Cost and Management Accounting - I 10.

Chapter 10

Process Costing
Meaning of Process Costing
Process Costing is a type of costing procedure which is used for calculating cost of the product in continuous
or mass production industries (e.g., food processing, cement, sugar or potato chips).
In process costing, costs are accumulated according to processes or departments. It is done period by
period and not batch by batch or per job basis. Cost of each unit is calculated at the end of the period
(commonly one month or after one week as the case may be). Cost per unit (average) is obtained by dividing the
total cost applicable to a production department during a particular period by the total number of units produced
during that period.
If the product is processed in more than one process, the output of the first process is transferred to the
second process. The output of the first process becomes the input of the second process. The output of
second process is transferred to third process and so on. The output of the last process is transferred to
Finished Stock Account.
The Chartered Institute of Management Accounts (CIMA) defines process costing as “The costing method
applicable where goods and services result from a sequence of continuous or repetitive operations or
processes. Costs are averaged over the units produced during the period.”
Illustrating Process Costing
An example of a manufacturing process of rice is given in Fig. 10.1 (below) :

Paddy Basic Input

l

Process - 1 This department uses a ventilating sieve cleaner to remove stones and
stalks from paddy.
Cleaning Department

Process - 2 This department uses rubber rollers to rub off the tough outer hull
from paddy grain and separate it using air and vacuum.
Husking Department

This department removes the bran and endosperm from rice grain
Process - 3 using abrasive coned and drums with leather straps.
Milling Department

Process - 4 In this department, some of the rice is put into 1 kg,

2 kg, 5 kg, Plastic bags for sale to grocery shops, food bazar; some of
Packing and Leveling the rice is put into 100 kg Jute bags for sale to wholesaler / bulk
Department consumers.

Fig. 10.1

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10.2 Process Costing

Features of Process Costing

1. In process costing, costs are accummulated period by period and not batch by batch or per job basis.
2. The manufacturing cost (both direct or indirect) are accummulated in each process / department.
3. Process costing is used in repetitive production environment (e.g., tins of paints, shampoos).
4. At the end of a costing period (generally a month) a document known as the Production report is
prepared for each process, showing the number of units produced during that period.
5. In process costing, the manufacturing cost of one product cannot be identified individually. However,
the average cost of one product is calculated as follows :
Cost of Production for the period
Cost per Unit =
Number of Equivalent Units Produced during the period
6. If there is normal loss, the loss is borne by the good units completed, thus increasing the average
cost per unit.
7. If there is abnormal loss (actual loss is more than the normal loss), the abnormal loss is valued just like
a ‘good’ unit and debited to the "Abnormal Loss Account".
8. The output of one process becomes the input to the next process until the finished product is made in
the final process. The output from the final process is transferred to the Finished Stock Account.
9. If the product is processed in more than one process or department, cost of one process is transferred
to the next process. Total cost per unit is computed after the final process.
10. Product and processes are completely standardised (it means same quantity and quality of materials
are used and all products are processed in the similar manner).
11. The factory is divided into departments / processes. Each department / process performs specific job
regularly.
Some Industries where Process Costing is Used
Process costing is most commonly used in industries that produce essentially homogeneous products on a
continuous basis. Name of some industries are given below:
1. Cement 5. Paper Manufacturing
2. Chemical 6. Bricks Manufacturing
3. Sugar 7. Oil Refinery
4. Iron and Steel 8. Food Processing
In addition to the above, process costing is often employed in companies that use a form of process costing
in their assembly operations. Examples are: Tata Motors (cars and trucks), Sony (T.V. and Video monitors)
Compaq (personal computers), Nokia (mobile phones), etc.
Process Costing Vs. Job Costing
There are many similarities between the job costing system and process costing system. But at the same time
these two most commonly used costing methods have some differences.
Similarities Between Process Costing and Job Costing
1. The main aim of both the systems are to assign material, labour and overhead cost to products and to
provide a mechanism for computing cost per unit and control of cost.
2. Both systems maintain and use same basic accounts such as, raw materials control account, wages
control account, production overhead account and finished stock account.
3. In both the systems, flow of cost is basically the same

Raw materials � Work-in-progress � finished goods

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 Cost and Management Accounting - I 10.3

Illustrating Process Costing

An example of manufacturing process of cement is given in Fig. 10.2 (below) :

....__________,____.-I(
Limestone and Water Basic raw materials (Input)

I
Process - 1 Limestone or some other lime base are mixed with water for wet-
grinding..
Grinding Department

Process - 2 The output of Grinding Department is transferred to Mixing

Department where it is mixed with a small quantity of special mud.
Mixing Department

,,
The output of Mixing Department is transferred to Cooking
Process - 3 Department where it is run through a gas-fired / coal-fired Kiln and
Cooking Department cooked at a high temperature.
The cooked material exit the Kiln as small rocklike pieces, called
‘Clinkers’.

,,
Process - 4 The clinkers, required quantity of gypsum and other different
Final Grinding materials are run through Dry-grinding Department where finished
Department cement is produced.

Process - 4 The finished cement is transferred to Packing Department where bags

of 50 kg. are filled.
Packing Department
The bags are then loaded in railway wagons or trucks for transporting
to warehouse or port for shipping.

Fig. 10.2

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10.4 Process Costing

Differences between Process Costing and Job Costing

Process Costing Job Costing

1. Products are produced continuously for 1. Products are produced as per customer's
stock, e.g., oil refinery. requirement specification.
2. All products are essentially homogeneous in 2. Each job / product is different from another.
nature.
3. Costs are accumulated by process / 3. Costs are accumulated by individual job.
department for the cost period.
4. Costs are calculated for each process and it 4. Costs are computed when job is finished.
is transferred to next process. Ultimately
average cost per unit is calculated at the
final process.
5. The process production report is the main 5. The job cost sheet is the main document
document. for the accumulation of different
costs for a job.
6. Average cost per unit is computed by 6. Cost is computed for each job separately
department / process on the Department / on the Job Cost Sheet.
Process Report.
7. Process and products are standardised. 7. Job / products are not standardised
Advantages of Process Costing
Main advantages of the process costing are as follows:
1. Process costing allows accountants to determine unit cost needed for valuing inventory and cost of
goods sold.
2. The process costing is suitable for those industries where it is not possible to identify separate units of
production or jobs, usually because of the continuous nature of the production processes involved.
3. Cost of each process is computed at the end of the costing period (usually at the end of each month)
which helps to control cost – process-wise and period-wise.
4. Computation of average cost per unit is easier because the process and products are standardized.
5. Less clerical job and expenses are involved than that in job order costing.
6. The cost of operating this system is much less than that required in job order costing system. It is more
economical to classify and summarise cost by processes than for each job.
Limitations of Process Costing
1. Costs are reported on historical basis. The management cannot exercise control in time.
2. Computation of average cost per unit is not always accurate because the units are not fully homoge-
neous. For example, computation of cost of casting in a foundry on a weight basis may not be correct
because the weight factor may not reflect the complexity of making different castings.
3. Where different products are manufactured from the same facility, the computation of average cost is
made more inaccurate.
4. Inaccuracies in unit cost may lead to improper inventory valuation and profit calculation.
5. The inefficiencies of one process is automatically transferred to the next process when sequential
processing is done to manufacture a product.

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 Cost and Management Accounting - I 10.5

Methods of Processing
There are three major processing methods:
(i) Sequential processing;
(ii) Parallel processing; and
(iii) Selective processing.
Sequential Processing
In sequential processing system, products flow in sequence from one processing department to another
processing department. The costs are transferred from one process account to another as the product is
transferred. An example of sequential processing is provided below. Following is a hypothetical potato chips
manufacturing company.

□{
Process Labour Labour Materials (cooking oil) Materials (Poly Pack)
Cost Production Overhead

Process-1
{=== Production Overhead

Process-2
{ Labour
Production Overhead

Process-3
{ Labour
Production Overhead

Process-4
Basic
Clean Potatoes Thin Potato Fried Potato

I I ·I I ·
Raw Materials Potatoes Cutting of Cooking ~
Inspecting
Input cleaning are transferred Potatoes into pieces are and chips are and
(Potatoes) and peeling to Process-2 thin pieces transferred to Frying transferred to Packing
Process-3 Process-4

Parallel Processing
Fig. 10.3
D
Finished goods
(Packaged
Potato Chips)

In parallel processing system, after a certain point, two or more products go through two or more separate sets
of processes simultaneously. Let us take the expample of Reliance Industries Ltd. In their petroleum refining
operations, crude oil is processed initially in one processing department and then the refined output is further
processed by different processes simultaneously to get different end products. An example of parallel processing
is provided below. Following is a hypothetical cold drink manufacturing company.

□{ { {
Process Labour Material (Bottles) Material (Cartons)
Cost Labour Labour
Production Overhead Production Overhead Production Overhead

Basic
Process-1 Process-3 Process-4
Partially Completed Goods Partially
Raw Materials Production Bottling Labelling
Input of (Concentrate) Completed Goods and
(Sugar, Water, Concentrate (Bottled Drink) Packing
Flavour and
Colour, etc.)

'
Process-2 Finished goods
(Cylinders of bulk

D {Process
Cost
Cylinder
Labour
Production Overhead
Packing of
Bulk
Concentrate
concentrate to be sold
to restaurant or other
vendors for use in
soda fountain)
Finished
goods
(Cartons of
Bottled Drinks)

Fig. 10.4
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10.6 Process Costing

Selective Processing
In selective processing system, products go through some but not each processing departments. According to
the requirement, some portion of the output is processed further.
For example, in a Chicken processing plant, all products start at the cutting process. Some of the dressed
chickens are directly transferred to packaging department and then to finished goods department.
Some part of the dressed chickens are transferred to the grinding department and then to the packaging
department and finally to the finished goods department.

□{ □{
Process Labour Process Materials
Cost Cost Labour
Production Overhead Production Overhead

Basic
Cutting Packing
Raw Materials Process Dressed Chickens are transferred .. Department .. Finished
Input Dressed chicken, goods
Cutting keemas, salamis,
(Chicken)
and sausages, etc. are
Dressing packed
, l

Grinding
Department
Grinding of meat for
making keemas, salamis,
sausages, etc.

Fig. 10.5
Process Cost Accounting Procedures
Cost accumulation in process costing system is easier than in a job costing system. In process costing system,
separate Process Accounts are maintained for each process. Direct materials cost, Direct labour cost and
Production overheads are debited to the respective process account. The completed units of the first process
is transferred to the second process where it undergoes further processing. The output of the second process
is transferred to the third process and the output of the last process is transferred to the Finished Stock
Account.
In process costing, as production moves from process to process, cost of that particular process is also
transferred with it.
It should be noted that materials, labour and overhead costs can be added in any process – not just in the
first process.
Cost of the second process consists of cost of partially finished goods transferred from the first process
plus materials, labour and overhead costs incurred in the second process itself. Cost becomes cumulative as
production proceeds and the costs accumulated plus the final process's cost determines the total cost.
Cost accumulation in Process Costing System is shown below. Let us call the three processes as Process - 1,
Process - 2 and Process - 3 respectively.

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 Cost and Management Accounting - I 10.7

Dr. Process - 1 Account Cr.

Particulars ~ Particulars ~
To Direct Materials 1,00,000 By Process - 2 A/c 2,00,000

~
To Direct Labour 80,000 (Transferred to Process - 2) -----
To Production Overhead 20,000
2,00,000 2,00,000

Dr. Process - 2 Account ~ Cr.

Particulars ~ Particulars ~
To Process - 1 A/c 2,00,000 .r By Process - 3 A/c v 3,00,000
(Transferred from Process - 1) --------------
(Transferred to Process - 3)
To Direct Materials
To Direct Labour
To Production Overhead

Dr.
50,000
30,000
20,000
3,00,000

Process - 3 Account /
/ 3,00,000

Cr.

,,,, /By Finished Stock A/c

Particulars ~ Particulars ~
To Process - 2 A/c 3,00,000 v 4,00,000
(Transferred from Process - 2)
To Direct Materials
To Direct Labour
To Production Overhead

Dr.
20,000
50,000
30,000
4,00,000

Finished Stock Account /

/ 4,00,000

Cr.
Particulars ~
,,,, V Particulars ~
To Process - 3 A/c 4,00,000
(Transferred from Process - 3)

Elements of Cost
Materials
Accounting for materials under Process Costing System is similar to other costing systems. If the number of
materials used in the processes is very large, a store ledger can be maintained. Materials are issued to processes
on the basis of stores requisitions and bills of materials.
In many cases, all materials required for production are issued to the first process, where, after processing
partially completed units are transferred to the next process, and so on. In the subsequent processes, some
work is done on the materials.
In some cases materials are added in the subsequent processes also. Wherever the material is used, the
stores requisitions must indicate the process number so that it can be easily accounted for. In some process
industries, such as cement, flour mills, etc., consumption report is used in place of stores requisitions. In these
industries, flow of materials into the process is uniform and continuous. For example, flow of clinkers into the
clinker-grinding process is uniform and continuous as it is fed by conveyor belt.
Labour
In many industries like cement, chemical and iron and steel, the cost of direct labour is a very small part of the
total cost of production. In these industries majority of work is done with the help of automatic machines and
the direct labour element is less influential.

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10.8 Process Costing

As the employees are engaged continuously on one process, the collection and allocation of labour cost is
easier in process costing system. Generally, labour cost is analysed process-wise and charged to different
processes. However, if employees are working in more than one process, it will be necessary to record time
spent in each process and respective processes are charged accordingly.
In process costing system, no distinction is made between direct and indirect labour, since both types
may be charged to the same process account.
Direct Expenses
Expenses which are incurred specifically for a particular process are directly charged to that process. For
example, royalty payable for adopting a particular technology will be charged to the process concerned.
Production Overhead
Production overhead incurred in a process costing system is preferably accumulated in production overhead
(factory overhead) subsidiary ledger for production and service department. Actual overhead is debited to
each process.
In many cases predetermined rate of production overhead is used for charging overhead to different
processes. This method is suitable if:
(i) Production is not stable; and
(ii) Fixed Production Overhead is significant.
Journal Entries
(i) For issue / consumption of materials
Process - 1 Account Dr.
To Direct Materials Account
(ii) For labour cost paid
Process - 1 Account Dr.
To Direct Labour Account
(iii) For direct expenses paid
Process - 1 Account Dr.
To Direct Expenses Account
(iv) For production overhead charged
Process - 1 Account Dr.
To Production Overhead Account
(v) For transfer of partially finished goods from Process - 1 Account to Process - 2 Account
Process - 2 Account Dr.
To Process - 1 Account
Steps for Dealing with Process Costing When All Output is Fully Complete

Step 1 : Draw up process accounts and other accounts in 'T' form as follows:
Dr. Process Account Cr.
Particulars Qty Rate ~ Particulars Qty Rate ~

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 Cost and Management Accounting - I 10.9

Students should note that Process Account is nothing more than a Ledger Account with some additional
columns on both the debit and credit sides showing 'Quantity' and 'Rate'.
Step 2: Calculate losses and output
Example:
(i) Input 10,000 units
(ii) Normal loss @ 10%
(iii) Actual output 8,900 units.

