Process costing

Faculty: Zaira Anees

Process costing
• A single product is produced either on a continuous basis or in long
production runs. All units of product are identical.

• Costs are accumulated by department, during an accounting period.

• The department production report is the key document showing the

accumulation and disposition of costs by a department

• Unit costs are computed by department on the department production

report.
• There might be losses in the process (due to evaporation or chemical reaction)
so the quantity of output might therefore be less than the quantity of materials
input. Process costing provides a system of costing that allows for expected
losses in the manufacturing process
• When there is a continuous production process, it is difficult to measure the
quantity of work-in-process (incomplete production) at the end of a financial
period. Process costing provides a method of measuring and costing incomplete
WIP.
• In some processes, more than one product might be output from the same
process. When more than one product is output, they might be called joint
products or a by-product. Process costing offers methods of costing each of the
different products
• In some process manufacturing systems, there is a series of sequential
processes. For example a manufacturing system might consist of three
consecutive processes: raw materials are input to Process 1, then the
output from Process 1 goes onto the next process (Process 2) and the
output from Process 2 then goes into a final process, Process 3. The
output from Process 3 is the final product
Situations where process costing might be
appropriate
• Process costing is used when output is produced in a continuous
process system, and it is difficult to separate individual units of output
• chemicals manufacture
• the manufacture of liquids;
• the continuous manufacture of high volumes of low-cost food items
such as tins of peas or beans, or bottles of tomato ketchup
LOSSES
• Normal loss is the expected loss in processing.
• Abnormal loss: When actual loss exceeds normal loss, there is
abnormal loss
• Abnormal gain: Abnormal gain occurs when the actual loss is less
than normal loss
• Normal losses are valued on scrap per unit.
• Good Output, abnormal loss and abnormal gain all are valued on the
basis of cost per unit of good output.
• Total cost = Direct material + Direct labour + production overheads
• Expected output = input – normal loss
• Scrap from normal loss = quantity of normal loss x scrap per unit
Q1
• 600 tonnes of raw material, costing £430,032, were input to a process
in a period. Conversion costs totaled £119,328. Losses, in the form of
reject product, are normally 12% of input. Reject product is sold for
£260·00 per tonne. 521 tonnes of finished product passed inspection
in the period. The remaining output was sold as reject product.
• There was no work-in-progress either at the beginning or the end of
the period.
• Required:
• Prepare the process account, including any abnormal losses/gains.
• CPU = £1,005 per tonne, valuation of output = £523,605, abnormal loss = £7035
Q2
• Q2) 1,500 kg of raw material, whose price was £18 per kg, were input
to a process in a period. Conversion costs totaled £120,000. Losses, in
the form of reject product, are normally 8% of input. Reject product is
sold for £3 per kg. Actual loss during the process was 100 tonnes.
There was no work-in-progress either at the beginning or the end of
the period.
• Required:
• Prepare the process account, including any abnormal losses/gains.
• CPU = £89.94 per kg, valuation of output = £125,915, abnormal gain = £1,799
Q3
• Details of a process for the last period are as follows:
• Materials 15,000 kg at £2.5 per kg
• Conversion cost was around £12,000
• Normal losses are 10% of input in the process, and can be sold as scrap
for 20c per kg.
