Equivalent Process Account

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The key takeaways are that process costing involves calculating equivalent units, allocating costs based on normal and abnormal gains/losses, and valuing work in progress using the stage of completion method.

To compute equivalent units of production, you calculate normal process losses and adjust inputs and outputs accordingly. You then determine the equivalent units based on the relative stage of completion of work in process at the beginning and end of the period.

Abnormal gains/losses refer to deviations from normal process losses/efficiencies and are separately accounted for through an abnormal gain/loss account. This ensures normal losses/efficiencies are allocated to the cost of production while abnormal amounts are not.

Equivalent Process Account

1. The following data pertains to process I for March of Beta Limited:

Opening work in progress

1500 units at Rs. 15,000

Degree of completion:
Material 100%, Labour and Overhead 331/3%
Input of materials

18,500 units at Rs. 52,000

Direct Labour

Rs. 14,000

Overheads

Rs. 28,000

Closing work in progress

5,000 units

Degree of completion:
Material

90%

Labour and Overheads

30%

Normal process loss is 10% of total input ( Opening work in progress plus units put in)
Scrap value Rs. 2 per unit
Units transferred to the next process 15,000 units.
You are required to:
Compute equivalent units of production
Compute cost per equivalent unit for each cost element i.e materials, labour and overheads.
Compute the cost of finished output and closing work in progress.
Prepare the process and other accounts.
Assume (i) FIFO Method is used by the company.
(ii) The cost of Opening work in progress is fully transferred to the next

2. During a month 40,000 units were introduced into process A. The process cost were as
follows:
Rs.
Direct Materials

302,000

Direct Wages

207,000

Factory Overhead

50% of direct wages

The normal loss was estimated at 10% of input. At the end of the month, 32,000 units have
been produced and transferred to process B. 5,000 units have been scrapped ( scrapped units
have been completely processed and realised Rs. 5 per unit) and 3,000 units were
incomplete and the stage of completion in respect of these units was estimated to be:
Materials

75%

Labour

50%

Overhead

50%

Find out (a) Equivalent production, (b) Cost per unit, (c) Value of output to be transferred
and show the necessary accounts.

3. The following information is given in respect of Process No. 3 for the month of January,
2007.
Opening stock 2,000 units made of
Materials I

Rs. 12,350

Direct Material

Rs. 13,200

Direct Labour

Rs. 17,500

Overheads

Rs. 11,000

Transferred from Process No.2: 20,000 units @ Rs. 6 per unit.


Transferred to Process No. 4: 17,000 units
Expenditure incurred in Process No.3
Direct Materials

Rs. 30,000

Direct Labour

Rs. 60,000

Overheads

Rs. 60,000

Scrap 1,000 units Direct Materials 100%, Direct Labour 60%, Overhead 40%. Normal
loss 10% of production.
Scrapped units realised Rs. 4 per unit.
Closing Stock: 4,000 units Degree of completion: Direct Materials 80%, Direct Labour
60% and Overhead 40%.
Prepare Process No. 3 Account using average price method along with necessary supporting
statements.
Compilation 19
4. From the following information for the month of October, 2003, prepare Process III cost
accounts:
Opening WIP in Process III

1,800 units at Rs. 27,000

Transfer from Process II

47,700 units at Rs. 536,625

Transferred to Warehouse

43,200 units

Closing WIP of Process III

4,500 units

Units scrapped

1,800 units

Direct material added in Process III

Rs. 177,840

Direct Wages

Rs. 87,840

Production Overhead

Rs. 43,920

Degree of completion:

Opening Stock

Closing Stock

Scrap

Material

80%

70%

100%

Labour

60%

50%

70%

Overhead

60%

50%

70%

The normal loss in the process was 5% of the production and scrap was sold @ 6.75 per
unit.
Compilation Q.N 18

5. Following data are available for a product for the month of July, 1993.
Process I

Process II

NIL

NIL

Rs.

Rs.

Direct Material

60,000

-----

Direct Labour

12,000

16,000

Factory Overhead

24,000

20,000

Received in Process

40,000

36,000

Completed and Transferred

36,000

32,000

Closing WIP

2,000

Normal loss in process

2,000

1,500

Opening work in progress

Cost incurred during the month:

Units of Production:

Production remaining in Process has to be valued as follows:


Material

100%

Labour

50%

Overhead

50%

There has been no abnormal loss in Process II.


Prepare process accounts after working out the missing figures and with detailed workings.
Cost Compilation Q.N 16

6. ABC Chemicals manufactures a range of products in a variety of processes and the data
given below relate to Process III for the month of April.
You are required to prepare:
A statement showing the cost per unit and the value of output;
An account for Process III;
An abnormal gain or loss account.

Transfer from Process II

10,800 units

Rs. 7,980

Transfer to Process IV

9,650 units

----

Direct Material added to the process

----

Rs. 2,019

Direct wages incurred in the process

----

Rs. 2,889

Production Overhead apportioned to the process

----

Rs. 6,482

There is normal loss in process of 10% of the output. All units scrapped can be sold at Rs.
0.20 each.
Opening Work In Progress:

1,200 units

Degree of completion:

Material added in the process

40%

Direct Wages

60%

Production Overhead

70%

Closing Work In Progress:

1,000 units

Degree of completion:

Material added in the process

80%

Direct Wages

60%

Production Overhead

40%

Units Scrapped:

1350 units

Degree of completion:

Material added in the process

50%

Direct Wages

40%

Production Overhead

20%

Sanjeev Subedi Q. N 10

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