Process Costing Archives - EP Online Study

Process Costing | Brief Question | Descriptive Question | Analytical Question

Manju@2050 — Sun, 30 Jan 2022 06:25:49 +0000

Process costing exam based problems and answers includes Brief Questions, Descriptive Questions and Analytical Questions with answers

Process Costing

The cost accounting system used by process is called process costing.

To prepare bread, we need mixing of white flour, ghee, sugar, eggs, baking powder etc.

From this mixture, different size of bread can be prepared.

These sized are baked in oven.

Baked bread cut and packed.

Process costing is applied in the oil refinery, chemical, timber, textile, sugar mill and food processing industries.

These companies set the right prices for their products and determine whether costs are tracking in line with forecasts.

A separate process account is prepared for each process.

Materials, labour, overhead, machine expenses etc are debited in each process.

Process costing helps to determine the cost of their products at each stage of the process of manufacturing.

It helps to control costs, evaluate performance and check the products at each stage.

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Process A Account

Particulars	Units	Amount	Particulars	Units	Amount
To Raw materials			By Normal loss account
To Sundry materials			[units x % x $]
To Direct labour			By Process B account
To Direct expenses
To Factory overhead

Process B Account

Particulars	Units	Amount	Particulars	Units	Amount
To Process A account			By Normal loss account
To Sundry materials			[Units@% x $]
To Direct labour			By Process C account
To Direct expenses
To Factory overhead

Process C Account

Particulars	Units	Amount	Particulars	Units	Amount
To Process B account			By Normal loss account
To Sundry materials			[Units@% x $]
To Direct labour			By Finished goods account
To Direct expenses
To Factory overhead

NORMAL LOSS

Normal loss units = Input units – Normal output units

Normal Loss Account

Particulars	Units	Amount	Particulars	Units	Amount
To Process A account	xxx	xxx	By Cash/Debtors	xxx	xxx
To Process B account	xxx	xxx	(Units x Scrap rate
To Process C account	xxx	xxx	according to related process)
	xxxx	xxxx		xxxx	xxxx

ABNORMAL LOSS

Abnormal loss units	= Input – Normal loss – Actual output
Abnormal loss	= Total scrap – Normal loss
Value of abnormal loss	= (Normal cost ÷ Normal output) x Abnormal loss units
Or	= (Dr amount – Cr amount) ÷ (Dr units – Cr units) x Abnormal loss units

Abnormal Loss Account

Particulars	Units	Amount	Particulars	Units	Amount
To Process A account	xxx	xxx	By Cash/Debtors	xxx	xxx
To Process B account	xxx	xxx	(Input rate of normal loss)
			By P&L Account (b/f)	xxx	xxx
	xxxx	xxxx		xxxx	xxxx

ABNORMAL GAIN

Abnormal loss units	= Input – Normal loss – Actual output

Value of abnormal gain	= (Normal cost ÷ Normal output) x Abnormal gain units
Or	= [(Dr amount – Cr amount) ÷ (Dr units – Cr units)] x Abnormal gain units

Abnormal Gain Account

Particulars	Units	Amount	Particulars	Units	Amount
To Normal loss account	xxx	xxx	By Process A, B or C account	xxx	xxx
[Units x scrap rate]
To P&L account (profit; b/f )	–	xxx
	xxx	xxx		xxx	xxx

Inter-Process Profit

Cost of closing stock	= (Cost x Closing stock) ÷ Total cost
Unrealized profit	= Closing stock – Cost of closing stock
Gross profit (% on cost)	= Total cost x % ÷ 100
Transfer price	= Total cost + Gross profit
Gross profit (% on sales)	= Total cost x % ÷ (% – 100) [∵ % on sales or transfer price]

Process I Account

Particulars	Cost	Profit	Total	Particulars	Cost	Profit	Total
To Opening stock	xxxx		xxxx	By Process II account	xxxx	xxxx	xxxx
Add: Direct materials	xxxx		xxxx
Direct labour	xxxx		xxxx
Cost	xxxx		xxxx
Less: Closing stock	xxxx		xxxx
Prime cost	xxxx		xxxx
Add: Production overhead	xxxx		xxxx
Total/Process cost	xxxx	–	xxxx
Add: Gross profit	–	xxxx	xxxx
Transfer price	xxxx	xxxx	xxxx		xxxx	xxxx	xxxx

Gross profit (% on sales or transfer price) = Total cost x % ÷ (100 – %)

Process II Account

Particulars	Cost	Profit	Total	Particulars	Cost	Profit	Total
To Opening stock	xxxx		xxxx	By Process III account	xxxx	xxxx	xxxx
Add: Process I	xxxx		xxxx
Add: Direct materials	xxxx		xxxx
Direct Labour	xxxx		xxxx
Cost	xxxx		xxxx
Less: Closing stock	xxxx		xxxx
Prime cost	xxxx		xxxx
Add: Production overhead	xxxx		xxxx
Total/Process cost	xxxx	–	xxxx
Add: Gross profit	–	xxxx	xxxx
Transfer price	xxxx	xxxx	xxxx		xxxx	xxxx	xxxx

Cost of closing stock = (Cost x Closing stock) ÷ Total cost

Unrealized profit = Closing stock – Cost of closing stock

Gross profit (% on sales or transfer price) = Total cost x % ÷ (100 – %)

Process III Account

Particulars	Cost	Profit	Total	Particulars	Cost	Profit	Total
To Opening stock	xxxx		xxxx	By Finished goods account	xxxx	xxxx	xxxx
Add: Process II	xxxx		xxxx
Add: Direct materials	xxxx		xxxx
Direct labour	xxxx		xxxx
Cost	xxxx		xxxx
Less: Closing stock	xxxx		xxxx
Prime cost	xxxx		xxxx
Add: Production overhead	xxxx		xxxx
Total/Process cost	xxxx	–	xxxx
Add: Gross profit	–	xxxx	xxxx
Transfer price	xxxx	xxxx	xxxx		xxxx	xxxx	xxxx

Cost of closing stock = (Cost x Closing stock) ÷ Total cost

Unrealized profit = Closing stock – Cost of closing stock

Gross profit (% on sales or transfer price) = Total cost x % ÷ (100 – %)

Finished Stock Account

Particulars	Cost	Profit	Total	Particulars	Cost	Profit	Total
To Opening stock	xxxx		xxxx	By Sales account	xxxx	xxxx	xxxx
Add: Process III account	xxxx		xxxx
Cost	xxxx		xxxx
Less: Closing stock	xxxx		xxxx
Total/Process cost	xxxx	–	xxxx
Add: Profit	–	xxxx	xxxx
Sales	xxxx	xxxx	xxxx		xxxx	xxxx	xxxx

Cost of closing stock = (Cost x Closing stock) ÷ Total cost

Unrealized profit = Closing stock – Cost of closing stock

Statement of Actual Realized Profit

Sources	Process	Unrealized Profit			Actual Profit
	Profit	Opening	Closing	Difference ±
1	2	3	4	5 = 3 – 4	6 = 2 + 5
Process I
Process II
Process III
Finished Stock
Total

Brief Questions

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

BQ: 1

The following extracted information is given below of process A:

The input and output for the period 500 units

Sundry materials	$90,000	Work overhead	$72,000
Direct labour	$48,000	Indirect expenses	$32,000
Direct expenses	$20,000

Output of the Process A is transferred to Process B.

Required: Process A account showing cost per unit each.

[Answer: Transfer to Process B = $262,000; CPU = $524]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

BQ: 2

The following extracted information is given below:

Transferred from process A 3,000 units and $150,000

Incurred for process B:

Sundry materials $30,000

Direct labour $15,000

Work overhead $12,000

Indirect expenses $8,000

Output of the Process B is transferred to Process C.

Required: Process B account and cost per unit

[Answer: Transfer to Process C = $215,000; CPU = $71.67]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

BQ: 3

The following extracted information is available:

Issued to Process A 1,000 units of raw materials @ $30.

There was not opening and closing stock.

The normal loss of Process A 10% @ $10 per unit

The other expenses were as following:

Sundry material	$20,000		Direct expenses	$15,000
Direct labour	$20,000		Factory expenses	$18,150

Process A is transferred for to Process B account

Required: Process A account and cost per unit

[Answer: Transfer to Process B = $102,150; CPU = $113.50]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

BQ: 4

The following extracted information is available:

Particulars	Amount	Manufacturing expenses	$30,000
Input in process A 1,000 units	$100,000	Output in units	940 units
Indirect material	$120,000	Normal loss	5%
Direct labour	$130,000	Value of normal loss per unit	$50

Process A is transferred for to Process B account

Required: Process A account

[Answer: Process A: Abnormal loss 10 units; $3,974;

Transfer to Process B = 940 units; $373,526;

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

BQ: 5

The following extracted information is available:

Transferred from Process A: 1,000 units @ $150

Process B is transferred for to finished goods account

Other information:

Particulars	Amount
Indirect material	$80,000	Output in units	920 units
Direct labour	$130,000	Expected normal loss of input	10%
Manufacturing expenses	$30,000	Value of normal loss per unit	$50

Required: Process B account

[Answer: Process B: Abnormal gain 20 units; $8,556;

Transfer to finished goods = 920 units; $393,556]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

BQ: 6

The following extracted information is available:

Normal loss from Process A: 400 units and $16,000

Normal scrap rate $50 per unit

Abnormal gain from Process B: 100 units and $40,000

Required: (a) Normal loss account; (b) Abnormal gain account

[Answer: (a) Cash account (b/f) = 300 units; $11,000;

(b) P&L (profit, b/f) = $35,000]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

BQ: 7

The following extracted information is available:

Normal loss from Process A: 2,000 units and $20,000.

Normal loss from Process B: 900 units and $18,000.

Abnormal loss from Process A: 500 units and $11,000.

Normal scrap rate: Process A $10 per unit and Process B $20 per unit

Abnormal gain from Process B: 350 units and $15,000

Required: (a) Normal loss account; (b) Abnormal gain account

NL: Abnormal gain 350 units; $7,000; Cash (b/f) 2,550 units; $31,000;

AL: Cash 500 units; $5,000; Loss (b/f) $6,000;

AG: Normal loss 350 units; $7,000; Profit (b/f) $8,000]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

BQ: 8

The following extracted information is given to you for the Process A:

Particulars	Amount		Amount
Opening stock	7,500	Production overhead	10,500
Direct materials	15,000	Closing stock	3,700
Direct wages	11,200	Profit % on transfer price to next process	20%

Output of Process A is transferred to Process B account

Required: Process A Account

[Answer: Total cost = $40,500; Gross profit = $10,125;

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

BQ: 9

The following extracted information is given to you for the Process B:

Transferred from Process A: Cost $40,500 and profit $13,500

Particulars	Amount		Amount
Opening stock	9,000	Closing stock	4,500
Direct materials	15,750	Profit % on transfer price to next process	20%
Direct wages	11,250	Inter process profit on opening stock	1,500
Factory expenses	4,500

Output of Process B is transferred to finished goods account

Required: Finished goods account

[Answer: Total cost = $90,000; Profit = $22,500]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

BQ: 10

The following extracted information is given to you for the Finished Goods Account:

Transferred from Process C: Cost $75,750 and profit $36,750

Opening stock $22,500

Closing stock $11,250

Inter process profit on opening stock $8,250

Sales for the period were $140,000.