(i) Calculate normal loss

Normal Loss = Input � % of normal Loss
= 10,000 units � 10% = 1,000 units
(ii) Calculate expected output
Expected output = Input - Normal Loss
= 10,000 units – 1,000 units = 9,000 units
(iii) Calculate abnormal loss / gain (if any)
Abnormal loss occurs when the expected output is more than the actual output and abnormal gain occurs when
the exoected output is less than the actual output.
In this example, expected output is more than actual output. So there is an abnormal loss of 9,000 units –
8,900 units = 100 units.
Step 3 : Calculate cost per unit of output and losses
Total Process Cost- Scrap Value of Normal Loss
Cost per Unit = - -Expected
---- ------------
Output (Input - Normal Loss)
Cost of Abnormal Loss = Abnormal Loss (in units) � cost per unit
Step 4:
Debit Process Account with the cost of input, additional, materials, labour cost and production overhead.
Credit Process Account with the proceeds of normal loss sale (if any)
Credit Process Account with the value of output transferred to next process.
Step 5: Complete Accounts
(i) Complete the Process Account
(ii) Write up other accounts as per requirement.
Step 2 and 3 should be shown in the Working Notes.
Illustration 1
Manufacturing of product 'Fanta' requires three distinct processes. On completion the product is passed from
Process - 3 to finished stock. During the month of December 2017, the following information was obtained:

Elements of Costs Total Process

I II III
~ ~ ~ ~
Direct material 26,000 15,000 11,000 -
Direct labour 26,500 12,500 6,000 8,000
Direct expenses 8,000 3,000 - 5,000
Production overhead 79,500 - - -

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10.10 Process Costing

Production overhead is absorbed by processes at a percentage of direct wages. Production during the
period was 1,000 kg. There was no stock of raw materials or work-in-progress at the beginning or at the end of
the month. There is no process loss also.
Show the Process Accounts and Finished Stock Account.
[C.U.B.Com. (Hons.) - Adapted]
Solution
Dr. Process I Account Cr.
Particulars Qty Rate Amount Particulars Qty Rate Amount
(Kg) Per Kg ~ (Kg) Per Kg ~
To Direct Materials (Note 2) 1,000 15 15,000 By Process II A/c 1,000 68 68,000
To Direct Labour – 12,500
To Direct Expenses – 3,000
To Production Overhead (Note 1) – 37,500
1,000 68,000 1,000 68,000

Dr. Process II Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Kg) Per Kg ~ (Kg) Per Kg ~
To Process I A/c 1,000 68 68,000 By Process III A/c 1,000 103 1,03,000
To Direct Material – 11,000
To Direct Labour – 6,000
To Production Overhead (Note 1) – 18,000
1,000 1,03,000 1,000 1,03,000

Dr. Process III Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Kg) Per Kg ~ (Kg) Per Kg ~
To Process II A/c 1,000 103 1,03,000 By Finished Stock A/c 1,000 140 1,40,000
To Direct Labour – 8,000
To Direct Expenses – 5,000
To Production Overhead (Note 1) – 24,000
1,000 1,40,000 1,000 1,40,000

Dr. Finished Stock Account — Product “Fanta” Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Kg) Per Kg ~ (Kg) Per Kg ~
To Process III A/c 1,000 140 1,40,000 By Balance c/d 1,000 140 1,40,000
Working Notes:
(1) Production overhead is absorbed as a percentage of Direct Wages.
Production Overhead
Production Overhead Absorption Rate X 100
Direct Wages
79,500
= 26,S00 X 100 = 300%
Production overhead to be charged:
Process - I : ~ 12,500 � 300/100 ~ 37,500
Process - II : ~ 6,000 � 300/100 ~ 18,000
Process - III : ~ 8,000 � 300/100 ~ 24,000
~ 79,500
(2) There is no process loss, so output will be input, i.e., 1,000 kg

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 Cost and Management Accounting - I 10.11

Classifying Losses in Process

At the time of processing input in a process, there may be some losses. These losses may be due to problems
in operating environment, defective raw materials, wrong workmanship, problem with the machinery, evaporation,
shrinkage and spoilage.
Example: A tea manufacturing company (like Tata Tea Ltd.) may have to tightly control the temperature
and humidity in the processing area. In spite of all the control mechanisms, humidity or temperature
occasionally varies by a small margin. As a result, some of the output of a process may be lost and cannot
be used in the next process or cannot be sold as quality product.
When there are losses, there are three possibilities:

I Process Losses

! Actual Losses are more

!
Actual Losses are less
Losses as expected
than Expected Losses than Expected Losses
(Normal Losses)
(Abnormal Losses) (Abnormal Gain)

Fig. 10.6
Normal Loss
In many cases, some quantity of material is lost due to the manufacturing process and this loss of material is
known as spoiled units, evaporation or shrinkage. If it is a common occurrence, inherent in the manufacturing
process, then the loss occurred is called Normal Loss. Normal losses cannot be eliminated or reduced, even
under efficient operating conditions. It can be worked out in advance. Generally, it is calculated on the basis of
past experience or some empirical formula. Normal losses are expressed as a percentage of input to each
process. It may also be referred in terms of output or of throughput (opening work-in-progress plus materials
introduced minus closing work-in-progress).
Normal loss can be classified further into (i) Wastage; and (ii) Scrap. Generally, wastage cannot fetch any
revenue but scrap can be sold for some consideration. However, accounting treatment is same for wastage and
scrap.
Abnormal Loss
In a manufacturing process, there might be some losses that are resulting from non-recurring and unusual
events. For example, wrong mixing of ingredients may lead to loss which is unusual. These losses are
controllable and are not inherent to the manufacturing process. These losses are called Abnormal Losses. An
abnormal loss occurs when the actual loss is more than the expected loss. In other words, abnormal loss is the
difference between the actual loss and the expected loss. It is important to identify this category of loss, so
that management is aware of the extent to which the actual losses are deviating from what was expected.
Abnormal Gain
In some exceptional cases, the actual process loss may be less than normal or expected process loss and this
gain is called Abnormal Gain. Like abnormal losses, abnormal gains should be reported separately so that
management is aware of the gains.

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10.12 Process Costing

Example:
From the following information calculate:
(i) Normal loss in units; (ii) Abnormal loss in units; and (iii) Abnormal gains in units.
Input 2000 units and normal loss is 10% of input.
When actual output is (a) 1700 units; and (b) 1900 units.
Answer:
(a) When actual output is 1,700 units
(i) Normal loss = 10% of 2,000 units = 200 units
(ii) Abnormal loss = Expected output – Actual output
(A) Expected output:
Input 2,000
Less: Normal Loss 200 1,800 units
(B) Actual Output 1,700 units
Abnormal Loss (A – B) 100 units
(b) When actual output is 1,900 units
(i) Normal Loss = 10% of 2,000 units = 200 units
(ii) Abnormal Gains = Actual Output – Expected Output
(A) Expected Output (2,000 – 200) 1,800 units
(B) Actual Output 1,900 units
Abnormal Gains (B – A) 100 units
Accounting for Normal Loss and Abnormal Loss
Normal and abnormal losses are treated differently.
Cost for units lost through normal loss is absorbed by the remaining "good" units produced during the
period. The burden of normal loss is to be borne by the "good" units.
Cost related to abnormal loss is removed from the appropriate process account and charged to Costing
Profit and Loss Account so that the completed units do not absorb the cost of lost units.
It should be noted that occasionally normal losses may incur a cost (rather than having a scrap value).
This cost is charged to the process account as normal cost of the process.

Illustration 2
A product passes through Process 1 and Process 2. ~
1. Materials issued to Process 1 (5,000 units) 40,000
2. Labour cost 30,000
3. Manufacturing overheads 27,000
4. Normal Loss 3% of input (Scrap value — Nil)
5. Actual output — 4,350 units.
You are required to prepare Process 1 Account. [C.U.B.Com. (Hons.) — Adapted]

Solution
Dr. Process 1 Account Cr.
Particulars Qty Rate Amount Particulars Qty Rate Amount
(Unit) Per Unit (~) (Unit) Per Unit (~)
To Materials 5,000 8 40,000 By Normal Loss (Note 1) 150 – –
To Labour – 30,000 By Abnormal Loss (Note 2) 500 20 10,000
To Manufacturing Overhead – 27,000 By Process 2 A/c 4,350 20 87,000
(Transferred to next process)
5,000 97,000 5,000 97,000

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 Cost and Management Accounting - I 10.13

Working Notes:
(1) Normal Loss = 3% of 5,000 units = 150 units.
(2) Abnormal Loss:
(A) Expected Output
Input 5,000 units
Less: Normal Loss 150 units 4,850 units
(B) Actual Output 4,350 units
Abnormal Loss (A – B) 500 units
Total Cost of the Process - Scrap Value of Normal Loss
(3) Cost per Unit = - - - - - - - - - - - - - - - - - - - -
Expected Output (Input- Normal Loss)
97,000 � 0 97,000
= = = ~ 20
5,000 � 150 4,850

(4) Cost of Abnormal Loss = 500 � ~ 20 = ~ 10,000.

The entire ~ 10,000 will be debited to Costing Profit and Loss Account.
Illustration 3
From the following information, prepare :
(i) Process K Account; and
(ii) Abnormal Loss Account.
(a) 1,000 tonnes @ ~ 125 per tonne were initially introduced into the process.
(b) Other expenses incurred in the process :
(i) Wages ~ 28,000
(ii) Factory Overhead ~ 8,000.
(c) Normal Wastage : 5% of the total weight of materials initially introduced.
(d) Normal scrap : 10% of the total weight of materials initially introduced.
(e) Scrap realisation : ~ 80 per tonne.
(f) Actual output : 830 tonnes transferred to Process L.
[D.U.B.Com. (Hons.) — Adapted]

Solution
Dr. Process K Account Cr.
Particulars Qty Rate Amount Particulars Qty Rate Amount
(Tonne) Per Tonne (~) (Tonne) Per Tonne (~)
To Materials 1,000 125 1,25,000 By Normal Loss :
To Labour – 28,000 Wastage (5% of 1,000) 50
To Factory Overhead – 8,000 Scrap (10% of 1,000) 100 80 8,000
By Abnormal Loss A/c 20 180 3,600
By Process L A/c 830 180 1,49,400
(Transferred to next process)
1,000 1,61,000 1,000 1,61,000

Dr. Abnormal Loss Account Cr.

RII
Particulars Qty Rate Amount Particulars Qty Rate Amount
(Tonne) Per Tonne (~) (Tonne) Per Tonne (~)

I I t----1
To Process K A/c 20 180 3,600 By Bank A/c (Sale of scrap) 20 80 1,600
By Costing Profit and Loss A/c 2,000
20 180 3,600 20 80 3,600

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10.14 Process Costing

Working Notes:
(1) Normal Loss Tonne
Wastage 5% of 1,000 50
Scrap 10% of 1,000 100
150
(2) Abnormal Loss:
(A) Expected Output
Input 1,000 Tonne
Less: Normal Loss 150 Tonne 850 Tonne
(B) Actual Output 830 Tonne
Abnormal Loss (A – B) 20 Tonne
Total Cost of the Process - Scrap Value of Normal Loss
(3) Cost per Tonne = - - - - - - - - - - - - - - - - - - - -
Expected Output (Input- Normal Loss)
1,61,000 � 8,000
= = ~ 180
850

(4) Cost of Abnormal Loss = 20 � ~ 180 = ~ 3,600.

Illustration 4
From the following information relating to Process - 1, prepare: (i) Process - 1 Account; and (ii) Abnormal Loss
Account.
(a) Units introduced 2000 units @ ~ 20 per unit.
(b) Labour cost ~ 10,800.
(c) Production overhead ~ 14,000.
(d) Normal loss 10% of input. No scrap value.
(e) Units produced 1,700 units.
Solution
Dr. Process 1 Account Cr.
Particulars Qty Rate Amount Particulars Qty Rate Amount
(Unit) Per Unit (~) (Unit) Per Unit (~)
To Materials 2,000 20 40,000 By Normal Loss (Note 1) 200 – –
To Labour – 10,800 By Abnormal Loss (Note 4) 100 36 3,600
To Production Overhead – – 14,000 By Process 2 A/c 1,700 36 61,200
(Transferred to next process)
2,000 64,800 2,000 64,800

Dr. Abnormal Loss Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Unit) Per Unit ~ (Unit) Per Unit ~
To Process 1 A/c (Note 4) 100 36 3,600 By Costing Profit and Loss A/c 100 36 3,600
Working Notes:
(1) Normal Loss = 10% of 2,000 units = 200 units.
(2) Abnormal Loss:
(A) Expected Output
Input 2000 units
Less: Normal Loss 200 units 1,800 units
(B) Actual Output 1,700 units
Abnormal Loss (A – B) 100 units
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 Cost and Management Accounting - I 10.15

Total Cost of the Process - Scrap Value of Normal Loss

(3) CostperUnit = - - -Expected
- - - Output
- - -(Input-
- - -Normal
- - -Loss)
----

64,800 - 0 64,800
= ~ 36
2,000 - 200 1,800
(4) Cost of Abnormal Loss = 100 � ~ 36 = ~ 3,600.

Accounting for Increase in Units

In many industries (e.g., paint manufacturing) the addition of materials in latter processes and the further
processing of the product result in an increase in the physical quantity of the product. For example, suppose
that a paint manufacturer combined a number of basic ingredients in first manufacturing process and transferred
10,000 litres of the paint mixture to second process during the current month.
In the second process, spirit and certain inert ingredients were added to the paint concentrate, increasing
the total mixtures to 20,000 litres. As a result, the output of second process would be double the input to the
process. These 20,000 litres will be transferred to the packaging department for canning, labeling and packaging.
In this situation, total cost of the process is spread among the larger number of units to produce a lower
average unit cost.
Here, it should be noted that the Process Account will be prepared in the usual manner.

Accounting for the Sale of Scrap (Normal / Abnormal)

Units lost at the time of processing sometimes can be sold as scrap. Sale proceeds of normal loss is credited to
the Concerned Process Account. Thus, the total cost of that process is reduced by the amount realized from
sale of scrap.
Sale proceeds of abnormal loss, however, is credited to the Abnormal Loss Account. The balance of the
Abnormal Loss Account is transferred to Costing Profit and Loss Account.
Accounting for Waste
Waste comprises discarded substances of nil value — for example, depletion due to evaporation. Waste is
credited to the Process Account with the units of normal loss for the purpose of balancing physical inputs with
physical outputs. Nothing is placed in the amount column. As there is no monetary value attaching to the
waste, there is no need for the corresponding debit entry.
Illustration 5
In the process Q, 300 units of a product were transferred from Process P at a cost of ~ 5,644. The additional
expenses incurred for the process Q were ~ 760 and overhead was charged @ 10% of expenses incurred. 20%
of the input are normally lost and sold at ~ 8 per unit. 220 units were produced in the Process Q.
Prepare : (i) Process Q Account; and (ii) Abnormal Loss Account.
[C.U.B.Com. (Hons.) — Adapted]

Solution
Dr. Process Q Account Cr.
Particulars Qty Rate Amount Particulars Qty Rate Amount
(Unit) Per Unit (~) (Unit) Per Unit (~)
To Process P A/c (Transferred) 300 18.81 5,644 By Normal Loss 60 8 480
To Expenses – 760 By Abnormal Loss 20 25 500
To Overhead (10% of ~ 760) – 76 By Finished Stock A/c 220 25 5,500
300 6,480 300 6,480

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10.16 Process Costing

Dr. Abnormal Loss Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Unit) Per Unit ~ (Unit) Per Unit ~
To Process Q A/c (Note 4) 20 25 500 By Bank A/c (Sold) 20 8 160

Working Notes:
20 I I
500 Ii I
By Costing Profit and Loss A/c
20 I I 1----1 340
500

(1) Normal Loss = 20% of 300 = 60 units.

(2) Abnormal Loss:
(A) Expected Output
Input 300 units
Less: Normal Loss 60 units 240 units
(B) Actual Output 220 units
Abnormal Loss (A – B) 20 units
Total Cost of the Process - Scrap Value of Normal Loss
(3) Cost per Unit = - - - - - - - - - - - - - - - - - -
Expected Output (Input- Normal Loss)

6,480 � 480
= = ~ 25
240
(4) Cost of Abnormal Loss = 20 � ~ 25 = ~ 500.
Illustration 6
A product is produced through two distinct processes : Process - I and Process - II. On completion it is
transferred to finished stock. From the following particulars during the month of December 2010, prepare
Process Accounts, Finished Stock Account and Abnormal Loss Account.
Process - I Process - II
Units introduced 10,000 9,000
Transfer to next process / finished stock 9,000 8,250
Normal loss (on inputs) 10% 5%
Realisable value of normal loss (per unit) ~2 ~4
Costs incurred: ~ ~
Direct Materials 40,000 –
Direct Labour 20,000 20,000
Direct Expenses 12,000 8,600
Production Overhead (100% of direct labour)
Assume that there was no opening or closing stock of raw materials and work-in-progress and scrap were
sold for cash. [C.U.B.Com.(Hons.) - Adapted]
Solution
Dr. Process I Account Cr.
Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) Per Unit ~ (Units) Per Unit ~
To Direct Materials 10,000 4 40,000 By Normal Loss A/c (Note 1) 1,000 2 2,000
To Direct Labour – 20,000 By Process II A/c (Note 1) 9,000 10 90,000
To Direct Expenses – 12,000 (Transferred to next process)
To Production Overhead – 20,000
(100% of Direct Labour)
10,000 92,000 10,000 92,000

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 Cost and Management Accounting - I 10.17

Dr. Process II Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) Per Unit ~ (Untis) Per Unit ~
To Process I A/c 9,000 10 90,000 By Normal Loss A/c (Note 2) 450 4 1,800
To Direct Labour – 20,000 By Abnormal Loss A/c (Note 2) 300 16 4,800
To Direct Expenses – 8,600 By Finished Stock A/c 8,250 16 1,32,000
To Production Overhead – 20,000
(100% of Direct Labour)
9,000 1,38,600 9,000 1,38,600

Dr. Finished Stock Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Unit) Per Unit ~ (Unit) Per Unit ~
To Process II A/c 8,250 16 1,32,000 By Balance c/d 8,250 16 1,32,000

Dr. Abnormal Loss Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Unit) Per Unit ~ (Unit) Per Unit ~
To Process II A/c 300 16 4,800 By Bank A/c 300 4 1,200
By Costing Profit and Loss A/c
(Note 3) 3,600
300 4,800 300 4,800
Working Notes:
(1) Process - I
(a) (i) Normal Loss is 10% of input = 10% of 10,000 units = 1,000 units
Scrap value = 1,000 � ~ 2 = ~ 2,000.
(ii) Expected Output (10,000 - 1,000) 9,000 units
Actual Output 9,000 units
Abnormal Loss / Gain Nil
Total Cost of the Process - Scrap Value of Normal Loss
(b) CostperUnit = -------------------
Expected Output (Input- Normal Loss)

92,000 - 2,000 90,000

~ 10.
10,000 - 1,000 9,000
(2) Process - II
(a) (i) Normal loss is 5% of input = 5% of 9,000 units = 450 units.
Scrap value = 450 units � ~ 4 = ~ 1,800.
(ii) Expected Output (9,000 - 450) 8,550 units
Actual Output 8,250 units
Abnormal Loss 300 units
Total Cost of the Process - Scrap Value of Normal Loss
(b) CostperUnit = -------------------
Expected Output (Input- Normal Loss)

1,38,600 - 1,800 1,36,800

~ 16.
9,000 - 450 8,550

(c) Cost of abnormal loss = 300 � ~ 16 = ~ 4,800.

