Process costing

Example 1

Product A is produced after three distinct process. The following information is obtained from the
accounts of period .

Total (Rs) Process A Process B Process C

material 2200 1800 300 100
labour 400 100 200 100
other expenses 500 300 - 200
Total production overhead incurred is Rs 800 and is recovered @200% of direct labour. Production
during the period was 100 kg . there was no opening or closing stocks . Prepare process cost account
assuming there is no process loss.
 Process A- Account

Total units = 100 kg

Particulars cost per unit Total Particulars cost per unit Total
To Direct 1800 By output 24 2400
Material transferred to
B
Direct wages 100
Direct 300
expenses
Production 200
overheads
Total 24.00 2400 24 2400

.. Process B- Account

Particulars cost per unit Total Particulars cost per unit Total
To output trfd 24 2400 By output 33 3300
from Process transferred to
A C
To Direct 300
Material
Direct wages 200
Direct -
expenses
Production 400
overheads
Total 33 3300 33 3300
 Process C- Account(100 kg)

Particulars cost per Total Particulars cost per Total(Rs)

unit unit
To output from 33 3300 By output transferred 39 3900
Process B to Finished stock
To Direct Material 1 100
Direct wages 1 100
Direct expenses 2 200
Production 2 200
overheads
Total 39 3900 39 3900
2-From the following data , prepare a process account indicating the cost of each process and total
cost. The total units that pass through each process were 240 for the period .

Process A Process B Process C

material 1500 500 200
labour (wages) 800 2000 600
other expenses 260 720 250

Total Indirect expenses(production overheads) amounting to Rs 850 may be apportioned based on

wages. There was no opening or closing stock

Total wages = 800+2000+600 = 3400

Process A = 800/3400= 8/34= 4/17 = 0.2353 =23.53%

Process B = 2000/3400 = 58.82%

Process C= 600/3400= 17.65%

Indirect expenses for Process A =0.2353*850 = 200

Indirect expenses for Process B =0.5882*850 =500

Indirect expenses for Process C =0.1765*850= 150

Process A- Account

Total units = 240

Particulars cost per unit Total Particulars cost per unit Total
To Direct 1500 By output 11.50 2760
Material transferred to
B
Direct wages 800
Direct 260
expenses
indirect 200
exp/Production
overheads
Total 11.50 2760 11.50 2760
 .. Process B- Account

Particulars cost per unit Total Particulars cost per unit Total
To output 11.50 2760 By output 27 6480
from Process transferred to
A C
To Direct 500
Material
Direct wages 2000
Direct 720
expenses
indirect 500
expenses
/production
overeheads
Total 27 6480 27 6480
 Process C- Account

Particulars cost per Total Particulars cost per Total(Rs)

unit unit
To output from 27 6480 By output transferred 32 7680
Process B to Finished stock
To Direct Material 200
Direct wages 600
Direct expenses 250
indirect 150
exp/production
overheads
Total 32 7680 32 7680

Normal loss= it is defined as the loss of material which is inherent in the nature of work. such a loss
can be reasonably estimated from the nature of material , nature of operations, the experience, and
technical data. It is unavoidable due to nature of material or process. It also includes material
withdrawn from the process for test and sampling.

The cost of normal loss in practice is absorbed by the units produced under the process. Normal loss
is shown on credit side of process account.

The amount realized by sale of normal process loss units should be credited to process account.

Abnormal loss= = it is defined as the loss in excess of normal loss. This type of loss may occur due to
unexpected conditions , such as substandard material , bad design , sabotage etc.

The cost of abnormal loss unit is equal to cost of goods unit produced . the total cost of abnormal
loss is credited to process account.

The cost of abnormal process loss is not treated as part of the cost of the product.

Abnormal gain= sometime , loss under the process is less than the anticipated normal figure . in
other words, actual production exceeds the expected figure. The difference between actual and
expected loss or actual and expected production is known as abnormal gain.

The process account under which abnormal gain arises is debited with the abnormal gain. the cost of
abnormal gain is calculated based on normal production
Example

Process 1 -10000 units

Particulars no of cost per Total Particulars no of cost per Total

unit unit unit unit
To Direct 10000 4 40000 normal loss 200 0 -
Material 2%
Direct 6000 abnormal 50 5.7142 286
wages loss
Production 10000 output 9750 5.7142 55714
overheads transferred
to Process II

Total 10000 56000 10000 56000

Total cost of process 1 = 56000

Cost per unit of completed units and abnormal units = Total cost /(input units – normal loss units )