Required: Finished goods account

[Answer: Cost = $82,500; Profit = $57,500]

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Descriptive Questions

INTER PROCESS BASES

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

DQ: 1

Forming and finishing processes are the two consecutive processes required in course of manufacturing ceramics products. The data for the process operations are stated below by JK Ceramics Ltd:

Particulars	Forming process	Finishing process
Material	80,000	30,000
Labour	50,000	20,000
Finished goods	10,000	10,000

There was no opening stock in any process. Output of each process in passed on to next process and to finished goods at 20% of transfer price.

Required: (a) forming process account; (b) Finishing process account;

[Answers: (1) Cost of closing stock = $10,000; Profit = $30,000;

PB: $120,000; $30,000 and $150,000;

(2) Cost of closing stock = $8,500; Profit = $47,500;

F.S: $161,500, $76,000 and $237,500;

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

DQ: 2

A finished product is produced through two processes. The expenses of each of each process of the last month are given by EP Manufacturing Company:

Particulars	Process A	Process B
Materials	10,000	20,000
Wages	8,000	10,000
Stock at the end	2,000	4,000
Percentage of profit on transfer price	20%	20%

Required: (a) Process A account; (b) Process B account

[Answers: Cost of closing stock = $2,000; Profit = $4,000;

PB: $16,000; $4,000 and $20,000;

Cost of closing stock = $3,680; Profit = $11,500;

F.S: $42,320, $15,180 and $57,500;

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

DQ: 3

Dolphin Pashmina Craft manufactures pashmina items. The following transactions are related to scarf:

Particulars	Yarn	Weave	Finished goods
Direct materials	40,000	60,000
Direct labour	30,000	20,000
Production overhead	30,000	20,000
Closing stock	20,000	40,000	30,000
Profit charged on transfer or sales price	20%	20%

The company does not maintain opening stock. Sales for the period were $250,000.

Required: (1) Yarn process Account; (2) Weave process Account; (3) Finished goods Account

[Answer: (1) GP = $20,000; (2) Cost of closing stock $35,556; GP = $40,000;

(3) Cost of closing stock $21,667; Profit $80,000]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

DQ: 4

Gorkha Metal Uddhyog has following data related to process for grill:

Particulars	Process A	Process B	Process C
Opening stock	7,500	9,000	22,500
Direct materials	15,000	15,750
Direct wages	11,200	11,250
Factory expenses	10,500	4,500
Closing stock	3,700	4,500	11,250
Profit % on transfer price to next process	25%	20%
Inter process profit on opening stock	–	1,500	8,250

Sales for the period were $140,000.

Required: (1) Process A account; (2) Process B account; (3) Finished goods account; (4) Statement of actual realized profit

[Answer: (1) GP = $13,500; (2) Cost of closing stock $3,750; GP = $22,500;

(3) Cost of closing stock $7,500; Profit $16,250; (4) Actual profit $57,500

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

DQ: 5

A product passes through two processes A and B. The output of A is transferred to B at cost plus 25% and the finished output similarly transferred to finished stock at cost plus 25%. There was no work-in-progress in either process during the period. The information relating to process A and B are given below:

Process	Process A	Process B
Materials	$20,000	$60,000
Wages	$30,000	$40,000
Closing stock (valued at prime cost)	$10,000	$30,000

Portion of finished stock remained in hand valued at $45,000 and balance sold for $145,000

Required: (a) Process Accounts; (b) Finished stock account; (c) Actual realized profit

[Answers: (a) Profit -Process A = $10,000 and Process B = $30,000;

(b) Profit: Finished stock = Rs, 40,000;

(c) Actual Realized Profit = $66,600]

UNITS BASES

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

DQ: 6

ABC Manufacturing Firm produces a product which passes through three distinct processes. The following information is available: (amount is in rupees)

The input and output for the period is 1,000 units.

Particulars	Process A	Process B	Process C
Sundry materials	45,000	15,000	6,000
Direct labour	24,000	60,000	18,000
Direct expenses	10,000	10,000	10,000
Work overhead	36,000	50,000	36,000

The indirect expenses of $68,000 should be apportioned on the basis of direct labour.

Required: Prepare process accounts showing total cost and cost per unit

[Answer: Output: PA = $131,000; CPU = $131;

PB = $306,000; CPU = $306; PC = $388,000; CPU = $388;

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

DQ: 7

Maha Laxmi Hume Pipe manufactures PVC products. The product passes through two processes named A and B. 2,000 units of raw materials were issued to process A at cost of $20 per unit. There was not opening and closing stock.

The normal loss of each process is as following:

Process A 10% @ $10 per unit

Process B 5% @ $30 per unit

The other expenses were as following:

Expenses	Process A	Process B
Sundry expenses	20,000	30,000
Direct labour	50,000	60,000
Direct expenses	29,000	28,500
Output in units	1,800	1,710

The factory overhead of $55,000 is allocated on the basis of direct labour ratio of each process.

Required: Prepare process accounts

[Answer: Output: A = 1,800 units; $162,000; B = 1,710 units; $307,800]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

DQ: 8

National Pipe Industries, Kathmandu manufactures plastic items. Following information is given for a product passes through two processes named A and B:

Particulars	Process A	Process B
Input in process A 10,000 units	$100,000	–
Materials consumed	$120,000	$150,000
Direct labour	$130,000	$240,000
Manufacturing expenses	$30,000	$81,000
Output in units	9,400 units	8,300 units
Normal loss	5%	10%
Value of normal loss per unit	$8	$10

Required: (1) (a) Process A accounts; (b) Process B account

(2) Write any three differences between normal loss and abnormal loss

[Answer: Process A: Abnormal loss 100 units; $3,958;

Output 9,400 units; $372,042;

Process B: Abnormal loss 160 units; $15,766;

Output 8,300 units; $817,876]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

DQ: 9

The following particulars for the last process are given:

Particulars	Units	Amount
Transferred from the first process (input of last process):	4,000	620,000
Output from the last process	3,700	?
Direct wages		200,000
Materials consume		300,000
Factory overhead of materials consume		150%
Normal loss		10%
Scrap value of normal loss per unit		$50

You are required to prepare: (a) Last process Account; (b) Normal loss Account; (c) Abnormal loss Account

[Answer: Last process: Abnormal loss 100 units; $43,056;

Output 3,700 units; $15,93,056;

Normal loss A/c: abnormal gain 100 units; $5,000;

Cash (b/f) 300 units; $15,000;

Abnormal gain A/c: normal loss 100 units; $5,000;

P&L (profit, b/f) $38,056]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

DQ: 10

The following extracted details are given: (amount is in rupees)

Particulars	Process A	Process B
Input materials 20,000 units	$300,000	–
Indirect materials	25,000	30,000
Direct labour	60,000	80,000
Manufacturing expenses	40,000	40,000
Scrap value per unit	10	20
Normal loss	10%	5%
Output	17,500	17,000

There was no opening or closing stock or work in progress.

Required: (a) Process A account; (b) Process B account; (c) Normal loss account; (d) Abnormal loss account;

(e) Abnormal loss account

[Answer: PA: Abnormal loss 500 units; $11,250;

Output 17,500 units; $393,750;

PB: Abnormal gain 375 units; $11,870;

Output 17,000 units; $538,120;

NL: abnormal gain 375 units; $7,500;

Cash (b/f) 2,500 units; $30,000;

AL: cash 500 units; $5,000; Loss (b/f) $5,000;

AG: normal loss 375 units; $7,500; Profit (b/f) $4,375]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

DQ: 11

Lumbini Foam Industries (P) Ltd manufactures different kinds of mattress. From Process I output are sold without cover and from Process II output are sold with cover. Following data are given for 3’x4’ size:

Particulars	Process I	Process I
Raw materials input 1,000 kg	200,000	–
Direct labour	30,000	19,500
Manufacturing expenses	57,800	20,000
Weight lost (% of input without monetary value)	5%	10%
Normal loss (sales price $ 50 per unit)	50 kg	30 kg
Sale price per unit	400	500

Additional information:

a. Two-third of the output of the Process I transferred to the Process II and balance is sold.

b. The entire output of Process II is sold out.

c. Management expenses were $15,000 and selling $7,500 for the period

Required: (a) Process I account; Process II account; (b) Statement of profit and loss

[Answer: Process I: Output for warehouse 300 units; $95,100;

Output for process II 600 units; $190,200; Profit $24,900;

Process II: Output for warehouse 510 units; $228,200; Profit $26,800;

Statement of P&L (net profit) $29,200]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

DQ: 12

The workings of the process II are given below:

a. Units of output released from the preceding process I 10,000 units at $6.50 per unit.

b. Units scrapped (loss) in the process II 700 units

c. Normal loss in the process II expected was 5% (scrap value per unit is $5)

d. Processing expenses during the period:

· Material for 2,000 units $2,800

· Labour cost $36,000

· Factory expenses recovered at $3 per consumed units

Required: Process II account showing cost of production per unit

[Answers: NL = 600 units, $3,000; AL = 100 units, $1,200; CPU = $12

* Out of 700 units scraped, normal loss 600 units and abnormal loss 100 units]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

DQ: 14

An article is manufactured through two processes I and II.

Particulars	Process I	Process II
Productive wages	40,000	30,000
Machine expenses	20,000	10,000
Scrap- sold at $10 per unit	200 units	100 units
Sale price per unit	$60	$100

Main raw materials introduced were 2,000 units at $10 each. 1/3 of the output of process I is transferred to warehouse for sale and balance transferred to next process. Establishment expenses of $10,000 and selling distribution expenses for the period were $5,000.

Prepare process accounts and sale account for each process and profit and loss statement.

[Answer: PI: Warehouse = 600 units, $26,000;

Process II = 1,200 units, $52,000; Profit = $10,000;

PII: Warehouse = 1,100 units, $91,000; Profit = $19,000;

P & L: Net profit = $14,000; Total = $29,000]

Analytical Question

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

AQ: 1

Two processes are involved before a product is manufactured. The details obtained during January of this year are:

Items	Process I	Process II	Finished products
Opening stock	1,000	5,000	10,000
Direct materials	10,000	20,000
Direct labour	8,000	12,000
Production overhead	5,000	10,000
Closing stock	4,000	8,000	15,000
Inter-process profit connected with opening stock	–	1,000	4,000
Profit % Transfer price	20%	20%
Sales	–	–	100,000

Prepare: (reporting Prime cost where possible and portion of the profit at each stage)

(1) Process I account; (2) Process II account; (3) Finished products account; (4) Actual realized profit

[Answers: (1) Cost of closing stock = $4,000; Profit = $5,000;

PII: $20,000; $5,000 and $25,000;

(2) Cost of closing stock = $7,226; Profit = $16,000;

FP: $58,774, $21,226 and $80,000;

(3) Cost of closing stock = $10,796; Profit = $25,000;

Sales: $53,978, $46,022; $100,000; (4) Actual profit = $46,022]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

AQ: 2

A product passes through two processes for completion. The output of each process is charged to the next process at a price calculated to give a profit of 20% on the transfer price. The output of the second process is charged to finished stock on a similar basis. The following information is obtained for a period.