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10.18 Process Costing

It should be noted that abnormal loss is valued just like "good" units.
(3) Net amount of abnormal loss is transferred to Costing Profit and Loss Account. The amount is calculated
as follows: ~
Cost of abnormal loss (300 � ~ 16) 4,800
Less: Sale Proceeds of Abnormal Loss (300 � ~ 4) 1,200
Amount to be Charged to Costing Profit and Loss Account 3,600
Illustration 7
600 kg. of materials was charged to Process A @ ~ 4 per kg. The direct labour cost accounted for ~ 200 and other
departmental expenses to ~ 760. The normal loss is 10% of input and the net production was 500 kg transferred
to finished stock. Assuming that the process scrap itself is saleable at ~ 2 per kg. Prepare Process A Account
clearly showing the value of normal and abnormal loss. Also prepare Normal Loss Account and Abnormal Loss
Account. [D.U.B.Com. (Hons.) — Adapted]
Solution
Dr. Process A Account Cr.
Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) Per Unit ~ (Units) Per Unit ~
To Materials 600 4 2,400 By Normal Loss A/c (Note 1) 60 2 120
To Labour – 200 By Abnormal Loss (Note 2) 40 6 240
To Departmental Expenses – 760 By Finished Stock A/c 500 6 3,000
600 3,360 600 3,360

Dr. Normal Loss Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Unit) Per Unit ~ (Unit) Per Unit ~
To Process A A/c 60 2 120 By Cash / Bank A/c 60 2 120

Dr.
I I I
Abnormal Loss Account
I I I I Cr.
Particulars Qty Rate Amount Particulars Qty Rate Amount
(Unit) Per Unit ~ (Unit) Per Unit ~
To Process A A/c 40 6 240 By Cash / Bank A/c 40 2 80
By Costing Profit and Loss A/c 160
40 240 40 240
Working Notes: I
(1) Normal Loss = 10% of 600 = 60 kg..
I I Ii I I
(2) Abnormal Loss:
(A) Expected Output
Input 600 kg.
Less: Normal Loss 60 kg. 540 kg.
(B) Actual Output 500 kg.
Abnormal Loss (A – B) 40 kg.

Total Cost of the Process - Scrap Value of Normal Loss

(3) Cost per kg. = - - - -
Expected Output (Input- Normal Loss)

3,360 � 120 3,240

= = =~6
600 � 60 540
(4) Cost of Abnormal Loss = 20 � ~ 25 = ~ 500.

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 Cost and Management Accounting - I 10.19

Abnormal Gain
An abnormal gain occurs when the actual loss is less than the expected, normal loss. In other words, the actual
output of goods under production is higher than that would normally be expected in the given level of input.
For example, Input is 10,000 kg and normal loss is 10% of input. Actual output is 9,200 kg.
Calculate abnormal gain (if any).
Calculation of Abnormal Gain
(A) Actual loss = 10,000 – 9,200 800 kgs
(B) Normal expected loss = 10% of 10,000 1,000 kgs
Abnormal Gain (B – A) 200 kgs
OR
(A) Actual Output 9,200 kg
(B) Expected Output (Input – Normal Loss)
Input 10,000 kg
Less: Normal Loss 1,000 kg 9,000 kg
Abnormal Gain (A – B) 200 kg
Abnormal Gain is valued at its full process cost. The respective Process Account is debited and Abnormal
Gain Account is credited with the value of abnormal gains.
It should be noted that abnormal gain of 200 kgs was due to lesser normal loss (1,000 - 800 kg).
Therefore, at the time of calculating actual abnormal gain, an adjustment entry is to be passed in the
following manner:
Abnormal Gain A/c Dr. [Scrap value of 200 kgs]
To Normal Loss A/c [Scrap value of 200 kgs]
The above adjustment is required because actual loss is 800 kgs, not 1,000 kgs. The company will not
be able to realise the scrap sales value of 200 kgs .
After adjustment, the balance of abnormal gain account will be credited to Profit and Loss Account.

Illustration 8
In a process, 200 units of materials have been introduced at a cost of ~ 9,600 and other expenditures incurred in
the process are: Wages ~ 3,000 and Overheads ~ 1,300. Estimated normal loss is 15% and scrap value is
~ 10 per unit. The actual output is 180 units. All scrap were sold for cash.
Show
(a) Process Account;
(b) Abnormal Gain Account; and
(c) Normal Loss Account.
[C.U. B.Com(Hons.) - Adapted]
Solution
Dr. Process Account Cr.
Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Material 200 48 9,600 By Normal Loss A/c (Note 1) 30 10 300
To Wages – 3,000 By Finished Stock A/c 180 80 14,400
To Overhead – 1,300
To Abnormal Gain A/c (Note 3) 10 80 800
210 14,700 210 14,700

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10.20 Process Costing

Dr. Normal Loss Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Process A/c 30 10 300 By Bank A/c 20 10 200

I 30 I I 300 Ii
By Abnormal Gain A/c
I I 1----1
10
30
10 100
300

Dr. Abnormal Gain Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Normal Loss A/c
To Profit and Loss A/c

Working Notes:
I
10

10

(1) Normal Loss = 15% of 200 units

I
10

I
100
700
800 I
By Process A/c (Note 3)

30 units
I I ---1
10

10
80 800

800

Actual loss = (200 – 180 units) 20 units

Abnormal Gain 10 units
OR
Actual Output 180 units
Expected Output (200 – 30) 170 units
Abnormal Gain 10 units
Total Cost of the Process - Scrap Value of Normal Loss
(2) CostperUnit = - -Expected
- -Output
-- ------
(Input- Normal Loss)

13,900 - 300 13,600

= 200 - 30 170
= ~ 80.
(3) Value of abnormal gain = 10 � ~ 80 = ~ 800.
Illustration 9
In a factory, a product is produced through two distinct processes: Process - A and Process - B. On completion,
the product is transferred to finished stock. During the month of December, 2010, the following information was
obtained:
Process - A Process - B
Units introduced 2,000 -
Units transferred to next process 1,800 -
Units transferred to finished stock - 1,750
Value of units introduced (~) 11,000 -
Materials (~) - 1,000
Labour (~) 7,300 4,500
Overhead (~) 2,800 2,240
The normal loss in each process is 5% and it was sold at ~ 2 per unit. There was no stock of raw materials or
Work-in-Progress at the beginning or at the end of the month.
Prepare the Process Account, Normal Loss Account, Abnormal Loss Account and Abnormal Gain Account.
[C.U.B.Com.(Hons.) - Adapted]

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 Cost and Management Accounting - I 10.21

Solution
Dr. Process A Account Cr.
Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~)t (~) (Units) (~) (~)
To Material (Input) 2,000 5.50 11,000 By Normal Loss A/c (Note 1a) 100 2 200
To Labour – 7,300 By Process B A/c 1,800 11 19,800
To Overhead – 2,800 By Abnormal Loss A/c (Note 1c) 100 11 1,100
2,000 21,100 2,000 21,100

Dr. Process B Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Process A A/c 1,800 11 19,800 By Normal Loss A/c (Note 2a) 90 2 180
To Material 1,000 By Finished Stock A/c 1,750 16 28,000
To Labour 4,500
To Overhead 2,240
To Abnormal Gain (Note 2c) 40 16 640
1,840 28,180 1,840 28,180

Dr. Normal Loss Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Process A A/c 100 2 200 By Bank A/c 150 2 300
To Process B A/c
I I I 90
190
2 180
380 I By Abnormal Gain A/c
I I >------I
40
190
2 80
380

Dr. Abnormal Loss Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Process A A/c 100 11 1,100 By Bank A/c 100 2 200

I I I100 1,100 I By Profit and Loss A/c

I 100 >------I
900
1,100

Dr. Abnormal Gain Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Normal Loss A/c 40 2 80 By Process - B A/c 40 16 640
To Profit and Loss A/c

Working Notes:
I I I 40
560
640 I I 40 1----1640

(1) Process - A
(a) (i) Normal Loss is 5% of input = 5% of 2,000 units = 100 units
Scrap value = 100 � ~ 2 = ~ 200.
(ii) Expected Output (2,000 – 100) 1,900 units
Actual Output 1,800 units
Abnormal Loss 100 units

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10.22 Process Costing

Total Process Cost- Scrap Value of Normal Loss

(b) CostperUnit = - - - - - - - - - - - - - - - - -
Expected Output (Input - Normal Loss)

21,100 - 200 20,900

~ 11.
2,000 - 100 1,900
(c) Value of abnormal loss = 100 � ~ 11 = ~ 1,100.
(2) Process - B
(a) (i) Normal loss is 5% of input = 5% of 1,800 units = 90 units.
Scrap value = 90 units � ~ 2 = ~ 180.
(ii) Expected Output (1,800 - 90) 1,710 units
Actual Output 1,750 units
Abnormal Gain 40 units
Total Process Cost - Scrap Value of Normal Loss
(b) CostperUnit = - -Expected
- - -Output
- - -(Input
- - --Normal
- - -Loss)
---

27,540 - 180 27,360

=-----=
1,710 1,710 = ~ 16.
(c) Value of abnormal gain = 40 � ~ 16 = ~ 640.
It should be noted that abnormal gain is valued at the cost per unit of normal output.

Defective Units and Rework Cost

Defective units are those units which are damaged or imperfect (but not spoiled) and cannot be transferred to
next process or cannot be sold unless some additional work is done. Defective units may be normal defective
units or abnormal defective units.
Additional cost incurred for normal defective units are simply treated as additional cost of the process and
are allocated amongst good units produced during the period.
Additional cost incurred for abnormal defective units are debited to Costing Profit and Loss Account.
Illustration 10
D Ltd. introduced 5,000 units in a process at a cost of ~ 10,000. The wages and overheads incurred are
~ 10,000 and ~ 8,000 respectively. It is expected that 10% of the input is likely to be defective. Actual output of
goods is 4,400 units. The rectification of defective units costs ~ 4 per unit.
You are required to (i) Show Process Account; and (ii) Calculate the cost per unit and show how will you deal
with the cost of rectification of abnormal defective units.
[D.U.B.Com.(Hons.) - 2011]

Solution In the books of D Ltd.

Dr. Process Account Cr.
Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Materials (Input) 5,000 2 10,000 By Abnormal Loss A/c (Note 5) 100 6 600
To Wages – 10,000 (Excessive defective)
To Overheads – 8,000 By Finished Stock A/c (Note 2) 4,900 6 29,400
To Expenses for Rectification 2,000
of Normal Defective Units
(Note 1)
5,000 30,000 5,000 30,000

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 Cost and Management Accounting - I 10.23

Working Notes :
(1) Expenses for rectification of normal defective units will be debited to Process Account as factory
overhead.
Normal defective = 5,000 � 10% = 500 units.
Expenses for rectification = 500 � ~ 4 = ~ 2,000.
(2) Total output = Actual output + Rectified Units = 4,400 + 500 = 4,900 units
(3) There is no normal loss. Therefore, the cost per unit will be :
Process Cost 30,000
Cost Per Unit =- ----
Normal Output 5,000
~ 6.

(4) Abnormal Loss = 5,000 – 4,900 = 100 units.

(5) Value of abnormal loss = 100 � ~ 6 = ~ 600.
(6) Cost of rectification of abnormal defective units will be debited to Costing Profit and Loss Account.
Illustration 11
PCT introduces 1,000 units in a process at a cost of ~ 10 per unit. Wages and overhead incurred are ~ 9,000 and
~ 8,000 respectively. It is expected that 10% of total output is likely to be defective. Actual output of good unit
is 850. Cost of rectification of a defective unit is ~ 5. There is no wastage or scrap of materials.
Required :
Calculate cost per unit if :
(i) defectives are rectified;
(ii) defectives are not rectified but sold as ‘seconds’ @ ~ 9 each.
[D.U.B.Com. (Hons.) — 2008]

Solution Calculation of Cost Per Unit

Situation If defectives If defectives
are rectified are not rectified
(~) (~)
Cost of Materials introduced (1,000 x ~ 10) 10,000 10,000
Wages 9,000 9,000
Overhead 8,000 8,000
27,000 27,000
Add: Cost of rectification of normal defective units (100 x ~ 5) 500 —
Less: Realisable value of normal defective units (100 x ~ 9) — 900
(A) Total Cost 27,500 26,100
(B) Number of Units 1,000 900
Cost per Unit (A � B) ~ 27.50 ~ 29.00
Working Notes :
(1) Calculation of Abnormal Defective Units :
Expected Output (1,000 – 100) 900 Units
Actual Output (Good) 850 Units
Abnormal Defective 50 Units
Tutorial Notes :
(1) Cost of rectification of abnormal defectives (50 x ~ 5) = ~ 250 will be charged to Costing Profit and Loss
Account.
(2) Loss on Sale of abnormal defectives [50 x (29 – 9) = ~ 1,000 will be charged to Costing Profit and Loss
Account.

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10.24 Process Costing

Illustration 12
Y Ltd. produces a single product which undergoes two processes. From the following information prepare
Process Accounts, Normal Loss Account, Abnormal Loss Account and Abnormal Gain Account.
Process A B
Raw materials issued (3,000 units) (~) 15,000 -
Additional materials (~) 1,000 780
Direct Wages (~) 14,000 20,000
Production Overhead (~) 3,000 7,500
Normal Loss as % of Input 10% 5%
Scrap Value per unit ~2 ~5
Output in units 2,800 2,600
[C.U.B.Com.(Hons.) - Adapted]

Solution In the books of Y Ltd.

Dr. Process A Account Cr.
Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Raw Materials (Input) 3,000 5 15,000 By Normal Loss A/c (Note 1a) 300 2 600
To Materials (Additional) – 1,000 By Process B A/c 2,800 12 33,600
To Direct Wages – 14,000
To Production Overhead 3,000
To Abnormal Gain A/c (Note 1c) 100 12 1,200
3,100 34,200 3,100 34,200

Dr. Process B Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Process A A/c 2,800 12 33,600 By Normal Loss A/c 140 5 700
To Materials (Additional) – 780 By Abnormal Loss A/c (Note 2c) 60 23 1,380
To Direct Wages – 20,000 By Finished Stock A/c 2,600 23 59,800
To Production Overhead 7,500
2,800 61,880 2,800 61,880

Dr. Normal Loss Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Process A A/c 300 2 600 By Abnormal Gain A/c 100 2 200
To Process B A/c 140 5 700 By Bank A/c - Process A 200 2 400
By Bank A/c - Process B 140 5 700
440 1,300 440 1,300

Dr. Abnormal Gain Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Normal Loss A/c 100 2 200 By Process A A/c 100 12 1,200
To Costing Profit and Loss A/c
I I I I
100
1,000
1,200 I I t----1
100 1,200

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 Cost and Management Accounting - I 10.25

Dr. Abnormal Loss Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Process B A/c 60 23 1,380 By Bank A/c 60 5 300

Working Notes:
I 60 I I 1,380 I
By Costing Profit and Loss A/c
I I t----1
60
1,080
1,380

(1) Process - A
(a) (i) Normal Loss is 10% of input = 10% of 3,000 units = 300 units
Scrap value = 300 � ~ 2 = ~ 600.
(ii) Expected Output (3,000 – 300) 2,700 units
Actual Output 2,800 units
Abnormal Gain 100 units
Total Process Cost - Scrap Value of Normal Loss
(b) CostperUnit = - - - - - - - - - - - - - - - - -
Expected Output (Input- Normal Loss)

33,000 - 600 32,400

~ 12.
3,000 - 300 2,700
(c) Value of abnormal gain = 100 � ~ 12 = ~ 1,200.
(2) Process - B
(a) (i) Normal loss is 5% of input = 5% of 2,800 units = 140 units.
Scrap value = 140 units � ~ 5 = ~ 700.
(ii) Expected Output (2,800 - 140) 2,660 units
Actual Output 2,600 units
Abnormal Loss 60 units
Total Process Cost - Scrap Value of Normal Loss
(b) CostperUnit = - -Expected
- - -Output
- - -(Input-
- - -Normal
- - -Loss)
---
61,880 - 700 61,180
=-----=
2,800-140 2,660
= ~ 23.
(c) Value of abnormal loss = 60 � ~ 23 = ~ 1,380.
Illustration 13
The product of Company A passes through two processes A and B and then to Finished Stock Account. In
each process, 5% of the total weight is lost and 10% is scrap which realizes from Process A ~ 80 per tonne and
Process B ~ 200 per tonne respectively.
The following are the figures relating to both the processes:
Process A Process B
Material (tonnes) 1,000 70
Cost of material per tonne (~) 125 200
Wages (~) 28,000 10,000
Expenses (~) 8,000 5,250
Output (tonnes) 830 780
Prepare Process Accounts, Abnormal Loss Account and Abnormal Gain Account.
[D.U.B.Com. (Delhi) - 2006]

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10.26 Process Costing

Solution
Dr. Process A Account Cr.
Particulars Qty Rate Amount Particulars Qty Rate Amount
(Tonnes) ~ ~ (Tonnes) ~ ~
To Materials (Input) 1,000 125 1,25,000 By Normal Wastage A/c 50
To Wages – 28,000 (Note 2)
To Expense – 8,000 By Normal Loss A/c 100 80 8,000
By Abnormal Loss A/c 20 180 3,600
(Note 1c)
By Process B A/c 830 180 1,49,400
(Note 1b)
1,000 1,61,000 1,000 1,61,000

Dr. Process B Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Tonnes) ~ ~ (Tonnes) ~ ~
To Process A A/c 830 180 1,49,400 By Normal Wastage A/c 45
To Materials 70 200 14,000 (Note 3)
To Wages 10,000 By Normal Loss A/c 90 200 18,000
To Expenses 5,250 By Finished Stock A/c 780 210 1,63,800
To Abnormal Gain A/c 15 210 3,150 (Note 1d)
915 1,81,800 915 1,81,800

Dr. Abnormal Loss Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Tonnes) ~ ~ (Tonnes) ~ ~
To Process A A/c 20 180 3,600 By Cash / Bank A/c 20 80 1,600

I 20 I I 3,600 I
By Costing P/L A/c
I I 1----1
20
2,000
3,600

Dr. Abnormal Gain Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Tonnes) ~ ~ (Tonnes) ~ ~
To Normal Loss A/c 15 200 3,000 By Process B A/c 15 210 3,150
To Costing P/L A/c

Working Notes:
I 15 I I
150
3,150 I I I 1----1
15 3,150

(1) Process - A
(a) (i) Normal Wastage is 5% of input = 5% of 1,000 units = 50 tonnes
(ii) Normal Loss (scrap) is 10% of input = 10% of 1,000 = 100 tonnes
Scrap value = 100 � ~ 80 = ~ 8,000.
(iii) Expected Output (1,000 – 50 – 100) 850 tonnes
Actual Output 830 tonnes
Abnormal Loss 20 tonnes
Total Process Cost - Scrap Value of Normal Loss
(b) CostperUnit = - Expected
--- -------
Output (Input- Normal Loss)
1,61,000 - 8,000 1,53,000
= 1,000 - 50 - 100 850 = ~ 180.
(c) Value of abnormal loss = 20 � ~ 180 = ~ 3,600.