• The output for the period was 14,200 kg from the process.
• There was no work in progress at the beginning or end of the period.
• (b) The value of the abnormal loss for the period is ___2551______
• (c) The value of the output for the period is $ ______51751_______
Q4
• Details of the process for the last period are as follows.
• Materials 10,000 kg at £0.50 per kg
• Conversion cost £12,000
• Normal losses are 10% of input in the process, and without further
processing any losses can be sold as scrap for £0.20 per kg.
• The output for the period was 8,400 kg from the process.
• There was no work in progress at the beginning or end of the period.
• The value of the abnormal loss for the period is $__1,120_____ to
the nearest $10.
Q5
• 1,200 tonnes of raw material, costing £30,000, were input to a process in a period.
Conversion costs totaled £36,000. Losses, in the form of reject product, are normally 15% of
input. Reject product is sold for £2.60 per tonne.
• 1,000 tonnes of finished product passed inspection in the period. The remaining output was
sold as reject product. There was no work-in-progress either at the beginning or the end of
the period.
• For the period:
• i) Expected output will be __________ tones (1,020 tonnes)
• ii) Cost per unit of normal output will be _________ per tonne (£64.25)
• iii) Abnormal loss will be ________ tonnes (20 tonnes)
• iv) Total valuation of output will be £__________ (£64247)
• v) Total valuation of abnormal loss will be £__________ (£1285)
Q6
• A company uses process costing to value output. During the last
month the following information was recorded:
• Input 1,500 unit of material at £12.0 per unit
• Conversion cost £50,000
• Normal loss: 300 units which has a scrap value of £4 per unit
• Actual loss: 200 units
• Cost per unit (to two decimal places) will be
• £______55.667_____ per unit
Q7
• R Ltd makes one product, which passes through a single process. Details of the process
account for period 1 were as follows:
• Material cost – 20,000 kg £26,000
• Labour cost £12,000
• Production overhead cost £5,700
• Output 18,800 kg
• Normal losses 5% of input
• There was no work-in-progress at the beginning or end of the period. Process losses
have no value.
• The cost of the abnormal loss (to the nearest £) is
• A £437 B £441 C £460 D £465
Q8
• Costs incurred in a process totalled £84,000 for a period. 30,000 units
of finished product were manufactured, of which 3,600 units were
rejected. This is the normal level of rejects for the process. Rejected
units are sold for £2.00 per unit.
• What was the cost per unit of good output (to the nearest penny)?
• £___2.909_____ per unit
Q9
• Costs incurred in a process totalled £205,000 for a period. 30,500
units of finished product were manufactured including 2,500 units
which were rejected on inspection and disposed of. The level of
rejections in the period was 500 units higher than normal. Rejects are
sold for £2·00 per unit.
• What was the cost per unit for the process?
• £_____7.05______ per unit
Q10
• A company uses process costing to value its output. The following was
recorded for the period:
• Input materials 5,000 units at £4.00 per unit
• Conversion costs £14,000
• Normal loss 5% of input valued at £0.5 per unit
• Actual loss 150 units
• There was no opening or closing stocks.
• What was the valuation of one unit of output to one decimal place?
• £___7.131_______
Q11
• A process costing system for J Co used an input of 3,500kg of
materials at $20 per kg and labour hours of 2,750 at $25 per hour.
Normal loss is 20% and losses can be sold at a scrap value of $5 per
kg. Output was 2,950 kg.
• What is the value of the output?
• A $142,485 B $146,183 C $149,746 D $152,986
Q12 – Answer: 22500
Q13 – Answer: 11.60
Process costing with closing WIP
  Material Conversion cost Total
cost during the period xx xx  
less: scrap from normal loss (xx)    
  xx xx  
     
