2 marks)
Answer
When opening and closing stocks of work-in-process exist, unit costs cannot be
computed by simply dividing the total cost by total number of units still in process. We can
convert the work-in-process units into finished units called equivalent units so that the unit
cost of these units can be obtained.
Equivalent Actual number of Percentage of
completed units = units in the process work completed
of manufacture
Cost Accounting
10.54
It consists of balance of work done on opening work-in-process, current production done
fully and part of work done on closing WIP with regard to different elements of costs viz.,
material, labour and overhead.
Question 29
From the following Information for the month ending October, 2005, prepare Process
Cost accounts for Process III. Use First-in-fist-out (FIFO) method to value equivalent
production.
Direct materials added in Process III (Opening WIP) 2,000 units at Rs. 25,750
Transfer from Process II 53,000 units at Rs.
4,11,500
Transferred to Process IV 48,000 units
Closing stock of Process III 5,000 units
Units scrapped 2,000 units
Direct material added in Process III Rs. 1,97,600
Direct wages Rs. 97,600
Production Overheads Rs. 48,800
Degree of completion:
Opening Stock Closing Stock Scrap
Materials 80% 70% 100%
Labour 60% 50% 70%
Overheads 60% 50% 70%
The normal loss in the process was 5% of production and scrap was sold at Rs. 3 per
unit. (14 Marks)
Answer
Process III Process Cost Sheet Period..
(FIFO Method)
Op. Stock : 2000 units
Introduced : 53000 units
Statement of Equivalent Production
Input Output Equivalent production
Item Units Item Units Material A Material B Labour &
OHs.
Op
stock 2,000
Work on op
WIP 2,000 - - 400 20 800 40
Process Introduced &
Process & Operation Costing
10.55
II
transfer 53,000
completed
during the
period (48,000
2000) 46,000 46,000 100 46,000 100 46,000 100
48,000
Normal Loss
(2000+53000
5000) x 5% 2,500 - - - - - -
55,000 Cl WIP 5,000 5,000 100 3,500 70 2,500 50
55,500 51,000 49,900 49,300
Ab. Gain 500 500 100 500 100 500 100
55,000 50,500 49,400 48,800
Statement of Cost for each Element
Element
of cost
Cost
(Rs.)
Equivalent
Production.
Cost
per unit
Rs.
Material A
Transfer from previous. Process 4,11,500
Less: Scrap value of Normal Loss
2500 Rs. 3 7,500
4,04,000 50,500 8
Material B 1,97,600 49,400 4
Wages 97,600 48,800 2
Overheads 48,800 48,800 1
7,48,000 15
Process Cost Sheet (in Rs)
Op WIP (for completion) Mat B 400Rs. 4 = 1,600
Wages 800 Rs. 2 = 1,600
OHs. 800 Re. 1 = 800
4,000
Introduced and completely processed during the period 46000 Rs. 15 = Rs. 6,90,000
Closing WIP Mat A 5,0008 = 40,000
Mat B 3,5004 = 14,000
Wages 2,5002 = 5,000
OHs 2,5001 = 2,500
61,500
Abnormal Gain 500 Rs. 15 = 7,500
Cost Accounting
10.56
Process III A/c
Units Amount Units Amount
To bal b/d 2,000 25,750 By Normal Loss 2,500 7,500
To Process II A/c 53,000 4,11,500 By process IV A/c
(6,90,000 + 4000 +
25,750) 48,000 7,19,750
To Direct Material 1,97,600 By bal C/d 5,000 61,500
To Direct Wages 97,600
To Prodn. OHs 48,800
To Abnormal Gain 500 7,500
55,500 7,88,750 55,500 7,88,750
Question 30
A Company produces a component, which passes through two processes. During the
month of April, 2006, materials for 40,000 components were put into Process I of which 30,000
were completed and transferred to Process II. Those not transferred to Process II were 100%
complete as to materials cost and 50% complete as to labour and overheads cost. The
Process I costs incurred were as follows:
Direct Materials Rs.15,000
Direct Wages Rs.18,000
Factory Overheads Rs.12,000
Of those transferred to Process II, 28,000 units were completed and transferred to
finished goods stores. There was a normal loss with no salvage value of 200 units in
Process II. There were 1,800 units, remained unfinished in the process with 100%
complete as to materials and 25% complete as regard to wages and overheads.