= 56000/(10000-200)=5.71

Particulars no of cost per Total Particulars no of cost per Total

 unit unit unit unit
To output 9750 55714 normal loss 488 -
from 5% of 9750
process 1
To Direct 20000 output 9400 9.686 91051
Material transferred
to process 3
Direct 4000
wages
Production 10000
overheads
abnormal 138 9.686 1337
gain unit
Total 9888 91051 9888 91051

Cost per unit of completed units and abnormal units = Total cost /(input units – normal loss units )

= 89714/(9750-488)= 9.686

Process 3

Particulars no of cost per Total Particulars no of cost per Total

unit unit unit unit
To output 9400 9.686 91051 normal loss 940 -
from 10% of 9400
process 2
To Direct 10000 output 8000 13.8358 110687
Material transferred
to finished
stock
Direct 1000 abnormal 460 13.8358 6364
wages loss
Production 15000
overheads

Total 9400 117051 9400 117051

Cost per unit of completed units and abnormal units = Total cost /(input units – normal loss units )

= =117051/(9400-940)

=13.8358

Cost of finished output per unit = 13.8358

Example 4

Product P is obtained after it passes through three distinct processes . The following information is
obtained from the accounts:

particulars Total Process I Process II Process III

Direct material 7542 2600 1980 2962
Direct wages 9000 2000 3000 4000
production overheads 9000

1000 units were issued to process I. There was no stock of materials or work in progress at the
beginning or end of the period . The output of each process direct to the next process and final to
finished stores. Production overheads are recovered on 100% of direct wages .

The following additional data is as under:

output of the process normal loss as a % of value of scrap per

input unit
Process I 950 units 5% Rs 2
Process II 840 units 10% Rs 4
Process III 750 units 15% Rs 5

Prepare process cost account .1

Particulars no of cost per Total Particulars no of cost per Total

unit unit unit unit
To Direct 1000 2600 normal loss 50 2 100
Material 5%
Direct 2000
wages
Production 2000 output 950 6.8421 6500
overheads transferred
to Process II

Total 1000 6600 1000 6600

Cost per unit of completed units and abnormal units = (Total cost – sale of scrap)/(input units –
normal loss units )

=6500/(950)=6.8421

Process 2

Particulars no of cost per Total Particulars no of cost per Total

unit unit unit unit
To output 950 6.8421 6500 normal loss 95 4 380
from 10% of 950
process 1
To Direct 1980 abnormal 15 16.491 247.36
Material loss
Direct 3000 output 840 16.491 13852.608
 wages transferred
to process 3
Production 3000
overheads

Total 950 14480 950 14480

Cost per unit of completed units and abnormal units = (Total cost – sale of scrap)/(input
units – normal loss units )

=(14480-380)/(950-95)=16.491

Process-3

Particulars no of cost per Total Particulars no of cost per Total

unit unit unit unit
To output 840 13852.608 normal loss 126 5 630
from 15% of 840
process 2
To Direct 2962 output 750 33.8725 25404.4
Material transferred
to finished
stock
Direct 4000
wages
Production 4000
overheads
abnormal 36 33.8725 1219.4
gain
Total 876 26034.4 876 26034.4

Cost per unit of completed units and abnormal units = (Total cost – sale of scrap)/(input units –
normal loss units )

=(24815-630)/(840-126)=33.8725

Example 5
Solutions

Process 1 cost = 133757 output units=14550

No of units introduced = 15000

Particulars no of cost per Total Particulars no of cost per Total

unit unit unit unit
To Direct 70000 normal loss 450 0 0
Material 3% of 15000
Direct 38000
wages
Direct exp 11000
Production 14757.281 output 14550 9.1929 133757
overheads transferred
to Process II

Total 15000 133757 15000 133757

Process 2

Particulars no of cost per Total Particulars no of cost per Total

unit unit unit unit
To output 14550 9.1929 133757 normal loss 873 0 0
from 6% of 14550
process 1
To Direct 15000 abnormal 177 15.8142 2799.11
Material loss
Direct 40000 output 13500 15.8142 213491.7
wages transferred
 to process 3
direct exp 12000
Production 15533.90
overheads

Total 14550 216291 14550 216291

Cost per unit of completed units and abnormal units = (Total cost )/(input units – normal loss units )

=216291/(14550-873)=15.8142

Particulars no of cost per Total Particulars no of cost per Total

unit unit unit unit
To output 13500 15.8142 213491.7 normal loss 270 0 0
from 2% of
process 2 135000
To Direct 30000 abnormal
Material loss
Direct 25000 output 13300 22.161 294741.3
wages transferred
to process 3
direct exp 15000
Production 9708.73
overheads
abnormal 70 22.161 1551.27
gain
Total 13700 294741.3 13570 294741.3

Cost per unit of completed units and abnormal units = (Total cost )/(input units – normal loss units )

=293200.43/(13500-270)=22.161