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 Cost and Management Accounting - I 10.27

Process - B
(a) (i) Output of Process A transferred 830 tonnes
(ii) Physical material added 70 tonnes
Total Input 900 tonnes
(b) (i) Normal wastage is 5% of input = 5% of 900 = 45 tonnes.
(ii) Normal loss (scrap) is 10% of input = 10% of 900 = 90 tonnes.
Scrap value = 90 � ~ 200 = ~ 18,000.
(c) Expected Production (900 – 45 – 90) 765 tonnes
Actual Production 780 tonnes
Abnormal Gain 15 tonnes
Total Process Cost- Scrap Value of Normal Loss
(d) Cost per Unit= - - - - - - - - - - - - - - - - - - - - -
Expected Output (Input- Normal Wastage - Normal Loss)
1,78,650 -18,000 1,60,650
~ 210.
900-45-90 765
(c) Value of Abnormal Gain = 15 � ~ 210 = ~ 3,150.
(3) Tutorial Note
Wastage comprises discarded substances of nil value. Wastage is credited to the Process Account with the
units of normal loss for the purpose of balancing physical inputs with physical outputs. Nothing is placed in
the amount column.
As there is no monetary value attached to the wastage, a corresponding debit entry will not be required.
Illustration 14
The product of a manufacturing concern passes through two processes — A and B. The normal losses and
abnormal losses of defective units having scrap value of ~ 2 and ~ 5 per unit in processes A and B respectively.
The following information relates to the month ending on 31st March, 2017 :
Particulars Process - A Process - B
(i) Raw materials issued @ ~ 5 3,000 units —
(ii) Normal loss 10% of input 5% of input
(iii) Output 2,800 units 2,600 units
(iv) Additional components ~ 1,000 ~ 2,210
(v) Direct Wages ~ 4,000 ~ 3,000
(vi) Direct Expenses ~ 10,000 ~ 14,000
(vii) Production overhead (as a percentage of direct wages) 75% 125%
There was no opening or closing work-in-progress but opening and closing stock of finished goods were
~ 20,000 and ~ 23,000 respectively.
You are required to prepare :
(1) Process A Account; (2) Process B Account;
(3) Finished Stock Account; (4) Normal Loss Account
(5) Abnormal Loss Account (6) Abnormal Gain Account
[D.U.B.Com. (Hons.) — Adapted]

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10.28 Process Costing

Solution
Dr. Process A Account Cr.
Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Materials 3,000 5 15,000 By Normal Loss 300 2 600
To Additional Input 1,000 By Process B A/c 2,800 12 33,600
To Direct Wages 4,000
To Direct Expenses 10,000
To Production Overhead 3,000
To Abnormal Gain A/c (Note 1c) 100 12 1,200
3,100 34,200 3,100 34,200

Dr. Process B Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Process A A/c 2,800 12 33,600 By Normal Loss 140 5 700
To Additional Input 2,210 By Abnormal Loss 60 21 1,260
To Direct Wages 3,000 By Finished Stock A/c 2,600 21 54,600
To Direct Expenses 14,000
To Production Overhead 3,750
2,800 56,560 2,800 56,560

Dr. Finished Stock Account Cr.

Particulars Amount Particulars Amount
(~) (~)
To Balance b/d 20,000 By Cost of Goods Sold A/c 51,600
To Process B A/c 54,600 (Balancing figure)
By Balance c/d 23,000
74,600 74,600

Dr. Normal Loss Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)

I I I I I ---1
To Process A A/c 300 2 600 By Abnormal Gain A/c 100 2 200
To Process B A/c 140 5 700 By Bank A/c (Balancing fig.) 340 1,100
440 1,300 Ii 440 1,300

Dr. Abnormal Loss Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)

I I I I I I ---1
To Process B A/c 60 21 1,260 By Bank A/c 60 5 300
By Costing Profit and Loss A/c 960
60 1,260 60 1,260

Dr. Abnormal Gain Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)

I I I I I I ---1
To Normal Loss 100 2 200 By Process A A/c 100 12 1,200
To Costing Profit and Loss A/c 1,000
100 1,200 100 1,200

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 Cost and Management Accounting - I 10.29

Working Notes:
(1) Process - A
(a) (i) Normal Loss is 10% of input = 10% of 3,000 units = 300 units
Scrap value = 300 � ~ 2 = ~ 600.
(ii) Expected Output (3,000 – 300) 2,700 units
Actual Output 2,800 units
Abnormal Gain 100 units
Total Process Cost - Scrap Value of Normal Loss
(b) CostperUnit = - -Expected
---- ------------
Output (Input - Normal Loss)

33,000 � 600 32,400

= = = ~ 12.
3,000 � 300 2,700
(c) Value of abnormal gain = 100 � ~ 12 = ~ 1,200.
(2) Process - B
(a) (i) Normal loss is 5% of input = 5% of 2,800 units = 140 units.
Scrap value = 140 units � ~ 5 = ~ 700.
(ii) Expected Output (2,800 - 140) 2,660 units
Actual Output 2,600 units
Abnormal Loss 60 units
Total Process Cost - Scrap Value of Normal Loss
(b) CostperUnit = - -Expected
---- ------------
Output (Input - Normal Loss)

56,560 � 700 55,860

= = = ~ 21 per unit.
2,800 � 140 2,660
(c) Value of abnormal loss = 60 � ~ 21 = ~ 1,260.
Illustration 15
X Ltd. process product ‘Z’ through two distinct processes: Process - A and Process - B. On completion, it is
transferred to finished stock.
From the following information relating to the year 2016-17 prepare Process Accounts and Finished Stock
Account.
Particulars Process - A Process - B
(i) Raw materials used 1,000 units —
(ii) Cost per unit ~ 200 —
(iii) Transfer to next process — Finished Stock 940 units 870 units
(iv) Normal Loss (on inputs) 5% 10%
(v) Direct Wages ~ 15,600 ~ 13,200
(vi) Direct Expenses 75% of direct wages 75% of direct wages
(vii) Sundry Expenses - ~ 2,954
(viii) Realisable value of scrap per unit ~ 4.50 ~ 5.75
800 units of finished goods were sold at a profit of 20% on cost. Assume that there was no opening or
closing stock of work-in-progress.
[C.U.B.Com.(Hons.) - Adapted]

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10.30 Process Costing

Solution In the books of X Ltd.

Dr. Process A Account Cr.
Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Raw Materials (Input) 1,000 200 2,00,000 By Normal Wastage A/c 50 4.50 225
To Direct Wages – 15,600 By Abnormal Loss A/c
To Direct Expense – 11,700 (Note 1c) 10 239.03 2,390
(75% of Wages) By Process B A/c (Note 1b) 940 239.03 2,24,685
1,000 2,27,300 1,000 2,27,300

Dr. Process B Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Process A A/c 940 239.03 2,24,685 By Normal Loss A/c 94 5.75 541
To Direct Wages – 13,200 By Finished Stock A/c 870 295.74 2,57,296
To Direct Expense (75% of Wages) – 9,900
To Sundry Expenses 2,954
To Abnormal Gain A/c 24 295.74 7,098
964 2,57,837 964 2,57,837

Dr. Finished Stock Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Process B A/c 870 295.74 2,57,296 By Cost of Goods Sold 800 295.74 2,36,594

Dr.
I 870 I I 2,57,296 I
Costing Profit and Loss Account
By Balance c/d
I I 1----1
70
870
295.74 20,702
2,57,296

Cr.
Particulars ~ Particulars ~
To Cost of Goods Sold 2,36,594 By Sales (800 units) (Balancing figure) 2,83,913
To Net Profit (20% of Cost) 47,319
I 2,83,913 I 2,83,913

Working Notes :
(1) Process - A
(a) (i) Normal Loss is 5% of input = 5% of 1,000 units = 50 units
Scrap value = 50 � ~ 4.50 = ~ 225.
(ii) Expected Output (1,000 – 50) 950 Units
Actual Output 940 Units
Abnormal Loss 10 Units
Total Process Cost - Scrap Value of Normal Loss
(b) CostperUnit = - - - - - - - - - - - - - - -
Expected Output (Input- Normal Loss)
2,27,300 - 225 2,27,075
=1,000 - so = 950 =
~ 239.026 (say ~ 239.03)

(c) Value of abnormal loss = 239.03 � ~ 10 = ~ 2,390.30 (say, ~ 2,390).

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 Cost and Management Accounting - I 10.31

Process - B
(a) (i) Normal loss (scrap) is 10% of input = 10% of 940 = 94 units.
Scrap value = 94 � ~ 5.75 = ~ 540.5 (say ~ 541).
Expected Output (940 – 94) 846 units
Actual Output 870 units
Abnormal Gain 24 units
Total Process Cost - Scrap Value of Normal Loss
(b) CostperUnit = - - - - - - - - - - - - - - - - -
Expected Output (Input - Normal Loss)

2,50,739 - 541
= ~ 295.74.
940- 94
Illustration 16
Z Ltd. produced product X through three processes - P1, P2 and P3. On January 1, raw materials 1,000 units were
introduced in process P1 at ~ 50 per unit. The details of expenses incurred on the three processes during the
year 2000 were as under:
P1 P2 P3
Sundry other materials (~) 1,600 3,315 3,220
Labour (~) 2,600 8,000 6,392
Normal loss (% of Input) 5% 10% 5%
Scrap value per unit (~) 1 3 6
Actual output (units) 940 846 410
Sale price of output per unit (~) 70 100 200
Entire output of P1 was passed to the next process while ½ of the output of P2 was passed to the next
process and the balance was sold. The entire output of P3 was sold. Management expenses and selling
expenses were ~ 6,000 and ~ 9,000 respectively. These are not allocable to the processes.
You are required to prepare - (a) Process Accounts and (b) Statement of profit.
[C.U.B.Com.(Hons.) - Adapted]

Solution In the books of Z Ltd.

Dr. Process P1 Account Cr.
Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Raw Materials (Input) 1,000 50 50,000 By Normal Loss A/c (Note 1) 50 1 50
To Sundry Other Materials – 1,600 By Abnormal Loss A/c (Note 1) 10 57 570
To Labour – 2,600 By Process 2 A/c 940 57 53,580
1,000 54,200 1,000 54,200

Dr. Process P2 Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Process 1 A/c 940 57 53,580 By Normal Loss A/c 94 3 282
To Sundry Other Materials – 3,315 By Process 3 A/c 423 76.37 32,306
To Labour – 8,000 By Finished Stock of 423 76.37 32,307
Process 2 A/c
940 64,895 940 64,895

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10.32 Process Costing

Dr. Process P3 Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Process 2 A/c 423 76.37 32,306 By Normal Loss A/c 21 6 126
To Sundry Other Materials – 3,220 By Finished Stock of
To Labour – 6,392 Process 3 A/c 410 103.96 42,624
To Abnormal Gain A/c 8 103.96 832
431 42,750 431 42,750

Statement of Profit
Particulars ~ ~
Sales:
423 Units from Process 2 @ ~ 100 42,300
410 Units from Process 3 @ ~ 200 82,000 1,24,300
Less: Cost of Goods Sold (Note 6) 74,931
49,369
Less: Management Expenses 6,000
Selling Expenses 9,000 15,000
34,369
Add:Abnormal Gain (Note 5) 784
35,153
Less: Abnormal Loss (Note 4) 560
Net Profit 34,593

Working Notes :
(1) Process - P1
(a) (i) Normal Loss is 5% of input = 5% of 1,000 units = 50 units
Scrap value = 50 � ~ 1 = ~ 50.
(ii) Expected Output (1,000 – 50) 950 Units
Actual Output 940 Units
Abnormal Loss 10 Units
Total Process Cost - Scrap Value of Normal Loss
(b) CostperUnit = - - - - - - - - - - - - - - - - -
Expected Output (Input- Normal Loss)
54,200 - so 54,150
~ 57.
1,000 - so 950
(c) Value of abnormal loss = 10 � ~ 57 = ~ 570.
(2) Process - P2
(a) (i) Normal loss is 10% of input = 10% of 940 = 94 units.
Scrap value = 94 � ~ 3 = ~ 282.
(ii) Expected Output (940 – 94) 846 Units
Actual Output 846 Units
Abnormal Loss/Gain Nil Units
Total Cost of the Process - Scrap Value of Normal Loss
(b) CostperUnit = - - - - - - - - - - - - - - - - - - -
Expected Output (Input- Normal Loss)
64,895 - 282 64,613
~ 76.3747.
940- 94 846

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 Cost and Management Accounting - I 10.33

(3) Process - P3
(a) (i) Normal Loss is 5% of input = 5% of 423 units = 21.15 units (say 21 units).
Scrap value = 21 � ~ 6 = ~ 126.
(ii) Expected Output (423 – 21) 402 units
Actual Output 410 units
Abnormal Gain 8 units
Total Process Cost - Scrap Value of Normal Loss
(b) CostperUnit = - - - - - - - - - - -
Expected Output (Input - Normal Loss)

41,918 -126 41,792

= - - - = - - = ~ 103.96.
423 - 21 402
Dr. (4) Abnormal Loss Account Cr.
Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Process 1 A/c 10 57 570 By Bank / Cash A/c 10 1 10

I 10 I I 570 I
By Costing Profit and Loss A/c
I I 1----1
10
560
570

Dr. (5) Abnormal Gain Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Normal Loss A/c 8 6 48 By Process 3 A/c 8 103.96 832
To Costing Profit and Loss A/c
I 8 I I
784
832 I I I 1-----1
8 832

Dr. (6) Cost of Goods Sold Account Cr.

Particulars ~ Particulars ~
To Finished Stock of Process 2 A/c 32,307 By Costing Profit and Loss A/c 74,931
To Finished Stock of Process 3 A/c 42,624
74,931 74,931

Calculation of Missing Figures

Illustration 17
A raw material has to pass through three successive processes to reach the finished product stage. The loss of
material expressed as percentage of input is:
Process - 1 : 10%
Process - 2 : 20%
Process - 3 : 25%
Required:
Calculate raw material introduced in Process - 1, if the finished product transferred from Process - 3 is 1,080
units. [D.U.B.Com. - 2008]

Solution
Let us assume that the input = 100 units.
(i) Output of process - 1 = 100 � 90% = 90 units
(ii) Output of process - 2 = 90 � 80% = 72 units
(iii) Output of Process - 3 = 72 � 75% = 54 units

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10.34 Process Costing

When output of Process - 3 is 54 units then input = 100 units

When output of Process - 3 is 1 units then input = 100 / 54
When output of Process - 3 is 1080 units then input = (100 � 1080) / 54 = 2000 units
Illustration 18
In Process D, 9000 units of a product was transferred from Process C at a cost of ~ 54,000. The additional
expenses incurred for Process D were - Sundry materials ~ 2,500, Labour ~ 6,000, Direct expenses ~ 3,350 and
overhead charged @ 200% of labour. Wastage of Process D was sold at ~ 2 per unit. The final product from
Process D was sold at ~ 10 fetching a profit of 10% on sale.
Calculate the rate of normal loss of Process D on the basis of input. [C.U.B.Com.(Hons.) - Adapted]

Solution
Selling Price of final product of Process - D ~ 10
Less: Profit (10% of ~ 10) 1
Cost of final product per unit 9
Let total normal loss = x
Total Cost of the Process - Scrap Value of Normal Loss
Cost per Unit = - - - - - - - - - - - - - - - - - -
Expected Output (Input - Normal Loss)

Putting the values in the above equation, we get,

(54,000 + 2,500 + 6,000 + 3,350 + 12,000) - 2x
or,9 = - - - - - - -9,000-x
----------
or, 9(9,000 – x) = 77,850 – 2x.
or, 7x = 3150 or, x = 450.
Normal loss (Units) 450
So, rate of normal loss of process D = - - - - -.- - X 100
Input (Umts)
=- - X 100 = 5%
9,000

Illustration 19
In a manufacturing unit, raw material passes through four processes, P, Q, R and S. The output of each process
is the input of the subsequent process. The loss in the four process, P, Q, R and S are 25%, 20%, 20% and
16 2/3% respectively, of the input.
If the end product at the end of process S is 40,000 kg.; what is the quantity of raw materials required to be
fed at the beginning of process P having cost per unit ~ 5 ?
Also find out the effect of increase or decrease in the material cost of the end product for variation of every
rupee in the cost of raw material. [D.U.B.Com. (Hons.) — Adapted]

Solution
Let the raw materials introduced in Process ‘P’ be 100 kg.
Calculation of Output of Process ‘S’
Particulars Kg.
Input in Process P 100
Less : Normal Loss @ 25% of Input (100 Kg.) 25
Output of Process P / Input of Process Q 75
Less: Normal Loss @ 20% of Input (75 Kg.) 15
Output of Process Q / Input of Process R 60
Less : Normal Loss @ 20% of Input (60 Kg.) 12
Output of Process R / Input of Process S 48
Less: Normal Loss @ 162/3% of Input (48 kg.) 8
Output of Process S 40

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 Cost and Management Accounting - I 10.35

(A) It is given that output of Process S = 40,000 kg.