No further process material costs occur after introduction at the first process until the end
of the second process, when protective packing is applied to the completed components.
The process and packing costs incurred at the end of the Process II were:
Packing Materials Rs.4,000
Direct Wages Rs.3,500
Factory Overheads Rs.4,500
Required:
(i) Prepare Statement of Equivalent Production, Cost per unit and Process I A/c.
(ii) Prepare statement of Equivalent Production, Cost per unit and Process II A/c.
Process & Operation Costing
10.57
Answer 30
Statement of Equivalent Production and Cost
Material Labour and
Overheads
Total
Units completed 30,000 30,000
Closing Inventory 10,000 5,000
Equivalent Production 40,000 35,000
Rs Rs Rs
Current Process cost 15,000 30,000 45,000
Cost/unit 0.375 0.8571
Closing inventory cost 3,750 4,286 8,036
Material transferred to Process II 36,964
Process I Account
Units Rs. Units Rs.
Direct material 40,000 15,000 Process II A/c 30,000 36,964
Direct wages 18,000 Work-in-progress inventory 10,000 8,036
Factory
overheads
12,000
40,000 45,000 40,000 45,000
(ii) Statement of Equivalent Production and Cost
Material Labour and Overheads Total
Units completed 28,000 28,000
Closing Inventory 1,800 450
Equivalent Production 29,800 28,450
Process cost 36,964 8,000 44,964
Cost/unit 1.24 0.2812
Closing inventory 2,232 127 2,359
42,605
Packing material cost 4,000
Rs. 46,605
Cost Accounting
10.58
Process II Account
Units Rs. Units Rs.
To Material transferred
from Process I
30,000 36,964 By Finished goods
stores A/c 28,000 46,605
To Packing Material 4,000 By WIP stock 1,800 2,359
To Direct wages
3,500
By Normal loss 200
To Factory overheads 4,500 ______ ______
30,000 48,964 30,000 48,964
Question 31
A Chemical Company carries on production operation in two processes. The material
first pass through Process I, where Product A is produced.
Following data are given for the month just ended:
Material input quantity 2,00,000 kgs.
Opening work-in-progress quantity
(Material 100% and conversion 50% complete) 40,000 kgs.
Work completed quantity 1,60,000 kgs.
Closing work-in-progress quantity
(Material 100% and conversion two-third complete) 30,000 kgs.
Material input cost Rs. 75,000
Processing cost Rs. 1,02,000
Opening work-in-progress cost
Material cost Rs. 20,000
Processing cost Rs. 12,000
Normal process loss in quantity may be assumed to be 20% of material input. It has no
realisable value.
Any quantity of Product A can be sold for Rs. 1.60 per kg.
Alternatively, it can be transferred to Process II for further processing and then sold as
Product AX for Rs. 2 per kg. Further materials are added in Process II, which yield two kgs.
of product AX for every kg. of Product A of Process I.
Of the 1,60,000 kgs. per month of work completed in Process I, 40,000 kgs are sold as
Product A and 1,20,000 kgs. are passed through Process II for sale as Product AX. Process
II has facilities to handle upto 1,60,000 kgs. of Product A per month, if required.
The monthly costs incurred in Process II (other than the cost of Product A) are:
Process & Operation Costing
10.59
1,20,000 kgs. of Product A input 1,60,000 kgs. of Product A input
Rs. Rs.