Activity	Process I	Process II	Finished
Opening stock	12,000	72,000	140,000
Direct material	80,000	120,000
Direct labour	60,000	68,000
Production overhead	70,000	61,000
Closing stock	22,000	11,000	100,000

The stock in process in valued at prime cost. Inter process profits included in the opening stock of process II was $6,000 and finished stock was $35,000. Sales during the period are of $900,000.

Required: (1) Process I account; (2) Process II account; (3) Finished stock account

(4) Statement showing actual realized profit

[Answers: Cost of closing stock = $22,000; Profit = $50,000;

PII: $20,000; $50,000 and $70,000;

Cost of closing stock = $9,792; Profit = $140,000;

FG: $505,208, $194,792 and $700,000;

(3) Cost of closing stock = $72,644; Profit = $160,000;

Sales: $537,564, $362,436; $900,000;

(4) Actual profit = $50,000; $144,792; $167,644 and Total $362,436]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

AQ: 3

Crude Processing Industry has following extracted information:

Input in process I:

Materials X 6,000 kg at $3.00 per kg

Materials Y 4,000 kg at $1.75 kg

Other expenses incurred are $5,500

Running hours and cost of machine are 2,400 machine hours at $5 per machine hour.

Output realized is 9,300 kg.

Normal loss expected is 5% with a disposal value of $2 per kg.

Input in process II:

Materials A 5,700 kg at $6.00 per kg

Materials B 5,000 kg at $5.02 per kg

Other expenses incurred are $12,000

Running hours and cost of machine are 1,600 hours at $10 per machine hour.

Output realized is 19,500 kg.

Normal loss expected is 5% with a disposal value of $5.50 per kg.

Factory and other overhead expenses of $10,000 are absorbed by the two processes on the basis of running machine hours during the month; 17,500 kg of finished goods are sold at a selling price of $10.50 per kg. The selling and distribution expenses are $1.50 per kg.

Required: (1) Process I and II accounts; (2) Normal loss, abnormal loss and abnormal gain account

(3) Statement of P&L showing net profit before and after abnormal loss/gain

[Answer: PI: AL = 200 units, $1,000; PII = 9,300 units, $46,500; CPU = $5;

PII: AP = 500 units, $3,482; F.G = 19,500 units, $135,782; CPU = $6.963;

NL A/c: Cash = 500 units, $1,000; 500 units, $2,750; AP = 500 units, $2,750;

AL A/c: P & L (loss, b/f) = $600; AP A/c: P & L (profit, b/f) = $732;

Net profit before adjustment = $35,647;

Net profit after adjustment = $35,779]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

AQ: 4

A product passes through three processes A, B and C. The output of process A becomes the input of process B and the output of process B becomes the inputs of process C. The entire output of process C was sold directly to the customers. The detail of expenses incurred on the three processes during the period was as under:

Process A:

Units introduced:	Amount
Material X 6,000 units @ $5
Material Y 4,000 units @ $3
Sundry materials	$15,000
Labour 1,000 Hours	$30 per hour
Direct expenses	$10,000
Normal Loss	5%
Scrap value per unit	$4
Selling price per unit of output	$15
Output	9,300 units

Process B:

	Amount
Sundry material	$17,000
Labour 1,200 hours	$40 per hour
Other expenses	$22,420
Normal Loss	5%
Scrap value per unit	$7
Output	5,890 units
Selling price per unit of output	$30

Process C:

Sundry material	$10,000
Labour 500 hours	$20 per hour
Direct expenses	$24,175
Normal Loss	Nil
Actual output	2,900 units
Selling price per unit of output	$50

Two third of the output of Process A and one half of the output of Process B were passed on to the next process and the balance were sold.

Required: (1) Three process accounts showing profit or loss; (2) Normal loss account; (3) Abnormal loss account

[Answers: PA: Warehouse = 3,100 units; $31,000;

PB = 6,200 units; $62,000; Profit = $15,500;

PB: Warehouse = 2,945 units; $73,625;

PC = 2,945 units; $73,625; Profit = $14,725;

PC: Warehouse = 2,900 units; $116,000; Profit = $29,000;

NL: 500 units, $2,000; 310 units, $2,170;

AL: P & L (loss, b/f) $2,550]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

AQ: 5

Chemical product is obtained after passing through three processes. The following information is given by Rathi Chemicals (P) Ltd for the month of January:

1,000 units introduces at $120 per unit.

Particulars	Process I	Process II	Process III
Direct materials	104,000	79,200	118,478
Direct wages	80,000	120,000	160,000
Normal loss	5%	10%	16%
Scrap value per unit	80	160	200
Output in units	950	500	220
Selling price per unit	500	1,250	3,500

The production overhead $360,000 has to be apportioned on the basis of direct wages.

Other information:

Particulars	Process I	Process II	Process III
Transferred to next process	60%	50%	–
Transferred to warehouse for sale	40%	50%	100%
Total	100%	100%	100%

Required: (1) Three process accounts; (2) Normal loss account; (3) Abnormal loss account; (4) Abnormal gain account

[Answer: (1) Process I: warehouse 380 units, $152,000; Profit = $38,000

Process II: Warehouse 250 units, $262,222; Profit = $50,278;

Process III: Warehouse 220 units, $725,686; Profit = $44,314;

(4) Normal loss: Abnormal gain = 10 units, $2,000; Cash (b/f) = 137 units, $19,120;

(5) Abnormal loss: Cash = 13 units, $2,600; P & L (loss) = $11,556;

(6) Abnormal gain: Normal loss = 10 units, $2,000; P & L (gain) = $30,986;

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

AQ: 6

A Product passes through three processes A, B and C. The details of expenses incurred on the three processes during the period are given below:

10,000 units of crude material were introduction in process A @ $100 per unit

Particulars	Process A	Process B	Process C
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	130	175	260
Actual output in units	9,300 units	5,400 units	2,100 units
Normal loss on the input	5%	15%	20%
Value of normal loss per units	2	5	10

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.

Management expenses during the year were $50,000 and selling expenses were $30,000. These are not allocable to the processes.

You are required to calculate:

(1) Three processes accounts; (2) Normal loss account; (3) Abnormal loss account; (4) Abnormal gain account;

(5) Profit and loss account

[Answer: (1) PA: Transfer to PB = 6,200 units, $682,000;

WH = 3,100 units, $341,000; Profit = $62,000;

PB: Transfer to PC = 2,700 units, $405,000; WH = 2,700 units, $405,000;

Abnormal gain = 130 units, $19,500; Profit = $67,500;

PC: WH = 2,100 units, $483,000; Profit = $63,000;

(2) Normal loss: Abnormal gain = 130 units, $650; Cash (b/f) = 1,840 units, $10,400;

(3) Abnormal loss: Cash = 200 units, $400 + 60 units; $600; P & L (loss) = $38,400;

(4) Abnormal gain: Normal loss = 130 units, $650; P & L (gain) = $18,850;

(5) Net profit = $96,550]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

AQ: 7

Process A:

Material M introduced	6,000 units @ $15
Materials N introduced	4,000 units @ $9
Sundry materials	$45,000
Labour 1000 Hours	$30 per hour
Other expenses	$33,000
Normal loss	5% @ $12 per unit
Selling price per unit of output	$35
Output	9,300 units

Process B:

Material O introduced	2,000 units @ $20
Materials P introduced	1,000 units @ $10
Labour 800 hours	$40 per hour
Other expenses	$25,660
Normal loss	5% @ $21 per unit
Output	8,800 units
Selling price per unit of output	$50

Process C:

Material Q introduced	500 units @ $50
Materials R introduced	200 units @ $30
Labour 500 hours	$40 per hour
Direct expenses	$18,453
Normal loss 100 units	$30 per unit
Actual output	4,950 units
Selling price per unit of output	$60

Two third of the output of process A and one half of the output of process B were passed on to the next process and the balance were sold.

Administrative expenses were $60,000 and selling and distribution $25,000 for the period.

Required: (1) Three process accounts showing profit or loss; (2) Normal loss account; (3) Abnormal loss account;

(4) Abnormal gain account; (5) Income statement with adjusting abnormal loss and gain

[Answers: (1) Process A: Abnormal loss = 200 units, $4,800;

Transferred to PB = 6,200 units, $148,800; Profit = $34,100;

Process B: Abnormal gain = 60 units, $1,694;

Transferred to PC = 4,400 units, $124,247; Profit = $95,753;

Process C: Abnormal loss = 50 units, $1,907;

Transferred to WH = 4,950 units, $188,793; Profit = $108,207;

(2) NL: Abnormal gain = 60 units, $1,260; Cash (b/f) = 750 units, $17,700;

(3) AL: Cash = (200 x $12) + (50x $30); P & L (loss, b/f) $2,807]

(4) AG: Normal loss = 60 units, $1,260; P&L (profit) = $434;

P & L [profit (b/f)] = $430; (5) Net profit = $150,687]

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The post Process Costing | Brief Question | Descriptive Question | Analytical Question appeared first on EP Online Study.

Process Costing | Inter-Process Profit| Problem and Solution

Manju@2050 — Sun, 30 Jan 2022 03:36:53 +0000

Process Costing

The cost accounting system used by process is called process costing.

To prepare bread, we need mixing of white flour, ghee, sugar, eggs, baking powder etc.

From this mixture, different size of bread can be prepared.

These sized are baked in oven.

Baked bread cut and packed.

Process costing is applied in the oil refinery, chemical, timber, textile, sugar mill and food processing industries.

These companies set the right prices for their products and determine whether costs are tracking in line with forecasts.

A separate process account is prepared for each process.

Materials, labour, overhead, machine expenses etc are debited in each process.

Process costing helps to determine the cost of their products at each stage of the process of manufacturing.

It helps to control costs, evaluate performance and check the products at each stage.

Inter-Process Profit in Process Costing

The profit associated with the transfer of goods from one process to another process is called inter-process profit.

Normally, finished goods are transferred to next process immediately at a cost basis.

But some processes industries transfer next process by include some profit percentage.

This incorporated profit is called inter- process profit.

While transferring goods to next process, some profit is added.

It is called transfer price or mark-up price.

Cost of closing stock	= (Cost x Closing stock) ÷ Total cost
Unrealized profit	= Closing stock – Cost of closing stock
Gross profit (% on cost)	= Total cost x % ÷ 100
Transfer price	= Total cost + Gross profit
Gross profit (% on sales)	= Total cost x % ÷ (% – 100) [∵ % on sales or transfer price]

Objectives of Inter Process Profit

The main objectives of inter process profit are:

To access (review, evaluate) profit of each process.

