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    Module 2 Question Bank

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    sukesh
    The document describes a process costing problem with three processes - P1, P2 and P3. It provides expenses, wastage percentages, scrap values and output for each process. 15,000 units of materials were introduced into process P1 at Rs. 0.10 per unit. The summary should calculate the process amounts and necessary accounts.

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    Module 2 Question Bank

    Uploaded by

    sukesh
    31 views3 pages
    The document describes a process costing problem with three processes - P1, P2 and P3. It provides expenses, wastage percentages, scrap values and output for each process. 15,000 units of materials were introduced into process P1 at Rs. 0.10 per unit. The summary should calculate the process amounts and necessary accounts.

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    Module 2 Question Bank(2)

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    The document describes a process costing problem with three processes - P1, P2 and P3. It provides expenses, wastage percentages, scrap values and output for each process. 15,000 units of materials were introduced into process P1 at Rs. 0.10 per unit. The summary should calculate the process amounts and necessary accounts.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    31 views3 pages

    Module 2 Question Bank

    Uploaded by

    sukesh
    The document describes a process costing problem with three processes - P1, P2 and P3. It provides expenses, wastage percentages, scrap values and output for each process. 15,000 units of materials were introduced into process P1 at Rs. 0.10 per unit. The summary should calculate the process amounts and necessary accounts.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    Process Costing

    A product passes through three process., P1, P2 and P3, the expenses for the month of June are
    as follow
    P1 P2 P3
    Rs. Rs. Rs.
    Material 1,500 2,250 750
    Labour 7,500 12,000 9,750
    Expenses 1,575 1,425 3,015
    Other information:
    Normal wastage 3% 6% 10%
    Scrap value (per unit) Re.0.25 0.50 1.00
    Output (units) 14,250 13,650 12,012

    15,000 units of materials were introduced in process PI at Re.0.10 per unit. Prepare process
    amounts and other necessary accounts.

    Questions on Over & Under Absorption

    1. The budgeted working conditions for a cost centre are as follows:

    Normal working hours per week 42 hours


    Number of machines 14
    Normal weekly loss of hours on maintenance 5 hours per machine
    No.of weeks worked per year 48
    Estimated annual overheads Rs.1,24,320
    Estimated direct wage rate Rs.4 per hour
    Actual results in respect of 4 weeks period are:
    Wages incurred Rs. 9,000
    Overheads incurred Rs.10,200
    Machine hours produced 2000
    You are required to calculate:
    a) The overhead rate per machine hour
    b) The amount of under or over absorption of wages and overheads.

    SOLUTION:

    Normal working hours for the year = 48 weeks * 42 hours * 14 machines =28224 hours
    Less: Loss of hours due to maintenance=48 weeks * 5 hours* 14 machines = 3360 hours
    Effective working hours = 24864 hours

    Estimated overheads per year Rs. 124320


    a) Machine Hour rate (Rs.124320/24864 hrs) Rs.5

    Overhead absorbed = 2000 hrs @Rs.5/hr Rs.10000


    Less: Overhead incurred Rs.10200
    Under absorbed Overhead Rs.200

    b) Wages absorbed = 4 weeks * 42 hours * 14 machines * Rs.4 Rs.9408


    Less: waged incurred Rs.9000
    Over-absorbed wages Rs.408

    2. XYZ Ltd. uses a historical cost system and applies overhead on the basis of pre-
    determined rates. The following are available from the records of the company for the
    year ended 31st March, 2014.

    Rs.

    Manufacturing overhead incurred 8,50,000


    Manufacturing overhead applied 7,50,000
    Work-in-progress 2,40,000
    Finished goods 4,80,000
    Cost of goods sold 16,80,000
    Apply two methods for disposal of under absorbed overhead showing the implications
    of
    each method on the profit of the company.

    SOLUTION:
    Manufacturing overhead – actual Rs.8,50,000
    Manufacturing overhead – applied Rs.7,50,000
    Under absorbed overhead Rs.1,00,000

    Methods of disposal:
    Method I – Supplementary rate method: under absorbed amount of OH of Rs.1,00,000 is added
    to cost of sales, WIP and finished goods in the ratio calculated as follows:

    Unabsorbed Overhead * 100 =100000/240000+480000+1680000=(100000/2400000)*100=


    4.16667%
    Total cost
    Particulars Amount Under absorbed OH Total
    WIP 2,40,000 (240000*4.16667%)10000 2,50,000
    Finished goods 4,80,000 (480000*4.16667%)20000 5,00,000
    Cost of goods sold 16,80,000 (1680000*4.1667%)70000 17,50,000
    Total Cost 25,00,000
    Effect on profit: the profit will reduce by Rs.70,000 because of increase in the cost of sales
    which is debited to Profit & Loss A/c on the other hand, Rs.30,000 will be credited to P&L A/c
    on account of increase in the value of closing stock of WIP & PG. Thus, the net effect of using
    this method is that profit for the year will be reduced by Rs.40,000..

    Method II – the entire amount of under-absorbed manufacturing OH may be carried forward to


    the next year if it is presumed that such under-absorption has arisen due to cyclical or seasonal
    fluctuations. In such case, the profit of the current year will then be based on pre-determined OH
    and remain unaffected.

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