Materials Cost 1,32,000 1,76,000
Processing Costs 1,20,000 1,40,000
Required:
(i) Determine, using the weighted average cost method, the cost per kg. of Product A in
Process I and value of both work completed and closing work-in-progress for the month
just ended.
(ii) Is it worthwhile processing 1,20,000 kgs. of Product A further?
(iii) Calculate the minimum acceptable selling price per kg., if a potential buyer could be found for
additional output of Product AX that could be produced with the remaining Product A
quantity. (6 + 4 + 4 = 14 marks)
Answer
(i) Process I
Statement of equivalent production
Inputs Output Equivalent output
Particulars Units Particulars Units Material Conversion
Kg. Kg. % Unit kg. % Units kg.
Opening
W.I.P.
40,000 Normal loss 40,000
New material
introduced 2,00,000
Units
introduced &
completed 1,60,000 100% 1,60,000 100% 1,60,000
Abnormal loss 10,000 100% 10,000 100% 10,000
_______ Closing WIP 30,000 100% 30,000 2/3
rd
20,000
2,40,000 2,40,000 2,00,000 1,90,000
Process I
Statement of cost for each element
Elements of
cost
Costs of
opening
WIP
Costs
in
process
Total
cost
Equivalent
units
Cost/Unit
(Kg.)
Rs. Rs. Rs. Kg. Rs.
Material 20,000 75,000 95,000 2,00,000 0.475
Conversion cost 12,000 1,02,000 1,14,000 1,90,000 0.600
32,000 1,77,000 2,09,000 1.075
Cost Accounting
10.60
Statement of apportionment of cost
Units completed Elements Equivalent units Cost/unit Cost Total cost
Rs. Rs. Rs.
Work completed Material 1,60,000 .475 76,000
Conversion 1,60,000 .600 96,000 1,72,000
Closing WIP Material 30,000 .475 14,250
Conversion 20,000 .600 12,000 26,250
(ii) Statement showing comparative data to decide whether 1,20,000 kg. of product A
should be processed further into AX.
Alternative I To sell product A after Process I Rs.
Sales 1,20,000 1.60 1,92,000
Less: Cost from Process I 1,20,000 1.075 ,29,000
Gain 63,000
Alternative II Process further into AX
Sales 2,40,000 2.00 4,80,000
Less:Cost from Process I 1,20,000 1.075 = Rs. 1,29,000
Material in Process II = Rs. 1,32,000
Processing cost in Process II = Rs. 1,20,000 3,81,000
Gain 99,000
Hence company should process further
It will increase profit by 99,000 63,000 = Rs. 36,000
(iii) Calculation of minimum selling price/kg:
Cost of processing remaining 40,000 kg. further Rs.
Material 1,76,000 1,32,000 44,000
Processing cost 1,40,000 1,20,000 20,000
Cost from process I relating to 40,000 kg. A (40,000 1.075) 43,000
Benefit foregone if 40,000 kg. A are further processed
40,000 (1.60 1.075) 21,000
Total cost 1,28,000
Additional quantity of product AX (40,000 2) 80,000
Minimum selling price
| |
|
\ .
1, 28, 000
80, 000
= Rs. 1.60
Process & Operation Costing
10.61
Question 32
Following details are related to the work done in Process A of XYZ Company during the
month of March, 2007:
Opening work-in-progress (2,000 units) Rs.
Materials 80,000
Labour 15,000
Overheads 45,000
Materials introduced in Process A (38,000 units) 14,80,000
Direct labour 3,59,000
Overheads 10,77,000
Units scrapped: 3,000 units
Degree of completion:
Materials 100%
Labour and overheads 80%
Closing work-in-progress : 2,000 units
Degree of Completion:
Materials 100%
Labour and overheads 80%
Units finished and transferred to Process B : 35,000
Normal Loss:
5% of total input including opening work-in-progress
Scrapped units fetch Rs. 20 per piece.