To access (review, evaluate) performance of each process.

To access (review, evaluate) whether product can compete with market product.

It helps to take decision about make or buy.

It helps to determine selling price of semi-finished goods.

Process I Account

Particulars	Cost	Profit	Total	Particulars	Cost	Profit	Total
To Opening stock	xxxx		xxxx	By Process II account	xxxx	xxxx	xxxx
Add: Direct materials	xxxx		xxxx
Direct labour	xxxx		xxxx
Cost	xxxx		xxxx
Less: Closing stock	xxxx		xxxx
Prime cost	xxxx		xxxx
Add: Production overhead	xxxx		xxxx
Total/Process cost	xxxx	–	xxxx
Add: Gross profit	–	xxxx	xxxx
Transfer price	xxxx	xxxx	xxxx		xxxx	xxxx	xxxx

Gross profit (% on sales or transfer price) = Total cost x % ÷ (100 – %)

Process II Account

Particulars	Cost	Profit	Total	Particulars	Cost	Profit	Total
To Opening stock	xxxx		xxxx	By Process III account	xxxx	xxxx	xxxx
Add: Process I	xxxx		xxxx
Add: Direct materials	xxxx		xxxx
Direct Labour	xxxx		xxxx
Cost	xxxx		xxxx
Less: Closing stock	xxxx		xxxx
Prime cost	xxxx		xxxx
Add: Production overhead	xxxx		xxxx
Total/Process cost	xxxx	–	xxxx
Add: Gross profit	–	xxxx	xxxx
Transfer price	xxxx	xxxx	xxxx		xxxx	xxxx	xxxx

Cost of closing stock = (Cost x Closing stock) ÷ Total cost

Unrealized profit = Closing stock – Cost of closing stock

Gross profit (% on sales or transfer price) = Total cost x % ÷ (100 – %)

Process III Account

Particulars	Cost	Profit	Total	Particulars	Cost	Profit	Total
To Opening stock	xxxx		xxxx	By Finished goods account	xxxx	xxxx	xxxx
Add: Process II	xxxx		xxxx
Add: Direct materials	xxxx		xxxx
Direct labour	xxxx		xxxx
Cost	xxxx		xxxx
Less: Closing stock	xxxx		xxxx
Prime cost	xxxx		xxxx
Add: Production overhead	xxxx		xxxx
Total/Process cost	xxxx	–	xxxx
Add: Gross profit	–	xxxx	xxxx
Transfer price	xxxx	xxxx	xxxx		xxxx	xxxx	xxxx

Cost of closing stock = (Cost x Closing stock) ÷ Total cost

Unrealized profit = Closing stock – Cost of closing stock

Gross profit (% on sales or transfer price) = Total cost x % ÷ (100 – %)

Finished Stock Account

Particulars	Cost	Profit	Total	Particulars	Cost	Profit	Total
To Opening stock	xxxx		xxxx	By Sales account	xxxx	xxxx	xxxx
Add: Process III account	xxxx		xxxx
Cost	xxxx		xxxx
Less: Closing stock	xxxx		xxxx
Total/Process cost	xxxx	–	xxxx
Add: Profit	–	xxxx	xxxx
Sales	xxxx	xxxx	xxxx		xxxx	xxxx	xxxx

Cost of closing stock = (Cost x Closing stock) ÷ Total cost

Unrealized profit = Closing stock – Cost of closing stock

Statement of Actual Realized Profit

Sources	Process	Unrealized Profit			Actual Profit
	Profit	Opening	Closing	Difference ±
1	2	3	4	5 = 3 – 4	6 = 2 + 5
Process I
Process II
Process III
Finished Stock
Total

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PROBLEM: 4A

EP Agro Industry, a small handmade industry for agriculture product has provided you following are the details in respect of two processes, A and B:

Details	Process A	Process B
Materials	20,000	–
Direct wages	24,000	40,000
Direct overheads	12,000	20,000
Closing Stock (valued at total cost)	8,000	16,000
Profit % on transfer price	20%	20%

Additional information:

(a) Out of the output transferred to finished stock costing $20,000 remained unsold at the end of the accounting period and the balance realized $200,000.

(b) There was no opening stock and closing work-in-progress.

You are required to prepare:

(1) Process A account; (2) Process B account; (3) Finished goods stock account

[Answers: PA: Cost of closing stock = $8,000; Profit = $10,250;

Transfer to PB = $48,000; $12,000 and $60,000;

PB: Cost of closing stock = $14,400; Profit = $26,000;

Transfer to F.S = $93,600; $36,400 and $130,000;

FG: Cost of closing stock = $14,400; Profit = $90,000]

SOLUTION:

Process A Account

Particulars	Cost	Profit	Total	Particulars	Cost	Profit	Total
To Opening stock	Nil		Nil	By Process B account	48,000	12,000	60,000
Add: Direct materials	20,000		20,000
Add: Direct wages	24,000		24,000
Add: Direct overhead	12,000		12,000
Cost	56,000		56,000
Less: Closing stock	8,000		8,000
Prime cost	48,000		48,000
Add: Factory overhead	Nil		Nil
Total cost	48,000	–	48,000³
Add: Gross profit	–	12,000	12,000
Transfer price	48,000	12,000	60,000		48,000	12,000	60,000

Gross profit (20 % on transfer)

= Total cost x % ÷ (100 – %)

= $48,000 x 20 ÷ (100 – 20%)

= 48,000 x 20/80

= $12,000

Process B Account

Particulars	Cost	Profit	Total	Particulars	Cost	Profit	Total
To Opening stock	Nil	Nil	Nil	By Finished goods account	93,600	36,400	130,000
Add: Process A account	48,000	12,000	60,000
Add: Direct materials	Nil	Nil	Nil
Add: Direct wages	40,000		40,000
Add: Direct overhead	20,000		20,000
Cost	108,000	12,000	120,000
Less: Closing stock	14,400	1,600	16,000
Prime cost	93,600	10,400	104,000
Add: Factory overhead	–	–	–
Total cost	93,600	10,400	104,000
Add: Gross profit	–	26,000	26,000
Transfer price	93,600	36,400	130,000		93,600	36,400	130,000

Given and working note:

Cost of closing stock	Unrealized profit
= (Cost x Closing stock) ÷ Total cost	= Closing stock – Cost of closing stock
= ($108,000 x $16,000) ÷ $120,000	= 16,000 – 14,400
= $14,400	= $1,600

Gross profit (20 % on transfer)
= Total cost x 20/80
= $104,000 x 20/80
= $26,000

Finished Goods Account

Particulars	Cost	Profit	Total	Particulars	Cost	Profit	Total
To Opening Stock	Nil	Nil	Nil	By Sales account	79,200	120,800	200,000
Add: Process B account	93,600	36,400	130,000
Cost	93,600	36,400	130,000
Less: Closing stock	14,400	5,600	20,000
COGS	79,200	30,800	110,000
Add: GP [Sales – COGS]	–	90,000	90,000
Sales price	79,200	120,800	200,000		79,200	120,800	200,000

Given and working note:

Cost of closing stock	Unrealized profit
= (Cost x Closing stock) ÷ Total cost	= Closing stock – Cost of closing stock
= ($93,600 x $20,000) ÷ $130,000	= 20,000 – 14,400
= $14,400	= $5,600

Gross profit
= Sales – Cost of goods sold
= $200,000 – $110,000
= $90,000

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PROBLEM: 4B

Jaguar Bath Fitting, a leading bathroom accessory manufacturing company, provides you following information about classic tap: [amount in ‘000]

Transactions	Casting $	Finishing $	Finished $
Inventory 1^st January	5,000	15,000	15,000
Materials	20,000	40,000
Direct labour	10,000	15,000
Factory overhead	8,000	10,000
Inventory 31^st January	3,000	10,000	8,000
Inter process profit		5,000	2,250
Profit % on transfer price	20%	25%

Sales for the month $180,000

Required: (1) Casting process account; (2) Finishing process account

(3) Finished goods account; (5) Statement of actual realized profit; (6) Value of closing stock for balance sheet

[Answers: CP: Cost of closing stock = $3,000; Profit = $10,000;

Transfer to PB = $40,000; $10,000 and 50,000;

FP: Cost of closing stock = $8,750; Profit = $40,000;

Transfer to F.S = $106,250; $53,750 and 160,000;

F.S: Cost of closing stock = $5,440; Profit = $13,000;

Actual realized profit: $10,000; $43,750 and $12,690; Total = $66,440;

Closing stock for balance sheet: Cost value = $17,190 and total value = $21,000]

Casting Process Account

Particulars	Cost	Profit	Total	Particulars	Cost	Profit	Total
To Opening stock	5,000		5,000	By Finishing Process A/c	40,000	10,000	50,000
Add: Direct materials	20,000		20,000
Direct labour	10,000		10,000
Cost	35,000		35,000
Less: Closing stock	3,000		3,000
Prime cost	32,000		32,000
Add: Production OH	8,000		8,000
Total/Process cost	40,000	–	40,000
Add: Gross profit	–	10,000	10,000
Transfer Price	40,000	10,000	50,000		40,000	10,000	50,000

Gross profit (20% on transfer)

= Total cost x 20/80

= 40,000 x 20/80

= $8,000

Finishing Process Account

Particulars	Cost	Profit	Total	Particulars	Cost	Profit	Total
To Opening stock	10,000	5,000	15,000	By Finished goods A/c	106,250	53,750	160,000
Add: Casting process	40,000	10,000	50,000
Add: Direct materials	40,000		40,000
Direct labour	15,000		15,000
Cost	105,000	15,000	120,000
Less: Closing stock	8,750	1,250	10,000
Prime cost	96,250	13,750	110,000
Add: Production OH	10,000	–	10,000
Total/Process cost	106,250	13,750	120,000
Add: Gross profit	–	40,000	40,000
Transfer Price	106,250	53,750	160,000		106,250	53,750	160,000

Given and working note:

Cost of closing stock	Unrealized profit
= (Cost x Closing stock) ÷ Total cost	= Closing stock – Cost of closing stock
= ($105,000 x $10,000) ÷ $120,000	= 10,000 – 8,750
= $8,750	= $1,250

Gross profit (25% on transfer)
= Total cost x 25/75
= $120,000 x 25/75
= $40,000

Finished Goods Account

Particulars	Cost	Profit	Total	Particulars	Cost	Profit	Total
To Opening stock	12,750	2,250	15,000	By Sales account	113,560	66,440	180,000
Add: Finishing Process	106,250	53,750	160,000
Cost	119,000	56,000	175,000
Less: Closing stock	5,440	2,560	8,000
Total/Process cost	113,560	53,440	167,000
Add: Gross profit	–	13,000	13,000
Sales	113,560	66,440	180,000		113,560	66,440	180,000

Given and working note:

Cost of closing stock	Unrealized profit
= (Cost x Closing stock) ÷ Total cost	= Closing stock – Cost of closing stock
= ($119,000 x $8,000 given) ÷ $175,000	= 10,000 – 8,750
= $5,440	= $1,250

Gross profit (25% on transfer)
= Total cost x 25/75
= $120,000 x 25/75
= $40,000

Statement of Actual Realized Profit

Sources	Process	Unrealized Profit			Actual Profit
	Profit	Opening	Closing	Difference ±
1	2	3	4	5 = 3 – 4	6 = 2 + 5
Casting Process Account	10,000	–	–	–	10,000
Finishing Process Account	40,000	5,000	1,250	3,750	43,750
Finished Stock	13,000	2,250	2,560	(310)	12,690
Total	63,000	7,250	3,810	3,440	66,440

Value of closing stock for balance sheet

Particulars	Cost value	Total value
Casting process	3,000	3,000
Finishing process	8,750	10,000
Finished goods	5,440	8,000
Total	$17,190	$21,000

#####

Problems and Answers of Process Costing

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 4A

Forming and finishing processes are the two consecutive processes required in course of manufacturing ceramics products. The data for the process operations are stated below by JK Ceramics Ltd:

Particulars	Forming process	Finishing process
Material	80,000	30,000
Labour	50,000	20,000
Finished goods	10,000	10,000

There was no opening stock in any process. Output of each process in passed on to next process and to finished goods at 20% of transfer price.