100
� Quantity of raw materials introduced in Process P = × 40,000 kg. = 1,00,000 kg.
40
(B) Cost of raw materials introduced = 1,00,000 kg � ~ 5 = ~ 5,00,000.
(C) Calculation of Total Normal Loss of all the Processes
Input in Process P 1,00,000 Kg.
Less: Output of Process S 40,000 Kg.
Total Normal Loss 60,000 Kg.
60,000
Percentage of Normal Loss = × 100 = 60%
1,00,000
Calculation of Material Cost Per Unit of Finished Product
Quantity (Kg.) Rate (~) Amount (~)
Input in Process P 1,00,000 5 5,00,000
Less: Normal Loss (Total) 60,000
Final Output of Process S 40,000 5,00,000

5,00,000
Material Cost per Kg. of Final Output = = ~ 12.50
40,000
For every rupee of increase / decrease in the cost of raw materials, the cost of final product will increase /
12.50
decrease by = ~ 2.50
5
Illustration 20
XYZ Ltd. manufactures a product which passes through two processes : Process A and Process B and then it
is transferred to Finished Stock Account. From the following particulars, prepare Process Accounts:
Process A Process B
Input (units) 30,000 26,000
Materials (~) 60,000 8,000
Labour (~) 36,000 30,550
Overhead (~) 18,000 21,900
Normal Loss (%) 10% ?
Scrap value per unit (~) 2 3
There was no opening or closing work-in-progress. The final output from Process B transferred to Finished
Stock was 25,000 units. These finished goods are sold at ~ 7.50 per unit with a profit of ~ 1 per unit. What was
normal loss rate in Process B ?
[C.U.B.Com.(Hons.) - Adapted]

Solution In the books of XYZ

Dr. Process A Account Cr.
Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Materials (Input) 30,000 2 60,000 By Normal Loss A/c 3,000 2 6,000
To Labour – 36,000 By Abnormal Loss A/c
To Overhead – 18,000 (Note 1c) 1,000 4 4,000
By Process B A/c (Note 1b) 26,000 4 1,04,000
30,000 1,14,000 30,000 1,14,000

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10.36 Process Costing

Dr. Process B Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Process A A/c 26,000 4 1,04,000 By Normal Loss A/c 1,300 3 3,900
To Materials (addition) – 8,000 (Note 2)
To Labour – 30,550 By Finished Stock A/c 25,000 6.5 1,62,500
To Overhead 21,900 (Note 2)
To Abnormal Gain A/c 300 6.50 1,950
(Note 2b & c)
26,300 1,66,400 26,300 1,66,400

Working Notes :
(1) Process - A
(a) (i) Normal Loss is 10% of input = 10% of 30,000 units = 3,000 units
Scrap value = 3,000 � ~ 2 = ~ 6,000.
(ii) Expected Output (30,000 - 3,000) 27,000 units
Actual Output 26,000 units
Abnormal Loss 1,000 units
Total Process Cost - Scrap Value of Normal Loss
(b) CostperUnit = -----------------
Expected Output (Input- Normal Loss)
1,14,000 - 6,000 1,08,000
~4
30,000 - 3,000 27,000
(c) Value of abnormal loss = 1,000 � ~ 4 = ~ 4,000.
(2) Process - B
(a) Good units transferred to finished stock = 25,000 units. All these units were sold @ ~ 7.50 which
includes a profit ~ 1 per unit.
Therefore, total cost of finished goods = 25,000 � ~ 6.5 = ~ 1,62,500.
We know,
Total Process Cost - Scrap Value of Normal Loss
CostperUnit = -----------------
Expected Output (Input- Normal Loss)
In this problem, normal loss has not been given. Let us assume that total normal loss = x.
1,64,450 - 3x
So, Cost per Unit = - - - - -
26,000 -x
or, 6.5(26,000 – x) = 164.450 – 3x
or, 1,69,000 – 6.5x = 1,64,450 – 3x
or, 3.5x = 4,550
or x = 1,300.
Therefore, % of normal loss = 1300 / 26,000 � 100 = 5% of input.
(b) Expected ouput (26,000 – 1,300) 24,700
Actual output 25,000
Abnormal Gain 300
(c) Value of abnormal gain = 300 � ~ 6.50 = ~ 1,950.

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 Cost and Management Accounting - I 10.37

Illustration 21
In a certain process, material is mixed and cooked in batches of 1,000 lbs. each. Cooking results in 10 per cent
loss of weight of the mixture. Since the cooking requires considerable skill and constant watching, there is
generally a further loss from spoilage which is not discovered until process has been completed. Also, past
experience shows that normally two batches out of every ten started in the process are spoiled in this way.
In a given month, the production records show:
(i) Production started in process - 50 batches of 1,000 lbs. each.
(ii) Production completed and transferred to finished goods is 34,200 lbs.
(iii) There is no inventory of work-in-process at the beginning or end of the month.
Costs recorded during the month amounted to ~ 45,000.
Prepare the Process Account for the month and determine the cost per pound of finished product.
[D.U.B.Com.(Hons.) - 2000]
Solution
Dr. Process Account Cr.
Particulars Qty Rate Amount Particulars Qty Rate Amount
(lbs) ~ ~ (lbs) ~ ~
To Process Cost 50,000 0.9 45,000 By Loss of Weight 5,000
By Normal Loss A/c
(Note 1) 9,000
By Abnormal Loss A/c 1,800 1.25 2,250
(Note 2 & 4)
By Finished Goods 34,200 1.25 42,750
Stock A/c (Note 5)
50,000 45,000 50,000 45,000
Working Notes:
(1) Normal Loss (Weight) = 10% of 50,000 5,000 lbs.
Normal spoilage = 20% (i.e., 2 out of 10 batches) of (50,000 - 5,000) 9,000 lbs.
Total Normal Loss 14,000 lbs.
(2) Expected Output (50,000 - 14,000) 36,000 lbs.
Actual Output 34,200 lbs.
Abnormal Loss 1,800 lbs.
Process Cost 45,000
(3) Cost per Unit = - - - - - - - --- = ~ 1.25
Expected Output 36,000
(4) Cost of Abnormal Loss = 1,800 � ~ 1.25 = ~ 2,250.
(5) Value of finished goods = 34,200 � ~ 1.25 = ~ 42,750.
Illustration 22
At the end of process A, carried on in a factory during the week ending July 31st, 2011, the number of units
produced was 850 excluding 50 units damaged at the very end of the process which is normal. The damaged
units realized ~ 3 per unit as scrap. A normal wastage of 10 per cent occurs during the process, the wastage
realized was ~ 2 per unit.
A unit of raw materials costs ~ 4. The other expenses for the week were : ~
Wages 500
Power 500
General expenses 450
Forty per cent of the output is sold as to show a profit of 16 2/3 per cent on the selling price; the rest of the
output is transferred to process B.
Prepare Process A Account. [D.U.B.Com. (Hons.) - Adapted]

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10.38 Process Costing

Solution
In this problem quantity of raw material has not been given. Before preparing process A Account, it is
necessary to calculate the quantity of input. It has been calculated as follows:
(i) Number of units produced 850
Add: Damaged Units 50
Number of units produced after 10% loss of input as wastage 900
Input = 900 / *90 � 100 = 1,000 units.
*Expected output = 90% of the input.
Dr. Process A Account Cr.
Particulars Qty Rate Amount Particulars Qty Rate Amount
(Unit) Per Unit ~ (Unit) Per Unit ~
To Materials (Input) 1,000 4 4,000 By Normal Loss A/c 100 2 200
To Wages 500 (10% of Input)
To Power 500 By Normal Damages A/c 50 3 150
To General Expenses 450 By Cost of Goods Sold A/c 340 6 2,040
(Note 3)
By Process B A/c 510 6 3,060
1,000 5,450 1,000 5,450

Working Notes :
(1) (a) Normal Wastage is 10% of input. So, 10% of 1,000 units = 100 units.
Scrap value = 100 � ~ 2 = ~ 200.
(b) Normal damage = 50 units. Amount realised from damaged units = 50 � ~ 3 = ~ 150.
Total Process Cost - Scrap Value - Sale of Damaged Units
(2) Cost per Unit =
Expected Output (Input- Normal Loss - Normal Damage)

4,000 + 500 + 500 + 450 + 200 + 150 5,100

Cost per Unit = (l,000 _ 100 _ 50 ) = 850
=~6
(3) Cost of goods sold [(40% of 850) � ~ 6] = ~ 2,040.
Illustration 23
The product manufactured by the Standard Chemicals Ltd. passes through three processes - I, II and III. The
following costs have been incurred for the month of September 2017:
Process I Process II Process III
(~) (~) (~)
1. Materials consumed 40,000 7,500 5,000
2. Direct wages 22,500 10,000 10,000
3. Direct expenses 20,500 2,250 2,505
Total 83,000 19,750 17,505
Units Units Units
4. Output 3,900 3,850 3,200
5. Finished Process Stock:
(i) 01-9-2017 600 550 800
(ii) 30-9-2017 500 800 Nil
6. Stock Valuation on 01-9-2017 (~. per unit) 24.50 31.00 37.00
7. Percentage of wastage 2 5 10
8. Net Realisable Value of wastage per unit (~) 13.50 16.25 21.00

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 Cost and Management Accounting - I 10.39

Four thousand units of raw materials were introduced in Process I at a cost of ~ 20,000.
Stocks are valued and transferred to subsequent processes at weighted average cost. The percentage of
wastage is computed on the number of units entering the process concerned.
(i) Process Accounts; (ii) Process Stock Accounts; (iii) Normal Wastage Account; (iv) Abnormal Wastage
/ Effective Account. [D.U.B.Com. (Hons.) - Adapted]

Solution In the books of Standard Chemicals Ltd.

Dr. Process - I Account Cr.
Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Materials (Input) 4,000 5 20,000 By Normal Wastage A/c 80 13.5 1,080
To Materials (Additional) 40,000 By Abnormal Wastage A/c 20 26 520
To Direct Wages 22,500 (Note 1b)
To Direct Expenses 20,500 By Process 1 Stock A/c 3,900 26 1,01,400
4,000 1,03,000 4,000 1,03,000

Dr. Process - I Stock Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Balance b/d 600 24.50 14,700 By Process II A/c (Note 1c) 4,000 25.80 1,03,200
To Process I A/c
I I I I
3,900
4,500
26.00 1,01,400
1,16,100
By Balance c/d
I I 1----1
500
4,500
25.80 12,900
1,16,100

Dr. Process - II Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Process I Stock A/c 4,000 25.80 1,03,200 By Normal Wastage A/c (2a) 200 16.25 3,250
To Materials (Additional) 7,500 By Process II Stock A/c 3,850 31.50 1,21,275
To Direct Wages 10,000
To Direct Expenses 2,250
To Abnormal Effectives A/c 50 31.50 1,575
4,050 1,24,525 4,050 1,24,525

Dr. Process - II Stock Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Balance b/d 550 31.00 17,050 By Process III A/c 3,600 *31.44 1,13,175
To Process II A/c

*Actual = ~ 31.4375.
I I I I
3,850
4,400
31.50 1,21,275
1,38,325
By Balance c/d
I I 1----1
800
4,400
31.44 25,150
1,38,325

Dr. Process - III Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)s
To Process II Stock A/c 3,600 31.44 1,13,175 By Normal Wastage A/c 360 21.00 7,560
To Materials (Additional) 5,000 By Abnormal Wastage A/c 40 38.00 1,520
To Direct Wages 10,000 By Process III Stock A/c 3,200 38.00 1,21,600
To Direct Expenses 2,505
3,600 1,30,680 3,600 1,30,680

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10.40 Process Costing

Dr. Process - III Stock Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Balance b/d 800 37.00 29,600 By Cost of Goods Sold A/c 4,000 37.80 1,51,200
To Process III A/c 3,200
I 4,000 I
38.00 1,21,600
I 1,51,200 I I 4,500 I ,______I
1,51,200

Dr. Normal Wastage Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Process I A/c 80 13.50 1,080 By Bank A/c 590 11,078
To Process II A/c 200 16.25 3,250 By Abnormal Effectives A/c 50 16.25 812
To Process III A/c 360 21.00 7,560
640 11,890 640 11,890

Dr. Abnormal Wastage Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Process I A/c 20 26 520 By Bank A/c (Process I) 20 13.50 270
To Process III A/c 40 38 1,520 By Bank A/c (Process III) 40 21.00 840
By Costing P/L A/c 930
60 2,040 60 2,040

Dr. Abnormal Effectives Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Normal Wastage A/c 50 16.25 812 By Process II A/c 50 31.50 1,575
To Costing P/L A/c (Net Gain)
I 50 I I
763
1,575 I I 50
I ,______I
1,575

Working Notes :
(1) Process - I
(a) (i) Normal wastage = 2% of 4000 80 units
(ii) Actual wastage (4000 - 3900) 100 units
Abnormal Loss (ii) - (i) 20 units
Total Process Cost - Scrap Value of Normal Wastage
(b) Cost per Unit= - - - - - - - - - - - - - - - - - - -
Expected Output (Input- Normal Wastage)
1,03,000 - 1,080
=------- = ~ 26
3,920 (4,000 - 80)
(c) Weighted Average Cost per unit transferred to Process II.

. . Value of Opening Stock + Cost of Current Period

Weighted Average Cost Per Umt = . S k
0 penmg C p d ·
toe + urrent ro uction

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 Cost and Management Accounting - I 10.41

14,700 + 1,01,400
= ~ 25.80
600 + 3,900
(d) Number of Units Transferred to Process II
Opening Stock 600 units
Transferred from Process I 3 900 units
4,500 units
Closing Stock 500 units
Transferred 4,000 units
(2) Process - II
(a) (i) Normal wastage = 5% of 4000 200 units
(ii) Actual wastage (4000 - 3850) 150 units
Abnormal Effective (Gain) (ii) - (i) 50 units

Total Process Cost - Scrap Value of Normal Wastage

(b) Cost per Unit = - - - - - - - - - - - - - - - - - -
Expected Output (Input - Normal Wastage)

(1,03,200 + 7,500 + 10,000 + 2,250) - 3,250 1,22,950 - 3,250

= ~ 31.50
4,000 - 200 3,800
(c) Weighted Average Cost per unit transferred to Process III

Value of Opening Stock + Cost of Current Period

Weighted Average Cost Per Unit = - - - - - - - - - - - - - - - - -
Opening Stock + Current Production

17,050 + 1,21,275
= ~ 31.4375
550 + 3,850
(d) Number of Units Transferred to Process III
Opening Stock 550 units
Transferred from Process II 3 850 units
4,400 units
Closing Stock 800 units
Transferred 3,600 units
(3) Process - III
(a) (i) Normal wastage = 10% of 3,600 360 units
(ii) Actual wastage (3,600 - 3,200) 400 units
Abnormal Loss (ii) - (i) 40 units
Total Process Cost - Scrap Value of Normal Wastage
(b) Cost per Unit = - - - - - - - - - - - - - - - - - -
Expected Output (Input - Normal Wastage)

(1,13,175 + 5,000 + 10,000 + 2,505) - 7,560 1,23,120

= - - - - - -3,600 - -- -360
------- = ~ 38
3,240

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10.42 Process Costing

Process Accounting When There is Work-in-Progress (WIP)

So far we have ignored the problems of work-in-progress in process accounting. In all our previous illustrations
we have assumed that there is no work-in-progress either at the beginning or at the end of the period. However,
in practice, there might be some work-in-progress at the beginning of the period as well as at the end of the
period. If there is opening and closing work-in-progress, the calculation of cost per unit requires some additional
computations.
It must be remembered that the cost of a complete unit and the cost of an incomplete unit can not be the
same. Therefore, when there is opening and closing work-in-progress, care should be taken at the time of
calculating cost per unit of complete unit and incomplete unit. In this situation, incomplete units are
mathematically converted into an equivalent number of fully completed units.
The equivalent units is the number of complete units that could have been obtained from the materials,
labour and overheads that went into the partially completed units.
For example, in a month a chemical company (ICI Ltd.) had in process 1,00,000 litres of a chemical, of which
70,000 litres were completed during the month and were transferred to packing and labelling department but the
remaining 30,000 litres were only 40% complete. The equivalent unit would be: Equivalent litres
70,000 litres fully complete 70,000
30,000 litres 40% complete (30,000 � 40%) 12,000
Equivalent litres 82,000
Cost per unit is calculated in the usual manner. Let us assume that the total cost of processing the above
1,00,000 litres of chemical in that month was ~ 3,28,000.
Cost per Equivalent Unit = ~ 3,28,000 / 82,000 litres = ~ 4.
Cost of each incomplete unit = 4 � 40% = ~ 1.60
(i) Value of chemical transferred to packing ~
and labelling department (70,000 � ~ 4) 2,80,000
(ii) Value of closing work-in-progress (30,000 � ~ 1.60) 48,000
Total 3,28,000
In the same example, let us assume, at the beginning of the month 30,000 litres of chemical were there, which
were only 40% complete. During the month 70,000 litres of chemical were fully processed and transferred to
packing and labelling department. There was no closing work-in-progress.
In this case, equivalent unit is calculated as follows: Equivalent litres
(i) Opening work-in-progress of 30,000 litres incomplete chemical
completed and transferred which is equivalent to
[30,000 (100% – 40%)] 18,000
(ii) Chemical introduced during the month and completed
within the month (70,000 – 30,000) 40,000
Equivalent litres 58,000
It should be noted that equivalent units should be calculated separately for:
(i) Direct materials;
(ii) Direct Labour; and
(iii) Factory overhead
Separate equivalent units are to be calculated because the proportion of total work performed in
respect of incomplete units is not always same for each cost element (i.e., direct materials 60%, direct
labour and factory overheads 40% complete).