You are required to prepare:
(i) Statement of equivalent production;
(ii) Statement of cost;
(iii) Statement of distribution cost; and
(iv) Process A Account, Normal and Abnormal Loss Accounts. (May 2007, 10 Marks)
Cost Accounting
10.62
Answer
(i) Statement of Equivalent Production
Equivalent production
Input Units Output Units Material Labour &
Overheads
% Units % Units
Opening WIP 2,000 Completed and
transfer to
Process B
35,000 100 35,000 100 35,000
Units
introduced
38,000 Normal loss
(5% of 40,000)
2,000
Abnormal loss 1,000 100 1,000 80 800
_____ Closing WIP 2,000 100 2,000 80 1,600
40,000 40,000 38,000 37,400
(ii) Statement of Cost
Details Cost at the
beginning of
process
Cost
added
Total cost Equiva
lent
Units
Cost
per
unit
Rs. Rs. Rs. Rs. Rs.
Material
Less: Value of
normal loss
80,000 14,80,000 15,60,000
(20 2,000 =
40,000)
15,20,000
38,000 40
Labour 15,000 3,59,000 3,74,000 37,400 10
Overheads 45,000 10,77,000 11,22,000 37,400 30
80
(iii) Statement of distribution of cost:
(a) Completed and transferred to process B = 35,000 units @Rs. 80 = Rs. 28,00,000.
(b) Abnormal loss : 1,000 units:
Materials 1,000 units @ 40 = Rs. 40,000
Labour and Overheads 800 units @ 40 = Rs. 32,000
Rs. 72,000
(c) Closing WIP : 2,000 units
Materials 2,000 units @ 40 = Rs. 80,000
Labour and Overheads 1,600 units @ 40 = Rs. 64,000
Rs. 1,44,000
Process & Operation Costing
10.63
(iv) Process A Account
Dr.
Cr.
Particulars Units Amount Particulars Units Amount
To Opening WIP 2,000 1,40,000* By Normal Loss 2,000 40,000
Material
introduced
Direct labour
Overheads
38,000 14,80,000
3,59,000
10,77,000
By
By
Abnormal loss
Process B A/c
transfer to next
process
1,000
35,000
72,000
28,00,000
______ ________ By Closing WIP
2,000 1,44,000
40,000 30,56,000 40,000 30,56,000
*Materials + Labour + Overheads = Rs. (80,000 + 15,000 + 45,000) = Rs.1,40,000.
Normal Loss Account
Dr.
Cr.
To Process A A/c 2,000 40,000 By By Cost Ledger Control A/c 2,000 40,000
2,000 40,000 2,000 40,000
Abnormal Loss Account
Dr.
Cr.
To Process A A/c 1,000 72,000 By By Cost Ledger Control A/c 1,000 20,000
_____ ______ By Costing Profit and Loss A/c ____ 52,000
1,000 72,000 1,000 72,000
Question 33
RST Limited processes product Z through two distinct process Process I and Process II. On
completion, it is transferred to finished stock. From the following information for the year
2006-07, prepare Process I, Process II and Finished Stock A/c:
Particulars Process I Process II
Raw materials used 7,500 units
Raw materials cost per unit Rs. 60
Transfer to next process/finished stock 7,050 units 6,525 units
Normal loss (on inputs) 5% 10%
Direct wages Rs. 1,35,750 Rs. 1,29,250
Cost Accounting
10.64
Direct expenses 60% of 65% of
direct wages direct wages
Manufacturing overheads 20% of 15% of
direct wages direct wages
Realisable value of scrap per unit Rs. 12.50 Rs. 37.50
6,000 units of finished goods were sold at a profit of 15% on cost. Assume that there
was no opening or closing stock of work-in-progress.