Required: (a) forming process account; (b) Finishing process account;

[Answers: (1) Cost of closing stock = $10,000; Profit = $30,000;

PB: $120,000; $30,000 and $150,000;

(2) Cost of closing stock = $8,500; Profit = $47,500;

F.S: $161,500, $76,000 and $237,500;

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 4B

A finished product is produced through two processes. The expenses of each of each process of the last month are given by EP Manufacturing Company:

Particulars	Process A	Process B
Materials	10,000	20,000
Wages	8,000	10,000
Stock at the end	2,000	4,000
Percentage of profit on transfer price	20%	20%

Required: (a) Process A account; (b) Process B account

[Answers: Cost of closing stock = $2,000; Profit = $4,000;

PB: $16,000; $4,000 and $20,000;

Cost of closing stock = $3,680; Profit = $11,500;

F.S: $42,320, $15,180 and $57,500;

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 4C

Dolphin Pashmina Craft manufactures pashmina items. The following transactions are related to scarf:

Particulars	Yarn	Weave	Finished goods
Direct materials	40,000	60,000
Direct labour	30,000	20,000
Production overhead	30,000	20,000
Closing stock	20,000	40,000	30,000
Profit charged on transfer or sales price	20%	20%

The company does not maintain opening stock. Sales for the period were $250,000.

Required: (1) Yarn process Account; (2) Weave process Account; (3) Finished goods Account

[Answer: (1) GP = $20,000; (2) Cost of closing stock $35,556; GP = $40,000;

(3) Cost of closing stock $21,667; Profit $80,000]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 4D

Gorkha Metal Uddhyog has following data related to process for grill:

Particulars	Process A	Process B	Process C
Opening stock	7,500	9,000	22,500
Direct materials	15,000	15,750
Direct wages	11,200	11,250
Factory expenses	10,500	4,500
Closing stock	3,700	4,500	11,250
Profit % on transfer price to next process	25%	20%
Inter process profit on opening stock	–	1,500	8,250

Sales for the period were $140,000.

Required: (1) Process A account; (2) Process B account; (3) Finished goods account; (4) Statement of actual realized profit

[Answer: (1) GP = $13,500; (2) Cost of closing stock $3,750; GP = $22,500;

(3) Cost of closing stock $7,500; Profit $16,250; (4) Actual profit $57,500

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Process Costing | Opening and Closing Stock with Value | Problem and Solution

Manju@2050 — Sun, 30 Jan 2022 02:47:37 +0000

Process Costing

The cost accounting system used by process is called process costing.

To prepare bread, we need mixing of white flour, ghee, sugar, eggs, baking powder etc.

From this mixture, different size of bread can be prepared.

These sized are baked in oven.

Baked bread cut and packed.

Process costing is applied in the oil refinery, chemical, timber, textile, sugar mill and food processing industries.

These companies set the right prices for their products and determine whether costs are tracking in line with forecasts.

A separate process account is prepared for each process.

Materials, labour, overhead, machine expenses etc are debited in each process.

Process costing helps to determine the cost of their products at each stage of the process of manufacturing.

It helps to control costs, evaluate performance and check the products at each stage.

Opening Stock and Closing Stock with Value

Sometime opening stock and closing stock are given with their value.

In such a condition, a separate process stock account is opened.

Generally, the value of opening stock is given in the question but value of closing stock is to be determined on the basis of output cost.

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 3A

ABC Process Manufacturing Company has following information:

Process	Output	Normal loss	Scrap per unit
X	4,700	8%	$50
Y	4,300	5%	$100

5,000 units were introduced @ $60 per unit in process X. Other expenses were:

Particulars	Process X	Process Y
Direct wages	$120,000	$80,000
Direct expenses	$80,000	$60,000
Other expenses	$72,000	$32,200
Stock positions were:
Opening stock	100 units	250 units
Value per unit	$100	$140
Closing stock	200 units	Nil
Closing stock is valued on the basis of output cost.

Required: (1) Process X account; (2) Process X stock account; (3) Process Y Account; (4) Process Y stock account

[Answer: PX = transfer to PX stock 4,700 units, $564,000;

PY = 4,600 units, $550,000;

PY = transfer to PY stock 4,300 units, $688,000;

FG = 4,550 units, $723,000]

SOLUTION:

Process X Account

Particulars	Units	Amount	Particulars	Units	Amount
To Materials input	5,000	300,000	By Normal loss	400	20,000
To Direct wages		120,000	[5,000@8% x $50]
To Direct expenses		80,000	By Process X stock account	4,700	564,000
To Other expenses		72,000	[@ $120]
To Abnormal gain	100	12,000
	5,000	584,000		5,000	584,000

Given and working note:

1. Normal loss units

= 5,000 @ 8%

= 400 units

2. Abnormal gain units

= Normal loss + output – input

= 400 + 4,700 – 5,000

= 100 units

3. Value of abnormal gain

= (Normal cost ÷ Normal output) x Abnormal gain units

= [(Dr amount – Cr amount) ÷ (Dr units – Cr units)] x Abnormal gain units

= ($572,000 – $20,000) ÷ (5,000 units – 400 units) x 100 units

= ($552,000 ÷ 4,600 units) x 100 units

= $12,000

Process X Stock Account

Particulars	Units	Amount	Particulars	Units	Amount
To Opening stock @ $100	100	10,000	By Closing stock @ $120	200	24,000
To Process X account	4,700	564,000	By Process Y account	4,600	550,000
	4,800	574,000		4,800	574,000

Process Y Account

Particulars	Units	Amount	Particulars	Units	Amount
To Process X stock account	4,600	550,000	By Normal loss account	230	23,000
[From Process X stock A/c]			[4,600@5% x $100]
To Direct wages		80,000	By Abnormal loss account	70	11,200
To Direct expenses		60,000	By Process Y stock account	4,300	688,000
To Other expenses		32,200	[@ $160]
	4,600	722,200		4,600	722,200

Given and working note:

1. Normal loss

= 4,600 @ 5%

= 230 units

2. Abnormal loss units

= Input – normal loss – output

= 4,600 – 230 – 4,300

= 70 units

3. Value of abnormal gain

= (Normal cost ÷ Normal output) x Abnormal gain units

= [(Dr amount – Cr amount) ÷ (Dr units – Cr units)] x Abnormal gain units

= ($722,200 – $23,000) ÷ (4,600 units – 230 units) x 70 units

= ($699,200 ÷ 4,370 units) x 70 units

= $11,200

Process Y Stock Account

Particulars	Units	Amount	Particulars	Units	Amount
To Opening stock @ $140	250	35,000	By Finished goods account	4,550	723,000
To Process X account	4,300	688,000
	4,550	723,000		4,550	723,000

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PROBLEM: 3B

XYZ Process Company has following data:

Process A:
	Materials M	10,000 kg @ $30 per kg
	Materials N	6,000 kg @ $35 per kg
	Materials O	4,000 kg @ $40
	Normal loss is 5%	@ $30 per kg
	Output is 19,400 kg.	Machine hour 20,000 hours @ $20 per hour
Process B:
	Materials X	4,000 kg @ $70 per kg
	Materials Y	4,000 kg @ $125 per kg
	Materials Z	2,600 kg @ $110
	Normal loss is 10%	@ $100 per kg
	Output is 25,000 kg.	Machine hour 40,000 hours @ $30 per hour

Additional information:

a. Labour expenses $300,000 is divided on the basis of machine hours

b. 20,000 kg finished goods is sold @ $200 per kg.

c. Administrative expenses are $150,000

d. Selling expenses @ $5 per unit

Required: (1) Process A account; (2) Process B account; (3) Normal loss account; (4) Abnormal gain account;

(5) Abnormal loss account; (6) Profit and loss before abnormal gain or loss; (7) Profit and loss after abnormal gain or loss

[Answer: (1) PA: Transfer to PB 19,400 kg, $11,64,000;

Transfer to PB = 19,400 kg, $11,64,000;

(2) PB: NL = 3,000 kg, $300,000; AL = 2,000 kg, $240,000;

Transfer to FG 25,000 kg, $30,00,000;

(3) NL = 600 kg @ $30 and 3,000 kg @ $100;

(4) AG: P & L (Dr, profit) $12,000;

(5) AL = (Cr, gain) $40,000; (6) Net profit = $750,000;

(7) Net profit = $722,000]

SOLUTION:

Given and working note:

Machine hour ratio	= 20,000: 40,000 or 1:2
Labour expenses	= $ 300,000
Process A	= 300,000 x 1/3 = 100,000
Process B	= 300,000 x 2/3 = 200,000

Process A Account

Particulars		Kg	Amount	Particulars	Kg	Amount
To Materials:	M	10,000	3,00,000	By Normal Loss	1,000	30,000
	N	6,000	2,10,000	[20,000@5% x $30]
	O	4,000	1,60,000	By Process B account	19,400	11,64,000
To Machine expenses			4,00,000
To labour expenses			1,00,000
To Abnormal gain account		400	24,000
		20,400	11,94,000		20,400	11,94,000