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 Cost and Management Accounting - I 10.43

Methods of Calculating Equivalent Units of Production

There are two methods for computing the equivalent units of production for a period:
(1) FIFO method
(2) Weighted Average method
Note: There is another method called LIFO method. As per AS-2 ‘Inventories’, LIFO is not an
acceptable method anymore. Therefore, it has not been discussed here.

FIFO Method
In FIFO method, it is necessary to convert both opening WIP and closing WIP to an equivalent units basis.
Different rules are adapted for conversion of opening WIP and closing WIP.
(a) Opening WIP: The equivalent units represent the work to be done to complete the incomplete opening
stock of WIP. For example, at the beginning of a period there were 3,000 units 60% complete. For
calculating equivalent units the remaining 40% (100% - 60%) is to be taken into consideration. So the
equivalent units will be 3,000 � 40% = 1,200 units.
(b) Closing WIP: The equivalent units represent the work already done to bring the units to this stage of
production. For example, at the end of the period there were 3,000 units 60% complete. For calculating
equivalent units this 60% complete is to be taken into consideration. So the equivalent units will be 60%
of 3,000 units = 1,800 units.
In FIFO method it is assumed that opening WIP is the first group of units to be processed and
completed during the current period.
Under FIFO method, it must be noted that the units transferred to next process / finished stock consist of
two parts. One part contains the units from opening stock of WIP that were completed and transferred (in our
example 1,200 units). The other part contains the units that were both introduced and completed during the
current period. The following diagram will clear the concept of FIFO method.

Opening WIP

l
_____ _____ 10,000 units introduced
___...,,,,.....
during the current period

3,000 units
r8,000 units introduced and completed 2,000 units
"""'
40% complete during the current period. 80% complete
+-.__IClosing
__ WIP___.I

...........
(i) Opening WIP (3,000 � 60%*) 1,800 units
(ii) Units introduced and completed 8,000 units
(iii) Closing WIP (2,000 � 80%) 1,600 units +-
Equivalent Units of Production 11,400 units
* 100% – 40% = 60%. Thus 60% represents the work required to complete the Opening WIP.

Fig. 10.7
The following points should be noted in respect of FIFO method :
1. Only cost of the current period is taken into consideration for calculating cost per unit. No cost of
previous period is taken into consideration.
2. Separate equivalent units are calculated for each element of cost - direct material, direct labour and
factory overhead.

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10.44 Process Costing

3. Equivalent units of production = Equivalent units to complete opening WIP*

+ Units introduced and completed during the current period
+ Equivalent units in closing WIP
*Equivalent units to complete opening WIP = Units in opening WIP � (100% – percentage of completion of
opening WIP)
Alternatively, equivalent units of production can be calculated as follows:
Equivalent units of production = Total units transferred to next process / finished stock
+ Equivalent units in closing WIP
– Equivalent units in opening stock
Preparation of Process Account
The following steps are followed at the time of preparation of Process Account:
Step 1 : Prepare a statement of equivalent production and compute the equivalent units.
Step 2 : Prepare a statement of cost and compute cost per equivalent unit.
Step 3 : Prepare a statement of distribution of cost.
Step 4 : Prepare Process Account in the usual manner.
Elements of Cost with Different Degrees of Completion
It is very common that different categories of unit (e.g., work-in-progress, normal losses, abnormal losses and
abnormal gains) have achieved different degrees of completion for different elements of cost (e.g., direct
material, direct labour and factory overhead).
For example:
(i) Opening WIP: Direct materials 100%, direct labour 60%, overhead 50%.
(ii) Abnormal loss: Direct materials 60%, direct labour 30%, overhead 30%.
(iii) Closing WIP: Materials 100%, Labour 50%, Overhead 40%.
In such situations separate equivalent production calculations must be made for each element of cost for
each category of unit.
Illustration 24
P Ltd. manufactures a range of products and the data below refer to one product which goes through one
process only.
1. There was no opening WIP stock.
2. Units introduced into the process 5,000 units @ ~ 300.
3. Units completed and transferred to finished stock 4,000 units.
4. Closing work-in-progress was 1,000 units but these were incomplete, having reached the following
percentages of completion for each elements of cost listed:
Direct materials 100%
Direct wages 50%
Factory overhead 40%
5. Cost incurred during the period:
Direct wages ~ 90,000
Factory overhead ~ 44,000
Materials are introduced at the beginning of the process. Labour and overheads are applied uniformly
throughout the process.
You are required to prepare:
(a) a Statement of equivalent production; (b) a Statement of cost; (c) a Statement of distribution of cost; and
(d) Process Account

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 Cost and Management Accounting - I 10.45

Solution (a) Statement of Equivalent Production

Input Output Equivalent Units
Direct Materials Direct Labour Factory Overhead
Details Units Details Units % Units % Units % Units
Materials 5,000 Introduced and 4,000 100 4,000 100 4,000 100 4,000
Introduced Completely Processed
Closing W.I.P. 1,000 100 1,000 50 500 40 400
5,000 5,000 5,000 4,500 4,400

(b) Statement of Cost

Element of Cost Cost Equivalent Cost per
~ Production (Unit) Unit (~)
1. Direct Material 15,00,000 5,000 300
2. Direct Labour 90,000 4,500 20
3. Factory Overhead 44,000 4,400 10
Total 16,34,000 330

(c) Statement of Distribution of Cost

Production Element of Cost Equivalent Cost per Cost Total
Production (Unit) Unit (~) (~) Cost (~)
1. Finished Production (see Tutorial Note) Direct materials 4,000 300 12,00,000
Direct labour 4,000 20 80,000
Factory overhead 4,000 10 40,000 13,20,000
2. Closing W.I.P. Direct materials 1,000 300 3,00,000
Direct labour 500 20 10,000
Factory overhead 400 10 4,000 3,14,000
16,34,000

In the books of P Ltd.

Dr. Process Account Cr.
Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) Per Unit ~ (Units) Per Unit ~
To Direct Materials (Input) 5,000 300 15,00,000 By Finished Stock A/c 4,000 13,20,000
To Direct Labour 90,000 By Closing W.I.P. 1,000 3,14,000
To Factory Overhead 44,000
5,000 16,34,000 5,000 16,34,000
Tutorial Note: Valuation of finished goods can be done without calculating element-wise calculation. It can
be done as follows also:
4,000 � ~ 330 (total cost of an equivalent unit) = ~ 13,20,000
Illustration 25
The Vega Manufacturing Co. uses FIFO method of inventory valuation in process costing. The following data
relate to Process - I for the month of April, 2017:
(i) Beginning work-in-process:
Quantity 1,500 units
Value ~ 4,500
(ii) Introduced during the month 5,000 units
(iii) Transferred to Process - II 5,500 units
(iv) Ending work-in-process 1,000 units

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10.46 Process Costing

(v) Degree of completion: Beginning WIP Ending WIP

Materials 100% 100%
Labour and overhead 80% 60%
(vi) Costs added during the month:
Materials ~ 10,000
Labour ~ 9,800
Overheads ~ 4,900
You are required to prepare :
(a) a Statement of equivalent production; (b) a Statement of Cost; (c) a Statement of Distribution of Cost;
(d) Process - I Account.
[D.U.B.Com.(Hons.) - Adapted]

Solution (a) Statement of Equivalent Production

Input Output Equivalent Units
Direct Materials Direct Labour Factory Overhead
Details Units Details Units % Units % Units % Units
Opening W.I.P. 1,500 Remainder 1,500 *20 300 *20 300
Processed
Introduced 5,000 Introduced and 4,000 100 4,000 100 4,000 100 4,000
Completely
Processed (Note 1)
Closing W.I.P. 1,000 100 1,000 60 600 60 600
6,500 6,500 5,000 4,900 4,900

*100% – 80% = 20% (Remaining work done in respect of opening W.I.P. during the current period).

When % of completion of labour and overheads are same for both opening W.I.P. and closing W.I.P.,
labour and overhead columns can be merged into one.

(b) Statement of Cost

Element of Cost Cost Equivalent Cost per
~ Production (Unit) Unit (~)
1. Material 10,000 5,000 2
2. Labour 9,800 4,900 2
3. Overhead 4,900 4,900 1
Total 24,700 5

(c) Statement of Distribution of Cost / Evaluation of Cost

Production Element of Cost Equivalent Cost per Cost Total
Production (Unit) Unit (~) (~) Cost (~)
Opening Stock : Materials – 2 –
Labour 300 2 600
Overhead 300 1 300
Cost of Current Period 900
Add: Cost of Previous Period 4,500
Value of Opening Stock transf. to Process II: 5,400
Cost of Units Introduced and Completely Materials 4,000 2 8,000
Processed Labour 4,000 2 8,000
Overhead 4,000 1 4,000 20,000
Cost of Completely Processed Units
transferred to Process II 25,400

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 Cost and Management Accounting - I 10.47

Closing W.I.P. Materials 1,000 2 2,000

Labour 600 2 1,200
Overhead 600 1 600 3,800

Dr. Process I Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Opening Stock 1,500 3 4,500 By Process II A/c 5,500 25,400
To Materials 5,000 2 10,000 By Closing W.I.P. 1,000 3,800
To Labour 9,800
To Overhead 4,900
6,500 29,200 6,500 29,200

Normal Losses and Equivalent Unit

We know, normal losses are very common in process costing. At the beginning of this chapter, we have seen
that the normal losses are absorbed by good units.
At the time of calculating equivalent units for different elements of cost, normal loss is simply omitted. By
doing this, the cost of these omitted units is automatically apportioned between all good units.
Abnormal Losses and Equivalent Unit
At the time of calculating equivalent units for different elements of cost, the percentage of completion of
abnormal losses is to be taken into consideration. Abnormal losses are to be valued in the usual manner.
Illustration 26
During a month, 2,000 units were introduced into Process 1. The normal loss was estimated at 5% on input. At
the end of the month, 1,400 units had been produced and transferred to next process, 460 units were incompleted
and 140 units had been scrapped. It was estimated that incompleted units had reached a stage in production as
follows :
Direct Material 75% completed
Direct Labour 50% completed
Factory Overheads 50% completed
The cost of 2,000 units introduced was ~ 5,800.
Direct materials introduced during the process amounted to ~ 1,440.
Production overheads incurred were ~ 1,670. Direct labour ~ 3,340.
Units scrapped realised ~ 1 each.
The units scrapped have passed through the process, so were 100% completed as regards material, labour
and overheads.
You are required to : (a) prepare a Statement of Equivalent Production; (b) Statement of Cost; (c) Evaluate
the cost of abnormal loss, finished goods and closing stock; and (d) prepare the Process Account and Abnormal
Loss Account.
Solution (a) Statement of Equivalent Production
Input Output Equivalent Units
Direct Materials Direct Labour Factory Overhead
Details Units Details Units % Units % Units % Units
Introduced 2,000 Introduced and trans- 1,400 100 1,400 100 1,400 100 1,400
ferred to next process
Normal Loss (Note 1) 100
Abnormal Loss (Note 2) 40 100 40 100 40 100 40
Closing W.I.P. 460 75 345 50 230 50 230
2,000 2,000 1,785 1,670 1,670

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10.48 Process Costing

Working Notes:
(1) Normal Loss is 5% of Input = 5% of 2,000 = 100 units.
(2) Units Scrapped : 140
Less: Normal Loss 100
Abnormal Loss 40
(b) Statement of Cost
Element of Cost Cost Equivalent Cost per
~ Production (Unit) Unit (~)
1. Direct Materials introduced 5,800
Material added 1,440
7,240
Less: Sale of Normal Scrap (100 x ~ 1) 100
7,140 1,785 4
2. Direct Labour 3,340 1,670 2
3. Factory Overhead 1,670 1,670 1
Total 12,150 7

(c) Statement of Evaluation

Particulars Element of Cost Equivalent Cost per Cost Total
Production (Unit) Unit (~) (~) Cost (~)
1. Cost of Units Introduced Direct Materials 1,400 4 5,600
and completely processed Direct Labour 1.400 2 2,800
Factory Overhead 1,400 1 1,400 9,800
2. Abnormal Loss Direct Materials 40 4 160
Direct Labour 40 2 80
Factory Overhead 40 1 40 280
4. Closing W.I.P. Direct Materials 345 4 1,380
Direct Labour 230 2 460
Factory Overhead 230 1 230 2,070

Dr. Process I Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Materials Introduced 2,000 2.90 5,800 By Normal Loss 100 1 100
To Direct Materials 1,440 By Abnormal Loss 40 7 280
To Direct Labour 3,340 By Process II A/c 1,400 7 9,800
To Factory Overhead 1,670 By Closing W.I.P. 460 2,070
2,000 12,250 2,000 12,250

Dr. Abnormal Loss Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Process I A/c 40 7 280 By Bank 40 1 40

I I I I40 280
By Costing Profit and Loss A/c
I I 1----1
40
240
280

Illustration 27
The following data is available in respect of Process Z for January, 2007:
(i) Opening stock of work-in-progress 800 units at a cost of ~ 4,000.
(ii) The degree of completion of opening work-in-progress: Materials 100%, Labour 60%, Overheads 60%.
(iii) Input of materials 9,200 units.

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 Cost and Management Accounting - I 10.49

(iv) Units scrapped 1,200 units. The stage of completion is: Materials 100%, Labour 80%, Overheads 80%.
(v) Closing work-in-progress: 900 units. The stage of completion of these units was:
Materials 100%, Labour 70% and Overheads 70%.
(vi) 7,900 units were completed and transferred to next process.
(vii) Normal loss is 8% of the total input.
You are required to compute equivalent production (use FIFO). [D.U.B.Com. (Hons.) - 2007]
Solution (a) Statement of Equivalent Production
Input Output Equivalent Units
Direct Materials Direct Labour Factory Overhead
Details Units Details Units % Units % Units % Units
Opening W.I.P. 800 Remainder 800 – – *40 320 *40 320
Processed
Introduced 9,200 Introduced and 7,100 100 7,100 100 7,100 100 7,100
transferred to Next
Process (Note 1)
Normal Loss (Note 2) 800 – – – – – –
Abnormal Loss (Note 3) 400 100 400 80 320 80 320
Closing W.I.P. 900 100 900 70 630 70 630
10,000 10,000 8,400 8,370 8,370
*100% – 60% (already processed) = 40% remaining work has been done during the current period.
Tutorial Note: In the previous period, materials were 100% complete. In this current period no materials
were used to finish the opening WIP. Therefore in materials column of this Statement, unit has been taken as
NIL.
Working Notes:
(1) Complete units transferred to next process 7,900
Less: Opening WIP completed and transferred 800
Introduced and Completely Processed during the current period 7,100
(2) Normal Loss is 8% of the total input
Total Input = Opening WIP 800 units + Introduced 9,200 units = 10,000 units
Therefore, normal loss = 8% of 10,000 = 800 units.
(3) Units scrapped 1,200
Less: Normal loss 800
Abnormal Loss 400
Illustration 28
Following data is available in respect of Process I for March, 2007:
(i) Opening stock of work-in-progress: 800 units at a cost of ~ 4,000.
(ii) The degree of completion of opening W.I.P.:
Mateirals 100%
Labour 60%
Overheads 60%
(iii) Input of materials at a total cost of ~ 36,800 for 9,200 units.
(iv) Direct wages incurred ~ 16,740.
(v) Production overheads ~ 8,370.
(vi) Units scrapped 1,200 units. The stage of completion of these units was:
Materials 100%
Labour 80%
Overheads 80%

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10.50 Process Costing

(vii) Closing work-in-progress: 900 units. The stage of completion of these untis was:
Materials 100%
Labour 70%
Overheads 70%
(viii) 7,900 units were completed and transferred to the next process.
(ix) Normal loss is 8% of the total input (opening stock plus units put into the process).
(x) Scrap value is ~ 4 per unit.
You are required to:
(a) Compute equivalent productionl. (b) Calculate cost per equivalent unit.
(c) Calculate cost of abnormal loss (or gain), closing work-in-progress and units transferred to the next
process using FIFO method.
(d) Show the Process Account for March, 2007. [D.U.B.Com.(Hons.) - 2007]
Solution (a) Statement of Equivalent Production
Input Output Equivalent Units
Materials Labour Factory Overhead
Details Units Details Units % Units % Units % Units
Opening W.I.P. 800 Remainder Processed 800 *40 320 *40 320
Introduced 9,200 Introduced and 7,100 100 7,100 100 7,100 100 7,100
Completely Processed
Normal Loss 800 – – – – – –
Abnormal Loss 400 100 400 80 320 80 320
Closing W.I.P. 900 100 900 70 630 70 630
10,000 10,000 8,400 8,370 8,370
*100% – 60% (already completed during previous period) = 40% completed during the current period.