(November 2007, 10 Marks)
Answer
Process I Account
Qty. Rate Amount Qty. Rate Amount
To Raw material 7,500 60 4,50,000 By Normal Loss
(5% 7,500)
375 12.50 4,688
To Direct wages 1,35,750 By Abnormal
Loss
75 96.79 7,260
To Direct
expenses 60%
of direct wages
81,450 By Process II
Account
7,050 96.79 6,82,402
To Manufacturing
Overheads
(20% of direct
wages)
_____ 27,150 ____
_
_______
7,500 6,94,350 7,500 6,94,350
Planned output Process I = 7,500 375 = 7,125 units
Actual output = 7,050 units
Abnormal loss = (7,125 units 7,050 units) 75 units.
approx.) (96.80 96.7947. Rs.
7,125
4,688 6,94,350
unit per Cost =

=
Process II Account
Qty. Rate Amount Qty. Rate Amount
To Process I 7,050 96.79 6,82,402 By Normal Loss 705 37.50 26,438
Process & Operation Costing
10.65
(10%)
To Direct wages 1,29,250 By Finished
Stock A/c
6,525 140.05 9,13,823
To Direct expenses 65%
of direct wages
84,013
To Manufacturing
Overheads (15%
of direct wages)
19,387
9,15,052
To Abnormal gain 180 140.05 25,209 ____ _______
7,230 9,40,261 7,230 9,40,261
Planned output of Process II = 7,050 705 = 6,345 units
140.05. Rs.
6,345
26,438 9,15,052
unit per Cost =

=
Abnormal gain = Actual output Planned output
= 6,525 6,345
= 180 units.
Finished Stock Account
Qty. Rate Amount Qty. Rate Amount
To Process II 6,525 140.05 9,13,823 By Sales A/c 6,000 161.06 9,66,341
To Profit and
Loss
Account
1,26,044
By Balance
c/d 525
140.05 73,526
6,525 10,39,867 6,525 10,39,867
Question 34
A product passes through three processes X, Y and Z. The output of process X and
Y is transferred to next process at cost plus 20 per cent each on transfer price and the
output of process Z is transferred to finished stock at a profit of 25 per cent on transfer
price. The following informations are available in respect of the year ending 31st March,
2008:
Process Process Process Finished
X Y Z Stock
Rs. Rs. Rs. Rs.
Opening stock 15,000 27,000 40,000 45,000
Cost Accounting
10.66
Material 80,000 65,000 50,000
Wages 1,25,000 1,08,000 92,000
Manufacturing Overheads 96,000 72,000 66,500
Closing stock 20,000 32,000 39,000 50,000
Inter process profit included in
Opening stock NIL 4,000 10,000 20,000
Stock in processes is valued at prime cost. The finished stock is valued at the price at
which it is received from process Z. Sales of the finished stock during the period was
Rs. 14,00,000.
You are required to prepare:
(i) Process accounts and finished stock account showing profit element at each
stage.
(ii) Profit and Loss account.
(iii) Show the relevant items in the Balance Sheet.
(November 2008, 12 Marks)
Answer
(i) Process X Account
Dr. Cr.
Particulars Cost Profit Total Particulars Cost Profit Total
Rs. Rs. Rs. Rs. Rs. Rs.
To Opening Stock 15,000 15,000 By Process Y
A/c (Transfer)
2,96,000 74,000 3,70,000
To Material 80,000 80,000
To Wages 1,25,000 1,25,000
Total 2,20,000 2,20,000
Less: Closing stock 20,000 20,000
Prime Cost 2,00,000 2,00,000
To Manufacturing
Overheads 96,000 96,000
Total cost 2,96,000 2,96,000
To Profit and Loss A/c
(20% on transfer Price
Process & Operation Costing
10.67
Or 25% on cost) _______ 74,000 74,000 _______ ______ _______
2,96,000 74,000 3,70,000 2,96,000 74,000 3,70,000
Process Y Account
Dr. Cr.
Particulars Cost Profit Total Particulars Cost Profit Total
Rs. Rs. Rs. Rs. Rs. Rs.