1. Normal loss

= 20,000 @ 5%

= 1,000 kg

2. Abnormal gain kg

= Normal loss + Actual output – Input

= 1,000 + 19,400 – 20,000

= 400 kg

3. Value of abnormal gain

= (Normal cost ÷ Normal output) x Abnormal gain units

= [(Dr amount – Cr amount) ÷ (Dr units – Cr units)] x Abnormal gain units

= ($11,70,000 – $30,000) ÷ (20,000 units – 1,000 units) x 400 units

= ($11,40,000 ÷ 19,000 units) x 400 units

= $24,000

Process B Account

Particulars	Kg	Amount	Particulars	Kg	Amount
To Process A account	19,400	11,64,000	By Normal Loss A/c	3,000	3,00,000
To Materials:			[30,000@10% x $100]
X	4,000	2,80,000	By Abnormal loss A/c	2,000	2,40,000
Y	4,000	4,10,000	By Finished goods A/c	25,000	30,00,000
Z	2,600	2,86,000
To Machine expenses		12,00,000
To labour expenses		2,00,000
	30,000	35,40,000		30,000	35,40,000

Input

= 19,400 + 4,000 + 4,000 + 2,600

= 30,000

1. Normal loss

= 30,000 @ 10%

= 3,000 kg

2. Abnormal loss kg

= Input – normal loss – output

= 30,000 – 3,000 – 25,000

= 2,000 kg

3. Value of abnormal gain

= (Normal cost ÷ Normal output) x Abnormal gain units

= (Dr amount – Cr amount) ÷ (Dr units – Cr units)] x Abnormal gain units

= ($35,40,000 – $3,00,000) ÷ (30,000 units – 3,000 units) x 2,000 kg

= ($32,40,000 ÷ 27,000 units) x 2,000 kg

= $240,000

Normal Loss Account

Particulars	Kg	Amount	Particulars	Kg	Amount
To Process A account	1,000	30,000	By Abnormal gain account	400^$	12,000^Ø
To Process B account	3,000	300,000	By Cash account:
			(600* kg @ $30)	600*	18,000
			(3,000 kg @ $100)	3,000	300,000
	4,000	330,000		4,000	330,000

Balance figure kg*

Abnormal Gain Account

Particulars	Kg	Amount	Particulars	Kg	Amount
To Normal loss account	400	12,000	By Process B account	400	24,000
[400 kg @ $30]
To P&L account (profit; b/f )		12,000
	400	24,000		400	24,000

Abnormal Loss Account

Particulars	Kg	Amount	Particulars	Kg	Amount
To Process B account	2,000	240,000	By Cash account	–	–
			(PB: 2,000 kg @ $100)	2,000	200,000
			By P&L account (loss; b/f )	–	40,000
	2,000	240,000		2,000	240,000

Statement of P&L (before abnormal gain or loss)

Particulars	Amount	Particulars	Amount
To Cost of F.G. (25,000 kg x $120)	30,00,000	By Sales (20,000 kg @ $200)	40,00,000
To Administrative expenses	1,50,000
To S&D (20,000 kg x $5)	1,00,000
To Net profit	7,50,000
	40,00,000		40,00,000

Statement of P&L (after abnormal gain or loss)

Particulars	Amount	Particulars	Amount
To Cost of FG (25,000 kg x $120)	30,00,000	By Sales (20,000 kg @ $200)	40,00,000
To Administrative expenses	1,50,000	By Abnormal gain	12,000
To S&D (20,000 kg x $5)	1,00,000
To Abnormal loss	40,000
To Net profit	7,22,000
	40,12,000		40,12,000

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Problems and Answers of Process Costing

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 3A

Crude Processing Industry has following extracted information:

Input in process I:

Materials X 6,000 kg at $3.00 per kg

Materials Y 4,000 kg at $1.75 kg

Other expenses incurred are $5,500

Running hours and cost of machine are 2,400 machine hours at $5 per machine hour.

Output realized is 9,300 kg.

Normal loss expected is 5% with a disposal value of $2 per kg.

Input in process II:

Materials A 5,700 kg at $6.00 per kg

Materials B 5,000 kg at $5.02 per kg

Other expenses incurred are $12,000

Running hours and cost of machine are 1,600 hours at $10 per machine hour.

Output realized is 19,500 kg.

Normal loss expected is 5% with a disposal value of $5.50 per kg.

Required: (1) Process I and II accounts; (2) Normal loss, abnormal loss and abnormal gain account

(3) Statement of P&L showing net profit before and after abnormal loss/gain

[Answer: PI: AL = 200 units, $1,000; PII = 9,300 units, $46,500; CPU = $5;

PII: AP = 500 units, $3,482; F.G = 19,500 units, $135,782; CPU = $6.963;

NL A/c: Cash = 500 units, $1,000; 500 units, $2,750; AP = 500 units, $2,750;

AL A/c: P & L (loss, b/f) = $600; AP A/c: P & L (profit, b/f) = $732;

Net profit before adjustment = $35,647;

Net profit after adjustment = $35,779]

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Process Costing | Sales of Processed Goods | Problems and Solutions

Manju@2050 — Sat, 29 Jan 2022 14:17:56 +0000

Process Costing

The cost accounting system used by process is called process costing.

To prepare bread, we need mixing of white flour, ghee, sugar, eggs, baking powder etc.

From this mixture, different size of bread can be prepared.

These sized are baked in oven.

Baked bread cut and packed.

Process costing is applied in the oil refinery, chemical, timber, textile, sugar mill and food processing industries.

These companies set the right prices for their products and determine whether costs are tracking in line with forecasts.

A separate process account is prepared for each process.

Materials, labour, overhead, machine expenses etc are debited in each process.

Process costing helps to determine the cost of their products at each stage of the process of manufacturing.

It helps to control costs, evaluate performance and check the products at each stage.

Sales of Processed Goods

(Sales of partially finished or fully finished goods)

Sometime manufacturing company sells its work in progress goods (semi-finished or partially finished goods) to other company, whole seller or distributors.

While selling these goods some profit percentage is added.

Remaining goods are transferred to next process.

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 2A

BK Construction Work Ltd processes a patent material used in buildings. The following information is available:

Particulars	Process A	Process B	Process C
Raw materials used	1,000 ton
Cost per ton	$200
Manufacturing wages and expenses	$87,500	$39,500	$10,710
Weight lost (% of input; zero value)	5%	10%	20%
Scarp (sale price $50 per ton)	50 ton	30 ton	51 ton
Sale price per tone	$350	$500	$800

Additional information:

a. Two-third (2/3) of the output of the process A and one half (1/2) of the output of process B are passed on to the next process and balance is sold.

b. The entire output of process C is sold.

c. Management expenses were $12,500 and selling and distribution expenses $10,000.

Prepare: (calculate rupees approximations, where necessary) (1) Three process accounts; (2) Statement of profit

[Answers: PA = transfer to warehouse 300 units, $95,000;

Transfer to PB = 600 units, $190,000; Profit = $10,000;

PB = transfer to warehouse 255 units, $144,000;

Transfer to PC = 600 units, $144,000; Profit = $13,500;

PC = transfer to warehouse 153 units, $122,160; Profit = $240;

Income statement = Net profit $1,240]

SOLUTION:

Process A Account

Particulars	Units	Amount	Particulars	Units	Amount
To Raw materials used	1,000	200,000	By Normal Loss	50	Nil
To Mfg wages and expenses		87,500	[1,000@5% x $0]
			By Scrap [@$50 per ton]	50	2,500
			By Warehouse [900 x 1/3]	300	95,000
			By Process B [900 x 2/3]	600	190,000
	1,000	287,500		1,000	287,500

Given and working note:

Output units

= Input – Normal loss – Scrap

= 1,000 – 50 – 50

= 900

Cost per units

= (Dr amount – Cr amount) ÷ Output

= ($287,500 – $2,500) ÷ 900 units

= $316.67

Warehouse Account

Particulars	Units	Amount	Particulars	Units	Amount
To Process I Account	300	95,000	By Bank (sales) @ $350	300	105,000
To P&L Account (profit)		10,000
	300	105,000		300	105,000

Process B Account

Particulars	Units	Amount	Particulars	Units	Amount
To Process A account	600	190,000	By Normal loss	60	Nil
To Mfg wages and expenses		39,500	[600@10% x $0]
			By Scrap [@$50 per ton]	30	1,500
			By Warehouse [510 x 1/2]	255	114,000
			By Process C [510 x 1/2]	255	114,000
	600	229,500		600	229,500

Given and working note:

Output units

= Input – Normal loss – Scrap

= 600 – 60 – 30

= 510

Cost per units

= (Dr amount – Cr amount) ÷ Output

= ($229,500 – $1,500) ÷ 510 units

= $316.67

Warehouse Account

Particulars	Units	Amount	Particulars	Units	Amount
To Process B Account	255	114,000	By Bank (sales) @ $500	255	127,500
To P&L Account (profit)		13,500
	255	127,500			127,500

Process C Account

Particulars	Units	Amount	Particulars	Units	Amount
To Process B account	255	114,000	By Normal loss	51	Nil
To Mfg wages and expenses		10,710	[255@20% x $0]
			By Scrap [@$50 per ton]	51	2,550
			By Warehouse	153	122,160
	255	124,710		255	124,710

Given and working note:

Output units

= Input – Normal loss – Scrap

= 255 – 51 – 51

= 153

Warehouse Account

Particulars	Units	Amount	Particulars	Units	Amount
To Process I account	153	122,160	By Bank (sales) @ $800	153	122,400
To P&L account (profit)		240
	153	122,400		153	122,400

Statement of Profit

Particulars	Amount	Particulars	Amount
To Management expenses	12,500	By Profit from:
To S&D expenses	10,000	Process A account	10,000
To Net profit	1,240	Process B account	13,500
		Process C account	240
	23,740		23,740

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PROBLEM: 2B

A Product passes through three processes A, B and C. The details of expenses incurred on the three processes during the period are given below:

10,000 units of crude material were introduction in process A @ $100 per unit

Particulars	Process A	Process B	Process C
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	$130	$175	$260
Actual output in units	9,300 units	5,400 units	2,100 units
Normal loss on the input	5%	15%	20%
Value of normal loss per units	$2	$5	$10

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.

Management expenses during the year were $50,000 and selling expenses were $30,000. These are not allocable to the processes.