(b) Statement of Cost

Element of Cost Cost Equivalent Cost per
~ Production (Unit) Unit (~)
1. Materials 36,800
Less: Sale of Scrap (800 x ~ 4) 3,200
33,600 8,400 4
2. Labour 16,740 8,370 2
3. Overhead 8,370 8,370 1
Total 58,710 7

(c) Statement of Evaluation

Particulars Element of Cost Equivalent Cost per Cost Total
Production (Unit) Unit (~) (~) Cost (~)
1. Opening Stock of W.I.P.
Cost of Previous Period – – – 4,000
Cost Incurred during
the Current Period Materials – – –
Labour 320 2 640
Overhead 320 1 320
Value of Opening Stock transferred to
next Process after completion 4,960
2. Cost of Units Introduced and Completely Materials 7,100 4 28,400
Processed Labour 7,100 2 14,200
Overhead 7,100 1 7,100 49,700
Cost of Completely Processed Units
Transferred to next Process 54,660

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 Cost and Management Accounting - I 10.51

3. Abnormal Loss Materials 400 4 1,600

Labour 320 2 640
Overhead 320 1 320 2,560
4. Closing Stock of W.I.P. Materials 900 4 3,600
Labour 630 2 1,260
Overhead 630 I 1 I 630 I 5,490

Dr. Process I Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Opening Stock 800 5 4,000 By Normal Loss A/c 800 4 3,200
To Materials (Input) 9,200 4 36,800 By Abnormal Loss A/c 400 2,560
To Labour 16,740 By Process II A/c 7,900 54,660
To Overhead 8,370 By Closing W.I.P. 900 5,490
10,000 65,910 10,000 65,910
Working Notes:
(1) Complete units transferred to next process 7,900
Less: Opening WIP completed and transferred 800
Introduced and completed processed during the current period 7,100
(2) Normal loss is 8% of total input = 8% of 10,000 Units 800
(opening WIP 800 units + 9,200 units introduced)
(3) Units scrapped 1,200
Less: Normal loss 800
Abnormal Loss 400
Illustration 29
X Ltd., a manufacturer of a specialized product is having a process costing system. The stock of work-in-
progress at the end of each month is valed on FIFO basis. At the beginning of a month, the stock of work-in-
progress was 400 units (40 per cent complete), which was valued as follows:
Materials ~ 3,600
Labour ~ 3,400
Overhead ~ 1,000
~ 8,000
During the month, actual issue of materials for production purpose was ~ 68,500. Wages and overheads in
the month amounted to ~ 79,800 and ~ 21,280 respectively.
Finished production taken into the stock in the month was 2,500 units. There was no loss in the process.
At the end of the month, the stock of work-in-progress was 500 units (60 per cent, complete as to labour and
overheads and 80 per cent, complete as to materials).
Prepare a Process Cost Sheet showing total and unit costs.
[I.C.W.A. (Inter) - Adapted]

Solution Process Cost Sheet

Particulars Degree of Units ~ Total Cost Cost per
Completion (~) Unit (~)
Opening Stock of WIP : 40% 400
Materials 3,600
Labour 3,400
Overhead 1,000 8,000

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10.52 Process Costing

Input Added : 2,600

Materials 68,500
Labour 79,800
Overhead 21,280 1,69,580
Total 3,000 1,77,580
Less: Closing Stock of WIP (Note 3) 500
Materials 80% 10,000
Labour 60% 9,068
Overhead 60% 2,418 21,486
Cost of Production 2,500 1,56,094 62.44

Students should note that cost of production as per Process Cost Sheet should tally with “Cost of
goods completely processed units transferred to next Process” as appearing in the statement of
evaluation (Note 3, Item 3).

Working Notes : (1) Statement Showing Equivalent Production – FIFO Method

Input Output Equivalent Units
Materials Labour and Overheads
Details Units Details Units % Units % Units
Opening W.I.P. 400 Remainder Processed 400 60 240 60 240
Input of Materials 2,600 Introduced and 2,100 100 2,100 100 2,100
(Balancing figure) Completely Processed
Closing W.I.P. 500 80 400 60 300
3,000 3,000 2,740 2,640

(2) Statement of Cost

Element of Cost Cost Equivalent Cost per
~ Production (Unit) Unit (~)
1. Materials 68,500 2,740 25.000
2. Direct Labour 79,800 2,640 30.227
3. Overheads 21,280 2,640 8.061
Total 1,69,580 63.288

(3) Statement of Evaluation of Cost

Particulars Element of Cost Equivalent Cost per Cost Total
Production (Unit) Unit (~) (~) Cost (~)
1. Opening Stock of W.I.P.
Cost of Previous Period 8,000
Cost Incurred during
the Current Period Materials 240 25.000 6,000
Labour 240 30.227 7,254
Overhead 240 8.061 1,935
Value of Opening Stock transferred to
next Process 23,189
2. Cost of Units Introduced and Completed Materials 2100 25.000 52,500
Labour 2100 30.227 63,477
Overhead 2100 8.061 16,928 1,32,905
3. Cost of Completely Processed Units
transferred to next Process 1,56,094
4. Closing Stock of W.I.P. Materials 400 25.000 10,000
Labour 300 30.227 9,068
Overhead 300 8.061 2,418 21,486

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 Cost and Management Accounting - I 10.53

Abnormal Gain and Equivalent Unit

We know that abnormal gain occurs when the actual loss is less than expected normal loss. At the time of
calculating equivalent production, abnormal gain is deducted from all elements of cost taking 100% complete.
These units have been completely processed and will be transferred to next process or finished stock.
The concerned Process Account is debited and Abnormal Gain Account is credited with the value of
abnormal gains. For calculating net gains, an adjustment entry is passed by debiting Abnormal Gain Account
and crediting Normal Loss Account with the scrap value of normal loss, which has been converted into good
unit.
Illustration 30
Following data pertains to Process I for the month of April 2010 of Kohinoor Ltd.:
Opening work-in-progress 1,500 units at ~ 15,000
Degree of completion: materials 100%, labour and overheads 33 1/3%
Input of materials 18,500 units at ~ 52,000
Direct labour ~ 14,000
Overheads ~ 28,000
Closing work-in-progress 5,000 units
Degree of completion: materials 90%, labour and overheads 30%
Normal process loss 10% of total input (i.e., opening
WIP + units put in)
Scrap value ~ 2.00 per unit
Units transferred to next process 15,000 units
You are required to:
(a) Compute equivalent units of production.
(b) Compute cost per equivalent unit for each cost element, i.e., materials, labour and overheads.
(c) Compute the cost of finished output and closing work-in-progress.
(d) 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 process.
Solution (a) Statement of Equivalent Production
Input Output Equivalent Units
Materials Labour and Overheads
Details Units Details Units % Units % Units
Opening W.I.P. 1,500 Remainder Processed 1,500 – – 662/ 3 1,000
Input of Materials 18,500 Introduced and Completely 13,500 100 13,500 100 13,500
Processed
Normal Loss 2,000 – – – –
Closing W.I.P. 5,000 90 4,500 30 1,500
20,000 22,000 – 18,000 – 16,000
Less: Adnormal Gains (Note 1) 2,000 100 2,000 100 2,000
20,000 20,000 16,000 14,000

(b) Statement of Cost

Element of Cost Cost Equivalent Cost per
~ Production (Unit) Unit (~)
1. Materials 52,000
Less: Sale of Scrap (2000 x ~ 2) 4,000

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10.54 Process Costing

48,000 16,000 3
2. Direct Labour 14,000 14,000 1
3. Overheads 28,000 14,000 2
Total 90,000 6

(c) Statement of Evaluation of Cost

Particulars Element of Cost Equivalent Cost per Cost Total
Production (Unit) Unit (~) (~) Cost (~)
1. Opening Stock of W.I.P.
Cost of Previous Period 15,000
Cost Incurred during
the Current Period Materials Nil
Labour 1,000 1 1,000
Overhead 1,000 2 2,000
Value of Opening Stock transferred to
next Process 18,000
2. Units Introduced and Completely Materials 13,500 3 40,500
Processed Labour 13,500 1 13,500
Overhead 13,500 2 27,000 81,000
Transferred to Process 2 99,000
3. Closing Stock of W.I.P. Materials 4,500 3 13,500
Labour 1,500 1 1,500
Overhead 1,500 2 3,000 18,000
4. Abnormal Gains Materials 2,000 3 6,000
Labour 2,000 1 2,000
Overhead 2,000 2 4,000 12,000

In the books of Kohinoor Ltd.

Dr. Process I Account Cr.
Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Opening Stock 1,500 10 15,000 By Normal Loss A/c 2,000 2 4,000
To Materials (Input) 18,500 52,000 By Process 2 A/c 15,000 99,000
To Direct Labour 14,000 By Closing W.I.P. A/c 5,000 18,000
To Overheads 28,000
To Abnormal Gain A/c 2,000 12,000
22,000 1,21,000 22,000 1,21,000

Dr. Normal Loss Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Process 1 A/c 2,000 2 4,000 By Abnormal Gain A/c 2,000 2 4,000

Dr. Abnormal Gain Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) Per Unit ~ (Units) Per Unit ~
To Normal Loss A/c 2,000 2 4,000 By Process 1 A/c 2,000 6 12,000
To Costing P/L A/c 8,000
(Net abnormal gain)
2,000 12,000 2,000 12,000
Working Note :
(1) Normal Loss = 10% of total input (1,500 + 18,500) 2,000
Actual Loss Nil
Abnormal Gain 2,000
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 Cost and Management Accounting - I 10.55

Previous Process Cost

In many process industries, there would be more than one process involved in the manufacturing of a final
product. Materials pass through all these processes in succession. The output of Process 1 becomes the input
of Process 2 and output of Process 2 becomes the input of Process 3 and so on. Output of Process 1 must be
100% complete before transferring it to Process 2. The Process 2 will carry out some additional conversion
works, and may add some materials.
At the time of calculation of equivalent units for Process 2, materials from previous process must be taken
as 100% complete and it is to be treated as a separate element of cost - Material 1. Materials added in Process
2 will be shown in the statement of equivalent production as - Material 2.
It is to be noted that the scrap value of normal loss of Process 2 will be deducted from Material 1, based on
the assumption that scrap value is produced from basic material. However, there is no hard and fast rule that
scrap value has to be deducted from Material 1. This is purely a matter of convenience. There are three
alternatives:
(i) Deduct from Material 1.
(ii) Deduct from Material 2.
(iii) Apportion between Material 1 and Material 2.
Points to Remember
1. Material 1 : (i) Completed units from previous process;
(ii) 100% complete in respect of direct materials, direct labour and
overheads (incurred in the previous process);
(iii) At the time of valuing closing WIP of Process 2, all elements of cost
will be taken as 100% complete.
2. Material 2 : (i) direct materials added in Process 2;
(ii) At the time of valuing closing WIP of Process 2, degree of
completion must be taken into consideration.

Illustration 31
Following data relate to Process Q:
(i) Opening work-in-progress Units 4000
Degree of completion:
Materials 100% ~ 24,000
Labour 60% ~ 14,400
Overheads 60% ~ 7,200
(ii) Received during the month of April from Process P:
40,000 units ~ 1,71,000
(iii) Expenses incurred in Process Q during the month:
Materials ~ 79,000
Labour ~ 1,38,230
Overheads ~ 69,120
(iv) Closing Work-in-progress Units 3000
Degree of completion:
Materials (%) 100
Labour and overheads (%) 50
(v) Units scrapped Units 4,000
Degree of completion:
Material 100%, Labour and overheads 80%.

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10.56 Process Costing

(vi) Normal loss : 5% of current input.

(vii) Spoiled goods realized ~ 1.50 each on sale.
(viii) Completed units transferred to warehouse : 37,000 units.
Prepare, using FIFO method :
(a) Statement of equivalent production; (b) Statement of cost per equivalent unit; (c) Statement of evaluation;
(d) Process Q Account; and (e) Abnormal Loss Account.
[D.U.B.Com. (Hons.) - 2008]
Solution Process Q
(a) Statement of Equivalent Production
Input Output Equivalent Units
Material (1) Material (2) Labour & Overhead
Details Units Details Units % Units % Units % Units
Opening W.I.P. 4,000 Remainder Processed 4,000 – – – – 40 1,600
Received from 40,000 Introduced and 33,000 100 33,000 100 33,000 100 33,000
Process P Completely
Processed (Note 1)
Normal Loss 2,000
Abnormal Loss 2,000 100 2,000 100 2,000 80 1,600
Closing W.I.P. 3,000 100 3,000 100 3,000 50 1,500
44,000 44,000 38,000 38,000 37,700
(b) Statement of Cost
Element of Cost Cost Equivalent Cost per
~ Production (Unit) Unit (~)
1. Materials (1)
This period cost 1,71,000
Less: Sale of Scrap (2000 x ~ 1.50) 3,000
1,68,000 38,000 4.42
2. Materials (2)
This period cost 79,000 38,000 2.08
2. Labour
This period cost 1,38,230 37,700 3.67
3. Overhead 69,120 37,700 1.83
Total 4,54,350 12.00
(c) Statement of Evaluation
Particulars Element of Cost Equivalent Cost per Cost Total
Production (Unit) Unit (~) (~) Cost (~)
1. Opening Stock of W.I.P. :
Cost of Previous Period *45,600
Cost Incurred during Materials (1) Nil 4.42
the Current Period Materials (2) Nil 2.08
to complete W.I.P. Labour 1,600 3.67 5,867
Overhead 1,600 1.83 2,933
Value of Opening Stock
transferred to Warehouse 54,400
Cost of Units Introduced and Materials (1)
Completely processed Materials (2) 33,000 12 3,96,000
Labour
Overhead
2. Cost of Completely Processed
Units transferred to Warehouse 4,50,400

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 Cost and Management Accounting - I 10.57

3. Abnormal Loss Materials (1) 2,000 4.42 8,840

Materials (2) 2,000 2.08 4,160
Labour 1,600 3.67 5,872
Overhead 1,600 1.83 2,928 21,800
4. Closing Stock of W.I.P. Materials (1) 3,000 4.42 13,260
Materials (2) 3,000 2.08 6,240
Labour 1,500 3.67 5,505
Overhead 1,500 1.83 2,745 27,750
*~ 24,000 + ~ 14,400 + ~ 7,200 = ~ 45,600.
Dr. Process-Q Account Cr.
Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Opening W.I.P. 4,000 45,600 By Normal Loss A/c 2,000 1.50 3,000
To Process P A/c 40,000 1,71,000 By Abnormal Loss A/c 2,000 21,800
To Materials 79,000 By Finished Stock A/c 37,000 4,50,000
To Labour 1,38,230 By Closing W.I.P. A/c 3,000 27,750
To Overheads 69,120
44,000 5,02,950 44,000 5,02,950

Dr. Abnormal Loss Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Process Q A/c 2,000 21,800 By Cash / Bank A/c 2,000 1.5 3,000

I I I
2,000 21,800 Ii
By Costing Profit and Loss A/c
I I 1----1
2,000
18,800
21,800

Illustration 32
From the following information prepare:
(a) Statement of equivalent production;
(b) Statement of element of cost / unit;
(c) Statement of apportionment of cost;
(d) Process II Account under FIFO method.
(i) Opening stock - 800 units costing ~ 6,038 (transferred in cost ~ 1,200, material ~ 1,578,
labour ~ 1,710, overheads ~ 1,550).
(ii) Transferred from previous Process I 12,000 units costing ~ 16,350.
(iii) Cost incurred in Process II
Material ~ 11,600
Labour ~ 20,760
Overheads ~ 15,570
(iv) Normal loss in Process II - 10% of production.
(v) Scrap realised @ ~ 10 / 10 units.
(vi) Closing stock 1,800 units.
(vii) Transferred to next process - 9,700 units.
(viii) Degree of completion:
Opening Stock (%) Closing Stock (%) Scrapped Units (%)
Material 60 60 100
Labour 40 51 41
Overheads 40 51 41
[D.U.B.Com.(Hons.) - 2006]

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10.58 Process Costing

Solution Process II
(a) Statement of Equivalent Production
Input Output Equivalent Units
Material (1) Material (2) Labour & Overhead
Details Units Details Units % Units % Units % Units
Opening W.I.P. 800 Remainder 800 – – *40 320 **60 480
Processed
Transferreed from 12,000 Introduced and 8,900 100 8,900 100 8,900 100 8,900
Process I Completely
Processed (Note 1)
Normal Loss (Note 2) 1,100 – – – – – –
Abnormal Loss (Note 3) 200 100 200 100 200 41 82
Closing W.I.P. 1,800 100 1,800 60 1,080 51 918
12,800 12,800 10,900 10,500 10,380
*100% – 60% = 40%. ** 100% – 40% = 60%.
(b) Statement of Cost per Unit
Element of Cost Cost Equivalent Cost per
~ Production (Unit) Unit (~)
1. Materials (1)
This period cost 16,350 10,900 1.50
2. Materials (2)
This period cost 11,600
Less: Scrap value of normal loss (Note 4) 1,100 10,500 1.00
2. Labour
This period cost 20,760 10,380 2.00
3. Overheads
This period cost 15,570 10,380 1.50
Total 6.00