Equivalent Production Unit (EPU)      
output from process xx xx  
closing WIP xx xx  
abnormal loss / (abnormal gain) xx xx  
EPU xx xx  
       
Cost per EPU (CPU) xx xx xx
       
Valuation      
output from process xx xx xx
closing WIP xx xx xx
abnormal loss / abnormal gain xx xx xx
Equivalent units
• A number of partially complete units is the equivalent of a number of
complete units depending on their degree of completion.
Q14
• Materials material input in the process was valued at $81,600. Labour
and overhead costs $16,848
• Output transferred to finished goods 16,000 kg. Closing work in
progress 1,800 kg
• There were no process losses during the period
• Closing work in progress is 100% complete for material, and 75%
complete for both labour and overheads.
• Required: Prepare process account
Q15
• At the start of the month there was no work-in-progress. During the
month, 300 litres of raw material were input into the process at a
total cost of $6,000. Conversion costs during the month amounted to
$4,500. At the end of the month, 250 litres of Chemical X was
transferred to finished goods inventory. The remaining work-in-
progress was 100% complete with respect to materials and 50%
complete with respect to conversion costs. There were no losses in
the process.
• Prepare process account
 Q16
The incomplete process account relating to period 4 for a company which manufactures paper is shown below:

There was no opening work in process (WIP). Closing WIP, consisting of 700 units, was complete as shown:
Material 100%
Labour 50%
Production overhead 40%
Losses are recognised at the end of the production process and are sold for $1.75 per unit.
60.1 The value of the closing WIP was
A $3,868. B $4,158. C $4,678. D $5,288.
60.2 The total value of the units transferred to finished goods was
A $21,052.50 . B $21,587.50. C $22,122.50. D $22,656.50.
Q17
• A company uses process costing to establish the cost per unit of its
output.
• The following information was available for the last month:
• Input units 9,000
• Output units 7,850
• Closing stock 650 units, 100% complete for materials and
60% complete for conversion costs
• What were the equivalent units for conversion costs?
• __________.
Q18
• Raw materials costing £12,800 were input to a process during a
period. Conversion costs totalled £18,430. There was no work-in-
progress at the beginning of the period and no process losses during
the period. 3,600 units of the product were completed in the period
with 400 units remaining in the process at the end of the period,
complete for materials and with 70% of the conversion costs applied.
• What was the production cost per unit?
• A £7·81 B £7·95
• C £8·05 D £8·68
Q19
• A company operates a process costing system No losses occur in the process.
• The following data relate to last month:
• Units Degree of completion
• Completed during the month 900
• Closing work in progress 150 48%
• The cost per equivalent unit of production for last month was £12.
• What was the value of the closing work in progress?
• A £816 B £864
• C £936 D £1,800
Q20
• In a process, all materials are added at the start of the process.
• Input in the process 2,500 units
• Output from the process 2,000 units
• Normal loss 200 units
• Closing WIP 300 units (60% complete with respect to labour
cost)
• There was no abnormal loss or abnormal gain in the process
• Equivalent production units of material will be ____2300___ units and
labour will be ____2,180____
Q21
• A process requires the input of a single raw material at the start of the process.
There are no process losses. 10,000 units of the material were input to the process
in a period. At the end of the period, processing was only 75% complete on 800
units of the material. There was no work-in-progress at the beginning of the
period.
• What were the equivalent units of production?
• Raw material Conversion costs
• A 9,400 9,400
• B 9,800 9,800
• C 10,000 9,400
• D 10,000 9,800
Q22
• The following information relates to a production process for a
period:
• Input costs £208,350
• Completed output 12,690 units
• Closing work-in-progress 2,000 units (60% complete)
• There were no process losses or opening work-in-progress.
• What was the cost per unit for the process?
• £________ per unit (£15 per unit)
Q23
• Material transferred from process X 2,000 litres at $4 per litre.
Conversion costs incurred $12,250. Output transferred to finished
goods 1,600 litres. Closing work in progress is fully complete for
material, but is only 50 per cent processed.
• What is the value of the completed output? ______
• What is the value of the closing work in progress? __________
Q24 (leave this question)
• Following information is available for a production process for the last period:
• Material input 200 kg at $4 per kg
• Labour 100 hours at $15 per hour
• Production overheads $1000
• Transfer to finished goods 150 kg
• Material is added at the start of the process. Normal losses are 10% of input.
Losses are identified when the process is 50% complete. There was no WIP at
the beginning or at the end pf period.
• Calculate cost per completed unit
• A. $22.00B. $20.48C. $19.59D. $18.33
Process costing with Opening WIP –
weighted Average method
Opening WIP with weighted Average Method
  Material Conversion cost Total
cost during the period xx xx  
cost of opening WIP xx xx  
less: scrap from normal loss (xx)    
  xx xx  
     
Equivalent Production Unit (EPU)      
output from process xx xx  
closing WIP xx xx  
abnormal loss / (abnormal gain) xx xx  
EPU xx xx  
       
Cost per EPU (CPU) xx xx xx
       
Valuation      
output from process xx xx xx
closing WIP xx xx xx
abnormal loss / abnormal gain xx xx xx
Process costing with Opening WIP – FIFO
Opening WIP with weighted FIFO method
  Material Conversion cost Total
cost during the period xx xx  
less: scrap from normal loss (xx)    
  xx xx  
     
Equivalent Production Unit (EPU)      
Opening WIP xx xx  
Units started and completed xx xx  
Closing WIP xx xx  
Abnormal loss / (abnormal gain) xx xx  
EPU xx xx  
       