You are required to calculate:

(1) Three processes accounts; (2) Normal loss account; (3) Abnormal loss account; (4) Abnormal gain account;

(5) Profit and loss account

[Answer: (1) PA: Transfer to PB = 6,200 units, $682,000;

WH = 3,100 units, $341,000; Profit = $62,000;

PB: Transfer to PC = 2,700 units, $405,000; WH = 2,700 units, $405,000;

Abnormal gain = 130 units, $19,500; Profit = $67,500;

PC: WH = 2,100 units, $483,000; Profit = $63,000;

(2) Normal loss: Abnormal gain = 130 units, $650; Cash (b/f) = 1,840 units, $10,400;

(3) Abnormal loss: Cash = 200 units, $400 + 60 units; $600; P & L (loss) = $38,400;

(4) Abnormal gain: Normal loss = 130 units, $650; P & L (gain) = $18,850;

(5) Net profit = $96,550]

SOLUTION:

Process A Account

Particulars	Units	Amount	Particulars	Units	Amount
To Raw materials used	10,000	10,00,000	By Normal loss A/c	500	1,000
To Sundry materials		10,000	[10,000@5% x $2]
To Labour		30,000	By Abnormal loss A/c	200	22,000
To Direct expenses		6,000	By Warehouse [9,300 x 1/3]	3,100	3,41,000
			By Process B [9,300 x 2/3]	6,200	6,82,000
	10,000	10,46,000		10,000	10,46,000

Normal wastage = 10,000 @ 5% = 500 units

Abnormal Loss = 10,000 – 500 – 9,300 output = 200 units

Value of abnormal loss

= (Dr amount – Cr amount) ÷ (Dr units – Cr units) x Abnormal loss units

= ($10,46,000 – $1,000) ÷ (10,000 units – 500 units) x 200 units

= $22,000

Warehouse A Account

Particulars	Units	Amount	Particulars	Units	Amount
To Process A account	3,100	3,41,000	By Bank (sales) @ Rs 130	3,100	403,000
To P&L A/c (profit)		62,000
	3,100	403,000		3,100	403,000

Process B Account

Particulars	Units	Amount	Particulars	Units	Amount
To Process A account	6,200	682,000	By Normal loss account	930	4,650
To Sundry materials		15,000	[6,200@15% x $5]
To Labour		80,000	By Warehouse [5,400 x 1/2]	2,700	405,000
To Direct expenses		18,150	By Process C [5,400 x 1/2]	2,700	405,000
To Abnormal gain account	130	19,500
	6,330	8,14,650		10,000	8,14,650

Normal wastage = 6,200 @ 15% = 930 units

Abnormal Loss = 10,000 – 930 – 5,400 output = 130 units

Value of abnormal loss

= (Dr amount – Cr amount) ÷ (Dr units – Cr units) x Abnormal loss units

= ($7,95,150 – $4,650) ÷ (6,200 units – 930 units) x 130 units

= $19,500

Warehouse B Account

Particulars	Units	Amount	Particulars	Units	Amount
To Process A account	2,700	405,000	By Bank (sales @ $175)	2,700	472,500
To P&L A/c (profit)		67,500
	2,700	472,500		2,700	472,500

Process C Account

Particulars	Units	Amount	Particulars	Units	Amount
To Process B account	2,700	405,000	By Normal loss account	540	5,400
To Sundry materials		5,000	[2,700@20% x $10]
To Labour		65,000	By Abnormal loss A/c	60	13,800
To Direct expenses		27,200	By Warehouse [2,100]	2,100	483,000
	2,700	502,200		2,700	502,200

Normal wastage = 2,700 @ 20% = 540 units

Abnormal Loss = 2,700 – 540 – 2,100 output = 60 units

Value of abnormal loss

= (Dr amount – Cr amount) ÷ (Dr units – Cr units) x Abnormal loss units

= ($502,200 – $5,400) ÷ (2,700 units – 930 units) x 60 units

= $13,800

Warehouse C Account

Particulars	Units	Amount	Particulars	Units	Amount
To Process C account	2,100	483,000	By Bank (sales @ $260)	2,100	546,000
To P&L A/c (profit)		63,000
	2,100	546,000		2,100	546,000

Normal Loss Account

Particulars	Units	Amount	Particulars	Units	Amount
To Process A account	500	1,000	By Abnormal gain [130 x $5]	130	650
To Process B account	930	4,650	By Cash A/c (b/f)	1,840	10,400
To Process C account	540	5,400
	1,970	11,050		1,970	11,050

Abnormal Loss Account

Particulars	Units	Amount	Particulars	Units	Amount
To Process A account	200	22,000	By Cash account
To Process C account	60	13,800	Process A [200 x $2]	200	400
			Process C [60 x $10]	60	600
			By P&L account (loss)		34,800
	260	35,800			35,800

Abnormal Gain Account

Particulars	Units	Amount	Particulars	Units	Amount
To Normal Loss	130	650	By Process C account	130	19,500
(from normal loss A/c)
To P&L (profit, b/f)		18,850
	130	19,500		130	19,500

Profit and Loss Account

Particulars	Amount	Particulars	Amount
To Management expenses	50,000	By Net profit from:	–
To Selling expenses	30,000	Process A account	62,000
To Abnormal loss	34,800	Process B account	67,500
To Net profit (b/f)	96,550	Process C account	63,000
		By Abnormal gain account	18,850
	211,350		211,350

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#####

Problem and Answer of Process Costing

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 2A

Particulars	Process I	Process I
Raw materials input 1,000 kg	200,000	–
Direct labour	30,000	19,500
Manufacturing expenses	57,800	20,000
Weight lost (% of input without monetary value)	5%	10%
Normal loss (sales price $ 50 per unit)	50 kg	30 kg
Sale price per unit	400	500

Additional information:

a. Two-third of the output of the Process I transferred to the Process II and balance is sold.

b. The entire output of Process II is sold out.

c. Management expenses were $15,000 and selling $7,500 for the period

Required: (a) Process I account; Process II account; (b) Statement of profit and loss

[Answer: Process I: Output for warehouse 300 units; $95,100;

Output for process II 600 units; $190,200; Profit $24,900;

Process II: Output for warehouse 510 units; $228,200; Profit $26,800;

Statement of P&L (net profit) $29,200]

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Process Costing | Process Loss or Gain | Problems and Solutions

Manju@2050 — Sat, 29 Jan 2022 10:23:00 +0000

Process Costing

The cost accounting system used by process is called process costing.

To prepare bread, we need mixing of white flour, ghee, sugar, eggs, baking powder etc.

From this mixture, different size of bread can be prepared.

These sized are baked in oven.

Baked bread cut and packed.

Process costing is applied in the oil refinery, chemical, timber, textile, sugar mill and food processing industries.

These companies set the right prices for their products and determine whether costs are tracking in line with forecasts.

A separate process account is prepared for each process.

Materials, labour, overhead, machine expenses etc are debited in each process.

Process costing helps to determine the cost of their products at each stage of the process of manufacturing.

It helps to control costs, evaluate performance and check the products at each stage.

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Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 1A

A product passes through three distinct processes to complete. 500 units were introduced. The output was also 500 units. The following information is available:

	Process A	Process B	Process C
Direct materials	35,000	16,000	15,000
Direct labour	25,000	20,000	25,000
Direct expenses	10,000	8,000	7,000

The works expenses were $14,000 is to be apportioned on the basis of direct wages. There is not any stock and work in progress as opening stock and closing stock.

Required: Process A, B and C accounts with cost per unit (CPU).

[Answer: PA = $75,000 and 150;

PB = $123,000 and $246;

PC = $175,000 and $350]

SOLUTION:

Works expenses = 14,000 x 25: 20: 25 = 5,000: 4,000: 5,000

CPU = Amount ÷ 500 units

Process A Account

Particulars	CPU	Amount	Particulars	CPU	Amount
To Direct materials	70	35,000	By Process B account	150	75,000
To Direct labour	50	25,000
To Direct expenses	20	10,000
To Works expenses	10	5,000
	150	75,000		150	75,000

Process B Account

Particulars	CPU	Amount	Particulars	CPU	Amount
To Process A account	150	75,000	By Process C account	246	123,000
To Direct materials	32	16,000
To Direct labour	40	20,000
To Direct expenses	16	8,000
To Works expenses	8	4,000
	246	123,000		246	123,000

Process C Account

Particulars	CPU	Amount	Particulars	CPU	Amount
To Process B account	246	123,000	By Finished goods account	350	175,000
To Direct materials	30	15,000
To Direct labour	50	25,000
To Direct expenses	14	7,000
To Works expenses	10	5,000
	350	175,000		350	175,000

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Process Loss or Gain

While processing raw materials into finished goods, there may be some losses on nature of raw materials.

This type of loss incurred between input and output of the goods.

There are two types of losses and one gain in process account; they are:

· Normal loss

· Abnormal loss

· Abnormal gain

NORMAL LOSS

When the company cannot stop or control loss of goods in natural basis; it is called normal loss.

Such as weight loss, shrinkage, evaporation, rusts etc.

If normal loss does not give any sales value is called wastage.

However, if sales price realized is called scrap value.

A provision for such a loss is made before starting production.

Normal loss units = Input units – Normal output units

Normal Loss Account

Particulars	Units	Amount	Particulars	Units	Amount
To Process A account	xxx	xxx	By Cash/Debtors	xxx	xxx
To Process B account	xxx	xxx	(Units x Scrap rate
To Process C account	xxx	xxx	according to related process)
	xxxx	xxxx		xxxx	xxxx

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 1B

A product passes through two processes named A and B. the normal wastage of each process is as following:

Process A 10% Process B 5%

Normal loss of process A was sold at $10 per unit while process B at $30 per unit. 2,000 units of raw materials were issued to process A at cost of $20 per unit. The other expenses were as following:

Expenses	Process A	Process B
Sundry expenses	$20,000	$30,000
Direct labour	$50,000	$60,000
Direct expenses	$29,000	$28,500
Output in units	18,000	17,100

The factory overhead of $55,000 is allocated on the basis of direct labour ratio of each process.

There were no opening and closing stock.

Required: (1) Process A account; (2) Process B account; (3) Normal loss account

[Answer: PA = 1,800 units and $162,000;

PB = 1,710 units and $307,800;

NL = 290 units and $4,700]

SOLUTION:

Factory overhead = 55,000 x 5: 6 = 25,000^: 30,000

Process A Account

Particulars	Units	Amount	Particulars	Units	Amount
To Raw materials	2,000	40,000	By Normal loss account	200	2,000
To Sundry materials		20,000	[2,000 units@10% x $10]
To Direct labour		50,000	By Process B account	1,800	162,000
To Direct expenses		29,000
To Factory overhead		25,000
	2,000	164,000		2,000	164,000

Process B Account

Particulars	Units	Amount	Particulars	Units	Amount
To Process A account	1,800	162,000	By Normal loss account	90	2,700
To Sundry materials		30,000	[1,800 units@5% x $30]
To Direct labour		60,000	By Finished goods account	1,710	307,800
To Direct expenses		28,500
To Factory overhead		30,000
	1,800	310,500		1,800	310,500

Normal Loss Account

Particulars	Units	Amount	Particulars		Units	Amount
To Process A	200	2,000	By Cash	(PA: 200 x $10)	200	2,000
To Process B	90	2,700		(PB: 90 x $30)	90	2,700
	290	4,700			290	4,700

ABNORMAL LOSS

When the company can stop or control loss but could not control, it is known as abnormal loss.

This loss is due to carelessness, fatigue, rough handling, abnormal or bad working condition, lack of proper knowledge, low quality raw materials, machine break down, accident etc.

So it is called avoidable loss.

It is controllable loss and can be avoided by proper knowledge.

