COST ACCOUNTING – I

Module VI : Process Costing

Example 1 :
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
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 :
Particulars Process I Process II
Direct materials Rs. 60,000 Rs. 40,000
Direct labour Rs. 40,000 Rs. 30,000
Production overhead Rs. 39,000 Rs. 40,250
Normal loss 8% 5%
Output in units 18,000 17,400
Loss realization of Rs./unit 2.00 3.00
The company’s policy is to fix the selling price of the end product in such a way as to yield a
profit of 20% on selling price.
Required :
a) Prepare process account
b) Determine the selling price per unit of the end product

Example 2 : (HW)
Product B is obtained after is passes through three distinct processes. The following
information is obtained from the accounts for the week ending 31 st October 2015 :

Items Total Rs. Process

I II III
Direct materials 7,542 2,600 1,980 2,962
Direct wages 9,000 2,000 3,000 4,000
Production overhead 9,000

1,000 units at Rs. 3 each were introduced to Process I. There was no stock of raw material or
work in progress at the beginning or at the end of the period. The output of each process
passes direct to the next process and finally to finished stock. Production overhead is
recovered on 100% of direct wages. The following additional data are obtained :

Process Output during Percentage of Value of scrap

the week (units) normal loss to per unit
input (Rs.)
I 950 5% 2
II 840 10% 4
III 750 15% 5
Prepare process cost accounts and abnormal or loss accounts.

Example 3 : (HW)
The following particulars for the Process II are given :
Units Rs.
Transfer from the previous process at cost 4,000 9000
Direct Wages 2,000
Direct Materials 3,000
Factory Overheads 4,000
Transfer to finished stock from the process 3,240 --

The factory overhead in process is absorbed @ 400% of the direct materials. Allowance for
normal loss is 20% of units worked. The scrap value is Rs. 5 per unit.
Prepare :
a) Process II account
b) Normal Wastage account
c) Abnormal Effectives account

Example 4 :
A product passes through three processes A,B and C. The details of expenses incurred on
the three processes during the year were as under :
Processes A B C
Units introduced 10,000
Cost per unit Rs.100
 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
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 process was : A-9,300 units, B-5,400 units and C-2,100 units. Two
thirds 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 Process Accounts and the Profit and Loss account.

Example 5 : (HW)
Marshall and Company produces a patent material used in building, in the manufacture of
which three processes are involved. The materials is produced in three consecutive grades,
namely, soft, medium and hard. Figures relating to production for the first six months of
2010 are as follows :

Particulars Process I Process II Process III

Raw materials used in tons 1,000 -- --
Cost of materials per ton 200 -- --
Manufacturing Wages and Expenses 72,500 40,800 10,710
Loss in Weight (no realizable value) 5% 10% 20%
Normal Scrap (sold @ Rs. 50 per ton) 50 tons 30 tons 51 tons
The product is dealt with as follows :
Transferred to Next Process 66 2/3% 50% -
Transferred to warehouse for sale 33 1/3% 50% 100%
Profit as a percentage of selling price 20% 20% 33 1/3%

You are required to prepare an account for each process, showing the cost per ton of each
process. The company has incurred administrative expenses of Rs.15,000 and Selling
Expenses of Rs.6 per unit during the year. You are required to prepare costing profit and loss
account for the year.

(F.Y. B. Com (H) – Final Exam – Nov

2018)
Example 6 :
In a factory, the output passes through three processes to completion i.e. Crushing, Refining
and Finishing. The details are given below for the month of May 2018.

Particulars Crushing (Rs.) Refining (Rs.) Finishing (Rs.)

Wages 15,000 12,000 10,000
Power 6,000 5,000 3,000
Steam 2,000 1,000 500
Other expenses 3,000 2,000 500

Copra purchased 3,000 kgs costing Rs. 3,00,000. Crude oil produced – 2,500 kg, Refined oil –
1,800 kg and Finished Oil – 1,760 kg.

500 kg crude oil was sold at a cost plus 20% in Crushing Process. Copra residue 300 kg sold
for Rs. 10,000 and sacks sold for Rs, 1,000. Wastage of 100 kg of refining process was sold
for Rs. 800. Casks cost Rs. 3,000. Oil stored in casks sold for Rs. 200 per kg. Prepare all
processes accounts and Finished Stock account in the books of the company.

(F.Y. B.Com (H) – Re examination – January 2019)

Example 7 :
XY Company mixes powdered ingredients in two different processes to produce one
product. The output of Process 1 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.

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 kg
Output 9,200 kilograms
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. 300
 Mixing Labour 370 hours at Rs. 2 per hour
Normal waste 5% of weight input with no disposal value
Output 19,000 kilograms
Overhead of Rs. 3,200 incurred by the two processes to be absorbed on the basis of mixing
labour hours.