Cost per EPU (CPU) xx xx xx
       
Valuation      
Opening WIP xx xx xx
Units started and completed xx xx xx
Closing WIP xx xx xx
Abnormal loss / (abnormal gain) xx xx xx
Q25
• Following are some details given about a process.
• Opening WIP was 500 units with
• Stage of completion Cost incurred
• Material 100% complete £4,500
• Labour 60% complete £6,000
• Production overheads 60% complete £5,000
• 15,500
• During the period 7,000 units were input in the process costing £70,000. Labour cost was £60,000 and
production overheads are expected to be 120% of labour cost Actual output during the period was 6,700
units.
• Closing WIP was 800 units which was 100% complete with respect to material and 75% complete with respect
to labour and overheads.
• Required: -
• Prepare process account by using weighted average and FIFO
q26
• Following are some details given about a process.
• Opening WIP was 1,200 units with
• Stage of completion Cost incurred
• Material 100% complete £14,000
• Conversion cost75% complete £16,000
• £30,000
• During the period 12,000 units were input in the process costing £120,000. Conversion cost amounts
was £180,000.
• Actual output during the period was 11,000 units.
• Closing WIP was 2,200 units which was 100% complete with respect to material and 60% complete with
respect to conversion cost.
• Required: -
• Prepare process account by using FIFO and Weighted average method
• Production data for four-litre containers of paint:
• Units (containers) in process, April 1: 100% complete as to materials,
• 60% complete as to labour and overhead. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000
• Units (containers) started into production during April . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 420,000
• Units (containers) completed and transferred to the Finishing Department . ……. . . . . . . . . . . . . . . . . . . 370,000
• Units (containers) in process, April 30: 50% complete for materials, 25% complete for conversion cost . . 80,000
• Cost data:
• Work in process inventory, April 1:
• Materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 92,000
• Labour . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,000
• Overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,000
• Cost added during April:
• Materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$851,000
• Labour. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330,000
• Overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 665,000
• Required: -
• Prepare process account by using FIFO and Weighted average method
• Pg 226: Gerison Chapter 6
Prepare process account by using FIFO
and Weighted average method
Q30
• Opening WIP was 4,000 units (£6,500 for material and £8,000 for
conversion cost). Direct material input during the process was 35,000
units costing £280,000. Conversion cost incurred during the period
was £300,000. Output from the process was 33,000 units. Closing WIP
was 6,000units (75% complete for material and 60% complete for
labour and overheads). Calculate cost per unit of completed output
and valuation of closing WIP.

• Since stage of completion of opening WIP is not given in the question,

we cannot apply FIFO. So using Weighted average method
Q31
• A company which operates a process costing system had work-in-
progress at the start of last month of 300 units (valued at $1,710)
which were 60% complete in respect of all costs. Last month a total of
2,000 units were completed and transferred to the finished goods
warehouse. The cost per equivalent unit for costs arising last month
was $10. The company uses the FIFO method of cost allocation. What
was the total value of the 2,000 units transferred to the finished
goods warehouse last month?
• = 1710+(10*0.4*300)+(10*1700) = $19,910
Q32
• A company operates a process costing system using the first-in-first-out (FIFO) system of
valuation. No losses occur in the process. The following data relate to last month:
• Units
• Opening work-in-progress 200 with a total value of £1,530
• Input to the process 1,000
• Completed production 1,040
• Last month the cost per equivalent unit of production was £20 and the degree of
completion of the work-in-progress was 40% throughout the month.
• 55.1 What was the value (at cost) of last month’s closing WIP? $1280
• 55.2 What was the cost of the 1,040 units completed last month?
• =1530+((1040-200)*20)+(200*0.6*20)
Q33
• A company uses FIFO method t value work in progress and output.
The following relates to this procedure for a period:
• WIP Units Degree of completion
• Opening 1000 40%
• Closing 800 30%
• During the period 4,000 units were introduced into the process
• How many units were both started and completed during the period
• A. 4200 units B. 4360 units C. 3960 units D. 3200 units
34
• The following data relates to the manufacture of a liquid for the last
month:
• Input 2000 units at a total cost of £20,160
• Output 1,680 units
• Normal loss 10% of input, with no resale value
• There are no opening and closing inventories
• What is cost per unit of the process output for the last month?
__11.20_______.
 Q35
• The final stage of production adds Material Z to units that have been transferred into Process D and converts them to the finished product. There
are no losses in Process D.
• Data for Process D in the latest period are shown below:
• Units
• Opening work in progress 225
• Material Z: 80% complete
• Conversion costs: 80% complete
• Units transferred in 500
• Units transferred out 575
• Closing work in progress 150
• Material Z: 60% complete
• Conversion costs: 40% complete
• The equivalent units to be used in the calculations of the cost per equivalent unit for Material Z and Conversion Costs, assuming first-in-first-out
(FIFO) costing are:
• Material Z Conversion costs
• A 485 455
• B 485 500
• C 575 455
• D 575 500