To Opening Stock 23,000 4,000 27,000 By Process Z A/c
(Transfer)
5,36,379 2,26,121 7,62,500
To Process X A/c 2,96,000 74,000 3,70,000
To Material 65,000 65,000
To Wages 1,08,000 1,08,000
Total 4,92,000 78,000 5,70,000
Less: Closing stock 27,621 4,379 32,000
Prime Cost 4,64,379 73,621 5,38,000
To Manufacturing
Overheads 72,000 72,000
Total cost 5,36,379 73,621 6,10,000
To Profit and Loss
A/c
1,52,500 1,52,500
(20% on transfer Price
or 25% on cost) _______ _______ _______ _______ ______ _______
5,36,379 2,26,121 7,62,500 5,36,379 2,26,121 7,62,500
Process Z Account
Dr. Cr.
Particulars Cost Profit Total Particulars Cost Profit Total
Rs. Rs. Rs. Rs. Rs. Rs.
To Opening Stock 30,000 10,000 40,000 By Finished Stock
A/c (Transfer)
7,45,629 5,50,371 12,96,000
To Process Y A/c 5,36,379 2,26,121 7,62,500
To Material 50,000 50,000
To Wages 92,000 92,000
Total 7,08,379 2,36,121 9,44,500
Cost Accounting
10.68
Less: Closing stock 29,250 9,750 39,000
Prime Cost 6,79,129 2,26,371 9,05,500
To Manufacturing
Overheads 66,500 66,500
Total cost 7,45,629 2,26,371 9,72,000
To Profit and Loss
A/c
3,24,000 3,24,000
(25% on transfer Price
or 33 1/3% on
cost) ______ _______ _______ _______ _______ _______
7,45,629 5,50,371 12,96,000 7,45,629 5,50,371 12,96,000
Finished Stock Account
Dr. Cr.
Particulars Cost Profit Total Particulars Cost Profit Total
Rs. Rs. Rs. Rs. Rs. Rs.
To Opening Stock 25,000 20,000 45,000 By Finished Stock
A/c (Transfer)
7,41,862 6,58,138 14,00,000
To Process Z A/c 7,45,629 5,50,371 12,96,000
Total 7,70,629 5,70,371 13,41,000
Less: Closing stock 28,767 21,233 50,000
To Profit and Loss
A/c
7,41,862 5,49,138 12,91,000
_______ 1,09,000 1,09,000 _______ _______ ________
7,41,862 6,58,138 14,00,000 7,41,862 6,58,138 14,00,000
(ii) Profit and Loss Account
for the year ending 31
st
March, 2008
Dr. Cr.
Particulars Amount Particulars Amount
Rs. Rs.
To Provision for unrealized
profit on closing stock
35,362
By Provision for unrealized profit
on opening stock
(Rs. 4,000 + 10,000 +
34,000
Process & Operation Costing
10.69
(Rs. 4,379 + 9,750 + 21,233) 20,000)
To Net Profit 6,58,138 By Process X A/c 74,000
By Process Y A/c 1,52,500
By Process Z A/c 3,24,000
_______ By Finished Stock A/c 1,09,000
6,93,500 6,93,500
Workings:
Calculation of amount of unrealized profit on closing stock:
Process X = Nil
4,379. Rs. 32,000 Rs.
5,70,000 Rs.
78,000 Rs.
Y' ' Process = =
9,750. Rs. 39,000 Rs.
9,44,500 Rs.
2,36,121 Rs.
Z' ' Process = =
21,233. Rs. 50,000 Rs.
12,96,000 Rs.
5,50,371 Rs.
stock Finished = =
(iii) Balance Sheet as on 31st March, 2008 (Extract)
Liabilities Amount Assets Amount Amount
Rs. Rs. Rs.
Net profit 6,58,138 Closing stock
Process X 20,000
Process Y 32,000
Process Z 39,000
Finished stock 50,000
1,41,000
Less: Provision for
unrealized profit 35,362 1,05,638