Example 9 : (HW)
Bangalore Products Ltd. Manufactures a chemical in three processes. The details of these
three processes are as follows :
Process I Process II Process III

Transfer to next process 66 2/ 3% 60% --

Transfer to warehouse for sales 33 1/3% 40% 100%
In each process out of the total weight put in, 4% is wasted and 6% is scrap. The scrap is sold
at Rs.6, Rs. 10 and Rs.12 per tonne in I, II and III processes respectively. For the month of
October, the details of expenditure are :
Process I 2800 tonnes of materials at Rs. 40/tonne
Process II 320 tonnes of materials at Rs. 64/tonne
Process III 2520 tonnes of materials at Rs. 28/tonne
Production labour cost is : Process I Rs. 20,608; Process II Rs. 12,560; Process III 11,580.
For the month of October, the office and administration expenses worked out at Rs. 15,567
which is to be charged equally for all the processes.
Prepare Process Cost Accounts. Calculate the cost per tonne in each process.

Equivalent Production (Work in Progress)

FIFO Method :
Example 10:
In a process costing system, the following details relate to the month of January 2014.
Particulars
Opening Stock (valued at Rs. 2,325) 1500 units
Degree of completion :
Materials 80%
Labour 60%
 Overheads 60%
Transfer from previous process (@ Rs. 12,080) 12,500 units
Transfer to the next process 12,000 units
Materials added in the process Rs. Nil
Labour added in the process Rs. 6,030
Overheads added in the process Rs. 9,045
Units scrapped 800 units
Value realized from scrap Rs. 200
Closing stock 1,200 units
Degree of completion
Materials 90%
Labour 80%
Overheads 80%

You are required to prepare statement of equivalent production, Statement of cost per unit,
Statement of evaluation and process account.

Example 11 : (HW)
The following data are available in respect of Process I for February 2015.
1) Opening stock of WIP : 800 units at a total cost of Rs. 4,000.
2) Degree of completion of opening WIP :
Materials – 100%
Labour – 60%
Overheads – 60%
3) Input of materials at a total cost Rs. 36,800 for 9,200 units
4) Direct wages incurred Rs. 16,740
5) Production overhead Rs. 8,370
6) Units scrapped 1200 units. The stage of completion of these units are :
Materials – 100%
Labour – 80%
Overheads – 80%
7) Closing WIP : 900 units. The stage of completion of these units are :
Materials – 100%
 Labour – 70%
Overheads – 70%
8) 7,900 units were completed and transferred to next process.
9) Normal loss is 8% of the total input (Opening stock plus units put it)
10) Scrap value is Rs. 4 per unit
You are required to :
a) Compute equivalent production
b) Calculate cost per equivalent unit for each element
c) Calculate cost of abnormal loss (or gain), closing WIP and the units transferred to the
next process using FIFO method and
d) Prepare Process Account

Example 12 :
The following data pertains to Process 1 for March 2015 of Beta Ltd. :
Opening WIP : 1,500 units @ Rs. 15,000
Degree of Completion :
a) Materials : 100%
b) Labour and Overheads : 33 1/3%
Input of materials :
a) Materials – 18,500 units at Rs. 52,000
b) Direct labour – Rs. 14,000
c) Overheads – Rs. 28,000
Closing WIP : 5,000 units
Degree of Completion :
a) Materials : 90%
b) Labour and Overheads : 30%
Normal Process loss is 10% of total input (Opening WIP + units put in)
Scrap value Rs. 2 per unit
Units transferred to the next process : 15,000 units
You are required to:
i. Compute equivalent units of production
ii. Compute cost per equivalent unit for each cost element i.e. material, labour and
overheads
iii. Compute the cost of finished output and closing WIP
iv. Prepare process and other accounts

Example 13:
The following data relates to Process Q :
a) Opening WIP 4,000 units
Degree of completion :
Materials – 100% - Rs. 24,000
Labour – 60% - Rs. 14,400
Overheads – 60% - Rs. 7,200
b) Received during the month of April from Process P :
40,000 units – Rs. 1,71,000
c) Expenses incurred in Process Q during the month
Materials – Rs. 79,000
Labour – Rs. 1,38,230
Overheads – Rs. 69,120
d) Closing WIP - 3000 units
Degree of completion :
Materials – 100%
 Labour – 50%
Overheads – 50%
e) Units scrapped – 4,000 units, Degree of completion : Material – 100%, Labour and
overheads – 80%
f) Normal Loss : 5% of current input
g) Spoiled goods realised Rs. 1.50 each on sale
h) Completed units are transferred to warehouse
Required :
i. Equivalent units statement
ii. Statement of cost per equivalent unit and total costs
iii. Process Q account
iv. Any other account necessary
Average Stock Method :
Example 14 :
Roy & Johnson (P) Ltd. Gives the following information relating to process A in its plant for
the month of December 2014 :
1) Opening WIP on 1.12.14 – 500 units
Material –Rs. 4,800
Labour - Rs. 3,200
Overheads – Rs.6,400
Total – Rs. 14,400
2) Units introduced during the month – 19,500 units
3) Processing costs during the month : (In Rs.)
Materials 1,86,200
Labour 72,000
Overheads 1,06,400
Total 3,64,600

