PRODUCTION LOSSES

IN PROCESS COSTING
 LOSSES IN PROCESS COSTING

CONTINUOUS LOSSES
Loss occurs fairly uniformly through
No. of the process
Units
Work in process, beg. xxx
Units started xxx
Total units to be accounted for xxx

No. of
Units DISCRETE LOSSES
Completed and transferred out xxx
Work in process, end. xxx Loss occurs at a specific point and is
Normal Loss xxx detected upon inspection
Abnormal Loss xxx
Total units accounted for xxx

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NORMAL AND ABNORMAL
CONTINUOUS SPOILAGE

Normal Abnormal
Loss Loss

Cost absorbed Recognized

by other units as period loss

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 NORMAL AND ABNORMAL
CONTINUOUS SPOILAGE
Illustration:
Work in Process, beginning (80% complete) 10,000 units Work in process, beginning: Materials P 10,000
Started during the month 35,000 units Conversion 40,000
Normal spoilage (continuous) 6,000 units Costs added this month: Materials 60,000
Abnormal spoilage 2,500 units Conversion 180,000
Work in Process, end (55% complete) 15,000 units Total Costs P 290,000
Transferred out 21,500 units

Cost of Production Report (FIFO)

No. of EUP Material Unit Cost (P60,000/29,000) P 2.07
units Materials Conversion Conversion Unit Cost: (P180,000/24,250) P 7.42
Work in Process, beg. Total Unit Cost P 9.49
(80% conversion cost) 10,000 - 2,000 Transferred out:
Started and completed 11,500 11,500 11,500 WIP, beg. P 50,000
Transferred out 21,500 11,500 13,500 M: 11,500 x P2.07 23,805
Work in Process, end. CC: 13,500 x P7.42 100,170 P173,975
(55% conversion cost) 15,000 15,000 8,250 Ending Work in Process:
Normal spoilage (continuous) 6,000 0 0 M: 15,000 x P2.07 P 31,050
Abnormal spoilage 2,500 2,500 2,500 CC: 8,250 x P7.42 61,215 92,265
Total 45,000 29,000 24,250 Abnormal Spoilage:
2,500 x P9.49 23,725
Total Costs P289,965

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 NORMAL AND ABNORMAL
DISCRETE SPOILAGE

Normal Abnormal
Good Good Loss Loss
Absorbed by Recognized
good units as period loss
Units that have not passed
inspection point Units that have passed inspection point

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 NORMAL AND ABNORMAL
DISCRETE SPOILAGE

Illustration:
Materials Added at the start of the process
Inspection point 100% conversion
Normal spoilage 5% of good units

Work in Process, beginning

20,000 units
(100% M, 75% CC)
Started during the month 40,000 units
Finished and transferred out 45,000 units
WIP, end (100% M, 65% CC) 10,000 units

Work in process, beginning: Materials P 50,000

Conversion 30,000
Costs added this month: Materials 100,000
Conversion 140,000
Total Costs P 320,000

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 NORMAL AND ABNORMAL
DISCRETE SPOILAGE
Cost of Production Report (WA)
EUP Direct Conversion
No. of Direct Conversion Materials Costs
Units Materials Costs WIP, beginning 50,000 30,000
Units transferred-out 45,000 45,000 45,000 Costs added this month 100,000 140,000
WIP, end 10,000 10,000 6,500 (65%) Total costs P150,000 P170,000
Normal Spoilage Divide by EUP 60,000 56,500
2,250 2,250 2,250 (100%)
(5% x 45,000) Unit Cost P 2.50 P 3.01
Abnormal Spoilage 2,750 2,750 2,750 (100%)
Total 60,000 60,000 56,500
Transferred out:
M: 45,000 x P2.50 P112,500.00
CC: 45,000 x P3.01 135,450.00
Normal Spoilage:
M: 2,250 x P2.50 P5,625.00
CC: 2,250 x P3.01 6,772.50 12,397.50 P260,347.50
Ending Work in Process:
M: 10,000 x P2.50 P 25,000.00
CC: 6,500 x P3.01 19,565.00 44,565.00
Abnormal Spoilage:
M: 2,750 x P2.50 P 6,875.00
CC: 2,750 x P3.01 8,277.50 15,152.50
Total Costs P320,065.00

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 NORMAL AND ABNORMAL
DISCRETE SPOILAGE

Illustration:
Materials Added at the start of the process
Inspection point 50% conversion
Normal spoilage 5% of good units
Work in Process, beginning Work in process, beginning: Materials P 50,000
20,000 units
(100% M, 75% CC) Conversion 30,000
Started during the month 40,000 units Costs added this month: Materials 100,000
Finished and transferred out 45,000 units Conversion 140,000
WIP, end (100% M, 65% CC) 10,000 units Total Costs P 320,000

Cost of Production Report (WA)

EUP Direct Conversion
No. of Direct Conversion Materials Costs
Units Materials Costs WIP, beginning 50,000 30,000
Units transferred-out 45,000 45,000 45,000 Costs added this month 100,000 140,000
WIP, end 10,000 10,000 6,500 (65%) Total costs P150,000 P170,000
Normal Spoilage 1,750* 1,750 875 (50%) Divide by EUP 60,000 54,000
Abnormal Spoilage 3,250 3,250 1,625 (50%) Unit Cost P 2.50 P 3.15
Total 60,000 60,000 54,000
*(5% x (Trans. Out 45,000 – WIP beg. inv. 20,000+ WIP, end. inv. 10,000)

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 NORMAL AND ABNORMAL
DISCRETE SPOILAGE

Cost of Production Report (WA)

Normal Spoilage:
M: 1,750 x P2.50 P4,375.00
CC: 875 x P3.15 2,756.25
P7,131.25
Transferred out:
EUP – Direct Allocated Normal
M: 45,000 x P2.50 P112,500.00
Materials Spoilage – Materials CC: 45,000 x P3.15 141,750.00
Started and completed 25,000 P3,125.00 Normal Spoilage: 5,312.50 P259,562.50
WIP, end 10,000 1,250.00 Ending Work in Process:
Total 35,000 P4,375.00 M: 10,000 x P2.50 P 25,000.00
EUP– Allocated Normal CC: 6,500 x P3.15 20,475.00
Conversion Spoilage – Conversion Normal Spoilage: 1,818.75 47,293.75
Started and completed 25,000 P2,187.50 Abnormal Spoilage:
WIP, end 6,500 568.75 M: 3,250 x P2.50 P 8,125.00
Total 31,500 P2,756.25 CC: 1,625 x P3.15 5,118.75 13,243.75
Total Costs P320,100.00
Allocated Normal
Spoilage
Started and completed P5,312.50
WIP, end 1,818.75
Total P7,131.25

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 LOSSES IN PROCESS COSTING

Not extended to EUP

Normal schedule; All production
absorb the cost of lost units
(Method of Neglect)

Continuous Extended to EUP schedule;

Abnormal Cost of lost units recognized
as period loss

Loss
Extended to EUP schedule;
Normal Cost of lost units absorbed by
all good production that have
Discrete passed inspection point

Extended to EUP schedule;

Abnormal Cost of lost units recognized
as period loss

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