Abnormal loss units	= Input – Normal loss – Actual output
Abnormal loss	= Total scrap – Normal loss
Value of abnormal loss	= (Normal cost ÷ Normal output) x Abnormal loss units
Or	= (Dr amount – Cr amount) ÷ (Dr units – Cr units) x Abnormal loss units

Abnormal Loss Account

Particulars	Units	Amount	Particulars	Units	Amount
To Process A account	xxx	xxx	By Cash/Debtors	xxx	xxx
To Process B account	xxx	xxx	(Input rate of normal loss)
			By P&L Account (b/f)	xxx	xxx
	xxxx	xxxx		xxxx	xxxx

Differences between Normal Loss and Abnormal Loss

Bases	Normal Loss	Abnormal Loss
Factor	Normal arises due to internal factors	Abnormal arises due to external factors
Nature	It is recurring/frequent in nature	It is accidental in nature
Estimation	It can be estimated from the past experience	It cannot be estimated in advance
Insurance	It is not insurable loss	It is insurable loss
Prevention	It is un-avoidable loss	It is avoidable loss

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 1C

Following data are taken from Magic Footwear Company:

Received from second last process 1,000 units @ $50 per unit

Expenses related to last process:

Output of last process	850 units	Factory overhead	$10,000
Wages	$20,000	Normal loss	10% of input
Indirect materials	$20 per unit	Scrap value	$10 per unit

Required: (a) Last process account; (b) Normal loss account; (c) Abnormal loss account

[Answer: LP = 850 units and $92,500; LN = 100 units and $1,000;

ANL = P & L (Cr, b/f) $5,000]

SOLUTION:

Last Process Account

Particulars	Units	Amount	Particulars	Units	Amount
To Second last process A/c	1,000	50,000	By Normal loss account	100¹	1,000*
To Wages		20,000	[1,000 units@10% x $10]
To Raw materials		20,000	By Abnormal loss account	50²	5,500³
To Factory overhead		10,000	By Finished goods account	850	93,500
	1,000	100,000		1,000	100,000

Normal Loss Account

Particulars	Units	Amount	Particulars	Units	Amount
To Last process account	100	1,000	By Cash (100 units x $10)	100	1,000
	100	1,000		100	1,000

Abnormal Loss Account

Particulars	Units	Amount	Particulars	Units	Amount
To Last process account	50	5,500	By Cash A/c (50 x $10)	50	500
			By P&L A/c (loss; b/f)		5,000
	50	5,500		50	5,500

Given and working note:

Abnormal loss units

= Input – Normal loss – Actual output

= 1,000 – 100 – 850

= 50 units

Value of abnormal loss

= (Normal cost ÷ Normal output) x Abnormal loss units

= [(Dr amount – Cr amount) ÷ (Dr units – Cr units)] x Abnormal loss units

= [($100,000 – $1,000) ÷ (1,000 – 100)] x 50

= [$99,000 ÷ 900 units] x 50 units

= $110 x 50

= $5,500

ABNORMAL GAIN

Sometime it may be possible to realize more output than expected.

It is due to efficiency in performance or abnormal effective in raw materials used.

Abnormal gain reduces the normal loss.

Abnormal gain gives profit to industry.

Abnormal loss units	= Input – Normal loss – Actual output

Value of abnormal gain	= (Normal cost ÷ Normal output) x Abnormal gain units
Or	= [(Dr amount – Cr amount) ÷ (Dr units – Cr units)] x Abnormal gain units

Abnormal Gain Account

Particulars	Units	Amount	Particulars	Units	Amount
To Normal loss account	xxx	xxx	By Process A, B or C account	xxx	xxx
[Units x scrap rate]
To P&L account (profit; b/f )	–	xxx
	xxx	xxx		xxx	xxx

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 1D

Following data are taken from Bagmati Plastic Industry related to bucket:

Received from second last process 5,000 units @ $40 per unit

Expenses related to last process:

Direct labour	$60,000	Normal loss	8% of input
Direct expenses	$40,000	Scrap value	$20 per unit
Factory overhead	50% of direct labour	Output of last process	4,800 units

Required: (b) Last process account; (b) Abnormal gain account; (c) Normal loss account

[Answer: LP = 4,800 units and $336,000;

AG = P & L (Dr, b/f) $10,000; NL = 200 units cash 400

SOLUTION:

Last Process Account

Particulars	Units	Amount	Particulars	Units	Amount
To Second last process account	5,000	200,000	By Normal loss account	400	8,000
To Wages		60,000	[5,000 units@8% x $20 scrap]
To Raw materials		40,000	By Finished goods account	4,800	336,000
To Factory OH [60,000@30%]		30,000
To Abnormal gain account	200	14,000
	5,200	344,000		5,200	344,000

Abnormal gain units

= Input – Normal loss – Actual output

= 400 + 4,800 – 5,000

= 200 units

Value of abnormal gain

= (Normal cost ÷ Normal output) x Abnormal gain units

= [(Dr amount – Cr amount) ÷ (Dr units – Cr units)] x Abnormal gain units

= ($330,000 – $8,000) ÷ (5,000 units – $400 units) x 200 units

= ($322,000 ÷ 4,600 units) x 200 units

= $14,000

Abnormal Gain Account

Particulars	Units	Amount	Particulars	Units	Amount
To Normal loss account	200	4,000	By Last process account	200	14,000
[400 units x scrap rate $20]
To P&L account (profit; b/f )		10,000
	200	14,000		200	14,000

Normal Loss Account

Particulars	Units	Amount	Particulars	Units	Amount
To Last process account	400	8,000	By Abnormal gain account	200	4,000
			By Cash account	200	4,000
			(200 units x scrap $20)
	100	8,000		400	8,000

Keep in Mind (KIM)

Abnormal Loss:

Debit side: As it is transferred from process account

Credit side: Units x Scrap Rate (scrap rate from related process account)

Balance transfer to profit and loss (loss) account

Abnormal Profit:

Debit side: As it is transferred from process account

Credit side: Units x Scrap Rate (scrap rate from related process account)

Balance transfer to profit and loss (profit) account

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 1E

ABC Manufacturing Company produces its products through process system. Product passes through two processes named A and B. And these products are transferred to finished stock. Following information is available:

Particulars	Process A	Process B
Materials consumed	$12,000	$15,000
Direct labour	$13,000	$24,000
Manufacturing expenses	$3,040	$8,094
Input in process A [10,000 units]	$10,000	–
Output in units	9,400 units	8,300 units
Normal loss	5%	10%
Value of normal wastage (per 100 units)	$8	$10

You are required to prepare:

(1) Process A account; (2) Process B account; (3) Normal loss account; (4) Abnormal loss account

[Answer: PA = 9,400 units and $37,600; AL = 100 units and $400;

PB = 8,300 units and $82,000; AL = 160 units and $1,600;

NL = 1,440 units and $134; AL = P & L (Cr, loss) $1,976]

SOLUTION:

Process A Account

Particulars	Units	Amount	Particulars	Units	Amount
To Input expenses	10,000	10,000	By Normal loss account	500	40
To Materials consume		12,000	[10,000@5%x $0.08]
To Direct labour		13,000	By Abnormal loss account	100	400
To Manufacturing expenses		3,040	By Process B account	9,400	37,600
	10,000	38,040		10,000	38,040

Given and working note:

1. Normal loss

= 10,000 @ 5%

= 500 units

2. Abnormal loss units

= Input – normal loss – output

= 10,000 – 500 – 9,400 output

= 100 units

3. Value of abnormal loss

= (Normal cost ÷ Normal output) x Abnormal gain units

= [(Dr amount – Cr amount) ÷ (Dr units – Cr units)] x Abnormal loss units

= ($38,000 – $40) ÷ (10,000 units – $500 units) x 100 units

= ($322,000 ÷ 4,600 units) x 100 units

= $400

4. Balancing figure $37,600

Process B Account

Particulars	Units	Amount	Particulars	Units	Amount
To Process A account	9,400	37,600	By Normal loss account	940	94*
To Materials consume		15,000	[9,400@10% x $0.10]
To Direct labour		24,000	By Abnormal loss account	160	1,600
To Manufacturing expenses		8,094	By Finished goods account	8,300	83,000⁴
	9,400	84,694		9,400	38,040

Given and working note:

1. Normal wastage

= 9,400 @ 10 %

= 940 units

2. Abnormal loss units

= Input – normal loss – output

= 9,400 – 940 – 8,300 output

= 160 units

3. Value of abnormal loss

= (Normal cost ÷ Normal output) x Abnormal gain units

= [(Dr amount – Cr amount) ÷ (Dr units – Cr units)] x Abnormal loss units

= ($84,694 – $94) ÷ (9,400 units – 940 units) x 160 units

= ($84,600 ÷ 8,460 units) x 160 units

= $1,600

Normal Loss Account

Particulars	Units	Amount	Particulars	Units	Amount
To Process A account	500	40	By Cash account
To Process B account	940	94	(500 units x $0.08)	500	40
			(940 units x $0.08)	940	94
	1,440	134		1,440	134

Abnormal Loss Account

Particulars	Units	Amount	Particulars	Units	Amount
To Process A account	100	400	By Cash account
To Process B account	160	1,600	(100 units x $0.08)	100	8
			(160 units x $0.10)	160	16
			By P&L account (loss; b/f )		1,976
	260	2,000		260	2,000

#####

Problems and Answers of Process Costing

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 1A

The normal loss of each process is as following:

Process A 10% @ $10 per unit

Process B 5% @ $30 per unit

The other expenses were as following:

Expenses	Process A	Process B
Sundry expenses	20,000	30,000
Direct labour	50,000	60,000
Direct expenses	29,000	28,500
Output in units	1,800	1,710

The factory overhead of $55,000 is allocated on the basis of direct labour ratio of each process.

Required: Prepare process accounts

[Answer: Output: A = 1,800 units; $162,000; B = 1,710 units; $307,800]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 1B

National Pipe Industries, Kathmandu manufactures plastic items. Following information is given for a product passes through two processes named A and B:

Particulars	Process A	Process B
Input in process A 10,000 units	$100,000	–
Materials consumed	$120,000	$150,000
Direct labour	$130,000	$240,000
Manufacturing expenses	$30,000	$81,000
Output in units	9,400 units	8,300 units
Normal loss	5%	10%
Value of normal loss per unit	$8	$10

Required: (a) Process A accounts; (b) Process B account

[Answer: Process A: Abnormal loss 100 units; $3,958;

Output 9,400 units; $372,042;

Process B: Abnormal loss 160 units; $15,766;

Output 8,300 units; $817,876]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 1C

The following particulars for the last process are given:

Particulars	Units	Amount
Transferred from the first process (input of last process):	4,000	620,000
Output from the last process	3,700	?
Direct wages		200,000
Materials consume		300,000
Factory overhead of materials consume		150%
Normal loss		10%
Scrap value of normal loss per unit		$50

You are required to prepare: (a) Last process Account; (b) Normal loss Account; (c) Abnormal loss Account

[Answer: Last process: Abnormal loss 100 units; $43,056;

Output 3,700 units; $15,93,056;

Normal loss A/c: abnormal gain 100 units; $5,000;

Cash (b/f) 300 units; $15,000;

Abnormal gain A/c: normal loss 100 units; $5,000;

P&L (profit, b/f) $38,056]

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