4) Output :
Units transferred to Process B – 18200
Units scrapped (completely processed) – 1,400
WIP (Balance) – 400
(degree of completion : Materials -100%, labour and overheads – 50%)
Normal loss in processing is 5% of total input and normal scrapped units fetch Re. 1 each.
Prepare the following for process A for December 2014 :
a) Statement of equivalent production
b) Statement of cost
c) Statement of evaluation
d) Process A Account
Example 15 : (HW) – problem 9.21
The following information is given in respect of Process No. 3 for the month of March 2015:
i. Opening stock – 2,000 units made up of :
Direct material Rs. 25,550; Direct labour Rs. 17,500; Overheads Rs. 11,000
ii. Transferred from Process 2 – 20,000 units @ Rs. 6 per unit
iii. Transferred to Process 4 – 17,000 units
iv. Expenditure incurred in Process 3:
Direct materials Rs. 30,000; direct labour Rs. 60,000; Overheads Rs. 60,000.
v. Scrap 1000 units – Direct material 100%, Direct labour 60%, overheads 40%
vi. Normal loss 10% of production, scrapped units realised Rs. 4 per unit
vii. Closing stock 4,000 units :
Degree of completion : Direct material 80%; direct labour 60% and overheads 40%.
Prepare statement of equivalent production, statement of cost per unit, statement of
evaluation and Process 3 account.

Example 16 :
The following information is available in respect of Process 2 for the month of March :
1) Opening stock – 1,000 units
2) Value of opening stock –
Direct Material 1 – Rs. 4,000
Direct Material 2 – Rs. 2,000
Direct Labour – Rs. 350
Production Overheads – Rs. 800
3) Transfer from Process 1 – 16,000 units at Rs. 81,000.
4) Transfer to Process 3 – 14,500 units
5) Direct Materials added to Process 2 – Rs. 43,750
6) Direct Labour incurred – Rs. Rs. 14,300
7) Production Overheads absorbed – Rs. 28,500
8) Units scrapped – 500 units (DOC – Materials 100%, Direct Labour – 60%, Production
Overheads – 20%)
9) Normal loss was estimated at 5% of the production units and realised Rs. 5 per unit
10) Closing Stock – 2,000 units (DOC - Materials 50%, Direct Labour – 20%, Production
Overheads – 20%)
Prepare the process account and other statements using weighted average cost method.
Example 17 : (HW)
From the following information for the month of October 2012. 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
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 @ 6.75 per unit.
Example 18 :
A company manufactures a product which involves two consecutive processes viz. Pressing
and Polishing. For the month of September, the following information in available :
Particulars Pressing Polishing
Opening stock -- --
Input of units in process 1200 1000
Units completed 1000 500
Units under process 200 500
Materials cost Rs. 96,000 Rs. 8,800
Conversion costs Rs. Rs. 52,000
2,88,000

For incomplete units in process, charge material cost at 100% and conversion costs at 60%
in the Pressing Process and at 50% in the Polishing Process. Prepare a statement of cost and
calculate the selling price per unit which will result in 25% profit in sale price.

Example 20 : (HW)

AMS Limited is a peanut oil manufacturing company. Data relating to work done in Crushing
Process to extract the crude oil from raw peanuts during the month of January 2018 is given
below:

a) Opening stock of Work in Progress (2,000 kgs. of peanuts)

Materials – Rs, 80,000 (100% complete)
Labour – Rs. 15,000 (80% complete)
Overheads – Rs. 45,000 (80% complete)
b) Raw peanuts introduced in the Crushing Process – 38,000 kilograms @ Rs. 40 per
kilogram
c) Direct Labour in Crushing Process – Rs. 3,58,000
d) Overheads incurred in the Crushing process – Rs. 10,74,000
e) Expected Normal loss in the Crushing Process – 5% of total input. This waste can be
sold @ Rs.6.70 per kilograms
f) Closing stock of Work in Progress in Crushing Process – 2,500 kilograms
Degree of completion - Materials 100%; Labour and Overheads – 80%
g) Crude oil transferred to the Refining Process – 35,000 kilograms
h) Degree of completion of Units scrapped - Material – 100%, Labour and Overheads –
80%
You are required to make:

1) Statement of Equivalent Production

2) Statement of Cost per Equivalent Unit of Production
3) Statement of Evaluation
4) Crushing Process Account

(F.Y.B.B.A – Final Examination – April 2018)