Statement of Apportionment of Cost

Particulars Element of Cost Equivalent Cost per Cost Total
Production (Unit) Unit (~) (~) Cost (~)
1. Opening Stock of W.I.P. :
Cost of Previous Period – – 6,038
Cost incurred during Materials (1) Nil –
the Current Period Materials (2) 320 1.00 320
to complete W.I.P. Labour 480 2.00 960
Overhead 480 1.50 720
Value of Opening Stock transferred
to Next Process after completion 8,038
Cost of Units Introduced and
Completely Processed 8,900 6 53,400
2. Cost of Completely Processed
Units Transferred to next process 61,438
3. Abnormal Loss Materials (1) 200 1.50 300
Materials (2) 200 1.00 200
Labour 82 2.00 164
Overhead 82 1.50 123 787
4. Closing Stock of W.I.P. Materials (1) 1,800 1.50 2,700
Materials (2) 1,080 1.00 1,080
Labour 918 2.00 1,836
Overhead 918 1.50 1,377 6,993

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 Cost and Management Accounting - I 10.59

Dr. Process II Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Opening Stock 800 6,038 By Normal Loss A/c (Note 2) 1,100 1 1,100
To Process I A/c 12,000 16,350 By Abnormal Loss A/c 200 787
To Materials 11,600 By Process III A/c 9,700 61,438
To Labour 20,760 By Closing W.I.P. A/c 1,800 6,993
To Overheads 15,570
12,800 70,318 12,800 70,318
Working Notes:
(1) Number of units transferred to next Process 9,700
Less: Opening WIP finished during the period 800
Units introduced and completely processed 8,900
(2) Normal loss is 10% of production.
Production = Opening WIP + Units introduced – Closing WIP
= 800 + 12,000 - 1,800 = 11,000 units
Normal loss = 10% of 11,000 units = 1,100 units.
(3) Abnormal Loss = Expected Output - Actual Output
Opening WIP 800
Add: Input 12,000
12,800
Less: Closing WIP 1,800
Production 11,000
Less: Normal Loss (10% of Production) 1,100
Expected Output 9,900
Less: Actual Output 9,700
Abnormal Loss 200
(4) Scrap value has been deducted from Material 2. Alternatively, it can be deducted from Material 1. If
scrap value is deducted from Material 1 cost of Material 1 and Material 2 will come in fraction which will
lead to mismatch between debit total and credit total of the Process II Account.
Weighted Average Method
The Weighted Average Method blends together the work that was done in the previous period with the work
that is done in the current period. This method also blends together the cost that was incurred in the previous
period with the cost that is incurred in the current period. Here, it should be noted that the opening WIP must
be stated in analysed form; that is, separate figures must be given for material cost, labour cost and factory
overhead.
In the Weighted Average Method, the equivalent units of production is calculated as follows:
Completed units transferred to the next process or to finished stock ***
Plus
Equivalent units in closing WIP (taking into consideration the percentage
of completion in respect of each element of cost) ***
***
A visual perspective of the computation of equivalent units of production under Weighted Average Method
is given in the next page:

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10.60 Process Costing

I Opening WIP
I 10,000 units introduced
during the current period
_.....,....._

'
3,000 units
40% complete

(i)
I
r
' 8,000 units introduced and completely
'
'
' processed during the current period.
'
i
Units completed and transferred to next Process 11,000
' 2,000 units
'
'
' 80% complete
'

+
----
+-I Closing WIP
I

(ii) Closing WIP (2,000 � 80%) 1,600 .__

-
Equivalent Units of Production 12,600
Fig. 10.8
Cost per Equivalent Unit is Calculated as follows:
1. The cost in the opening WIP for each element of cost is added to the corresponding cost for the same
element for work performed during the current period, thus obtaining total cost for each element.
2. Total cost obtained above is divided by the corresponding equivalent production for each element to
get the average process cost for that element.
3. Total cost of equivalent unit is obtained by adding costs of all elements of cost (direct material, direct
labour and factory overhead).
Comparison of FIFO Method and Weighted Average Method

FIFO Method Weighted Average Method

1. In computing equivalent units, only work 1. In computing equivalent units, the units in
needed to complete units in opening WIP opening WIP are treated as if they were
is included. introduced and completed during the current
period.
2. Units introduced and completely processed 2. Units introduced and completely processed
are shown separately at the time of calculating are not shown separately. It is blended with
equivalent units. opening WIP units.
3. Only cost of the current period is included in 3. Cost of the opening WIP are added with the
computation of costs per equivalent unit. cost of the current period in computation
of costs per equivalent unit.
4. Computation of equivalent units in closing 4. Computation of equivalent units in closing
WIP is similar under both methods. WIP is similar under both methods.
5. For application of this method, break-up of 5. For application of this method, break-up of
cost of each element of cost is not required. cost of each element of cost is necessary.
6. Some managers believe that this method is 6. This method is simple but it is not very
complex, but it is more accurate than accurate when costs are fluctuating from
Weighted Average Method. period to period.

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 Bibliotheca on Outlook 61 of 108 Courtesy: VvK
Cost and Management Accounting - I 10.61
Weighted-Average vs. FIFO Equivalent Units
October November % Complete
··~·····EJ····················
-◄-----------

· · ·_· ·-------==
----
Opening
W.I.P.
Units
Completed
Units Weighted-
started Average
November
and Equivalent
Units FIFO
completed Equivalent
Units
November % Complete
., ...................................
---
December Closing
7 ......................
- - - 1~
W.I.P.
Fig. 10.9
Selection of a Costing Method
Selecting a costing method (FIFO / Weighted Average), the cost accountant should clearly understand the
advantages and disadvantages of both methods. In general, cost accountants prefer Weighted Average Method
for the following reasons:
1. The weighted average is simple to use.
2. Closing WIP Inventory level is very low in relation to monthly production.
3. Cost of input is stable.
4. Monthly production is stable.
Some accountants, however, prefer to use FIFO Method for the following reasons:
1. The cost per unit of production is more accurate.
2. The unit costs reflect current conditions more clearly.
3. Costs can be controlled by comparing costs of previous period. If there is major variation, proper action
can be taken in time.
Selection of method will depend upon the nature of production process and management's policy.
FIFO method is recommended in the following situations:
(i) If the closing WIP is generally high and widely varying from month to month.
(ii) Costs of input and conversion costs are highly volatile.
Illustration 33
From the following information relating to Process I of a factory for the month of March, 2012, prepare the
Statement of Equivalent Production, Statement of Cost, Statement of Evaluation and Process Account using
average cost method :
(i) Opening work-in-progress 500 units.
(a) Materials ~ 27,000
(b) Labour ~ 8,000
(c) Overheads ~ 12,500
~ 47,500
10.62 Process Costing

(ii) Cost incurred during March, 2012 ~

Input of Materials (14,000 units) 5,74,750
Labour 1,19,300
Overheads 1,78,450
(iii) Process loss :
Normal loss : 10% of opening W.I.P. and input
Value of scrapped unit : ~ 10 each
Actual loss during March, 2012 : 1,500 units
Degree of completion : Materials 100%; Labour and Overheads 60%
(iv) Closing work-in-progress : 1,000 units
Degree of completion : Materials 100%; Labour and Overheads 70%
(v) Processed units transferred to process II : 12,000 units during March, 2012.
[D.U.B.Com. (Hons.) - 2012]

Statement of Equivalent Production

Input Output Equivalent Units
Material Labour Overhead
Details Units Details Units % Units % Units % Units
Opening W.I.P. 500 Units completed and transferred 12,000 100 12,000 100 12,000 100 12,000
Units Introduced 14,000 Normal Loss 1,450
during the current (10% of 14,500)
period Abnormal Loss 50 100 50 60 30 60 30
Closing W.I.P. 1,000 100 1,000 70 700 70 700
14,500 14,500 13,050 12,730 12,730

Statement of Cost
Element of Cost Cost Equivalent Cost per
~ Production (Unit) Unit (~)
1. Materials :
Cost of previous period 27,000
Cost of current period 5,74,750
6,01,750
Less: Scrap Value of Normal Loss (1,450 x ~ 10) 14,500
5,87,250 13,050 45
2. Labour :
Cost of previous period 8,000
Cost of current period 1,19,300
1,27,300 12,730 10
3. Overhead :
Cost of previous period 12,500
Cost of current period 1,78,450
1,90,950 12,730 15
Total 70

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 Cost and Management Accounting - I 10.63

Statement of Evaluation
Particulars Element of Cost Equivalent Cost per Cost Total
Production (Unit) Unit (~) (~) Cost (~)
1. Units completed and transferred 12,000 70 8,40,000
2. Abnormal Loss Materials 50 45 2,250
Labour 30 10 300
Overhead 30 15 450 3,000
3. Closing W.I.P. Materials 1,000 45 45,000
Labour 700 10 7,000
Overhead 700 15 10,500 62,500
Total 9,05,500

Dr. Process I Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Opening Stock of W.I.P. 500 47,500 By Normal Loss A/c 1,450 10 14,500
To Materials 14,000 5,74,750 By Abnormal Loss A/c 50 3,000
To Labour 1,19,300 By Process II A/c 12,000 70 8,40,000
To Overheads 1,78,450 By Closing W.I.P. A/c 62,500
14,500 9,20,000 14,500 9,20,000

Illustration 34
Roy & Johnson (P) Ltd. gives the following particulars relating to Process A in its plant for the month of
December, 2010: Cost ~
Work-in-progress (opening balance) on 1.12.2010 - 500 units Material 4,800
Labour 3,200
Overheads 6,400
14,400
Units introduced during the month - 19,500
Processing costs incurred during the month: ~
Materials 1,86,200
Labour 72,000
Overheads 1,06,400 3,64,600
Output: Units transferred to Process B 18,200
Units scrapped (completely processed) 1,400
Work-in-process (closing balance) 400
[Degree of completion: Materials - 100%; Labour and overhead - 50%]
Normal loss in processing is 5% of total input and normal scrapped units fetch ~ 1 each.
Prepare the following statements for Process A for December, 2010:
(a) Statement of equivalent production;
(b) Statement of cost;
(c) Statement of evaluation;
(d) Process 'A' Account. [I.C.W.A. (Inter) - Adapted]

Solution
There is no mention about the method to be followed. In this problem, the percentage of completion of
closing WIP has not been given but the break-up of cost in respect of different element of cost has been given.
Therefore, Weighted Average Method is to be adopted for calculating equivalent units of production.

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10.64 Process Costing

Solution Process A
(a) Statement of Equivalent Production
Input Output Equivalent Units
Materials Labour and Overheads
Details Units Details Units % Units % Units
Opening W.I.P. 500 Units completed and transferred 18,200 100 18,200 100 18,200
to Process B
Units Introduced 19,500 Normal Loss 1,000
during the month Abnormal Loss 400 100 400 100 400
Closing W.I.P. 400 100 400 50 200
20,000 20,000 19,000 18,800

(b) Statement of Cost

Element of Cost Cost Equivalent Cost per
~ Production (Unit) Unit (~)
1. Materials :
Cost of previous period 4,800
Cost of current period 1,86,200
1,91,000
Less: Scrap Value 1,000
1,90,000 19,000 10
2. Labour :
Cost of previous period 3,200
Cost of current period 72,000
75,200 18,800 4
3. Overhead :
Cost of previous period 6,400
Cost of current period 1,06,400
1,12,800 18,800 6
Total 20

Statement of Evaluation
Particulars Element of Cost Equivalent Cost per Cost Total
Production (Unit) Unit (~) (~) Cost (~)
1. Units completed and transferred 18,200 20 3,64,000
to Process B
2. Closing W.I.P. Materials 400 10 4,000
Labour 200 4 800
Overhead 200 6 1,200 6,000
3. Abnormal Loss 400 20 8,000
Total 3,78,000

In the books of Roy & Johnson (P) Ltd.

Dr. Process A Account Cr.
Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Opening Stock of WIP 500 14,400 By Normal Loss A/c 1,000 1 1,000
To Materials 19,500 1,86,200 By Abnormal Loss A/c 400 20 8,000
To Labour 72,000 By Process B A/c 18,200 20 3,64,000
To Overheads 1,06,400 By Closing Stock of WIP 400 6,000
20,000 3,79,000 20,000 3,79,000

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 Cost and Management Accounting - I 10.65

Illustration 35
Data relating to work done in Process A of a company during the month of April 2000 is given below:
Opening work-in-progress (1000 units) ~
Materials 40,000
Labour 7,500
Overheads 22,500
Materials introduced in Process A (19,000 units) 7,40,000
Direct labour 1,79,500
Overheads 5,38,500
Units scrapped : 1,500 units
Degree of completion: Materials 100%; Labour and overheads 80%.
Closing work-in-progress : 1,000 units
Degree of completion: Materials 100%; Labour and overheads 80%.
Units finished and transferred to Process B 17,500 units
Normal loss : 5% of total input including opening W.I.P.
Scrapped units fetch ~ 20 per piece.
Required:
(a) Statement of Equivalent Production; (b) Statement of Cost; (c) Statement of Distribution of Cost; and,
(d) Process 'A' Account and other Accounts. [I.C.W.A. (Stage 1) - December, 2000]

Solution
There is no mention about the method to be followed. In this problem, the percentage of completion of
opening WIP has not been given but the break-up of cost in respect of different elements of cost has been
given. Therefore, Weighted Average Method is to be adopted for calculating equivalent units of production.
Weighted Average Method
(a) Statement of Equivalent Production
Input Output Equivalent Units
Materials Labour and Overheads
Details Units Details Units % Units % Units
Opening W.I.P. 1,000 Units completed and transferred 17,500 100 17,500 100 17,500
to Process B
Materials Introduced 19,000 Normal Loss 1,000 – – – –
Abnormal Loss 500 100 500 80 400
Closing W.I.P. 1,000 100 1,000 80 800
20,000 20,000 19,000 18,700

(b) Statement of Cost

Element of Cost Cost Equivalent Cost per
~ Production (Unit) Unit (~)
1. Materials :
Cost of previous period 40,000
Cost of current period 7,40,000
7,80,000
Less: Scrap Value of Normal Loss (1,000 x ~ 20) 20,000
7,60,000 19,000 40
2. Labour :
Cost of previous period 7,500
Cost of current period 1,79,500
1,87,000 18,700 10

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10.66 Process Costing

3. Overhead :
Cost of previous period 22,500
Cost of current period 5,38,500
5,61,000 18,700 30
Total 80

(c) Statement of Distribution of Cost

Particulars Element of Cost Equivalent Cost per Cost Total
Production (Unit) Unit (~) (~) Cost (~)
1. Units completed and transferred 17,500 80 14,00,000
to Process B
2. Closing W.I.P. Materials 1,000 40 40,000
Labour 800 10 8,000
Overhead 800 30 24,000 72,000
3. Abnormal Loss Materials 500 40 20,000
Labour 400 10 4,000
Overhead 400 30 12,000 36,000
Total 15,08,000

Dr. Process A Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Opening Stock of WIP 1,000 70 70,000 By Normal Loss A/c 1,000 20 20,000
To Materials 19,000 7,40,000 By Process B A/c 17,500 80 14,00,000
To Direct Labour 1,79,500 By Abnormal Loss A/c 500 36,000
To Overheads 15,38,500 By Closing Stock of WIP 1,000 72,000
20,000 15,28,000 20,000 15,28,000

Dr. Normal Loss Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Process A A/c I 1,000 I 20 I 20,000 I By Banks A/c I 1,000 I 20 I 20,000

Dr. Abnormal Loss Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Process A A/c 500 36,000 By Bank A/c 500 20 10,000

I I I 500 36,000 Ii
By Costing P/L A/c
I I >------I
500
26,000
36,000

Illustration 36
K Ltd. manufactures a product that requires three separate processes for its completion. Output from Process
1 is immediately transferred to Process 2 and that of Process 2 to Process 3. The following information is
available for Process 2 for the month of November, 2010:
(i) Opening WIP : 1,000 units
(ii) Opening WIP value : Material (1) ~ 4,000; Material (2) ~ 2,000; Direct labour ~ 350;
Factory overhead ~ 800.
(iii) Transfer from Process 1 : 16,000 units at ~ 81,000.
(iv) Cost incurred during the period: (a) Direct materials : ~ 43,750; (b) Direct labour : ~ 14,300; (c)
Factory overheads : ~ 28,500.
(v) Transfer to Process 3 : 14,500 units

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 Cost and Management Accounting - I 10.67

(vi) Normal loss : 5% of production

(vii) Scrap value per unit : ~ 5
(viii) Units scrapped :
500 (100% complete as to materials, 60% complete as to labour and 20% complete as to factory
overheads)
(ix) Closing WIP :
2,000 units (50% complete as to materials, 20% complete as to labour and factory overheads).
You are required to prepare a :
(a) Statement of equivalent production; (b) Statement of cost; (c) Statement of evaluation; (d) Process 2
Account and other Accounts.
[Use Weighted Average Method.]
Solution
Weighted Average Method
(a) Statement of Equivalent Production
Input Output Equivalent Units
Material (1) Material (2) Labour Overhead
Details Units Details Units % Units % Units % Units % Units
Opening W.I.P. 1,000 Units Completely 14,500 100% 14,500 100 14,500 100 14,500 100 14,500
Processed and
Transferred
Transferreed from 16,000 Normal Loss (Note 1) 750 – – – – – – – –
Process 1 Closing W.I.P. 2,000 100 2,000 50 1,000 20 400 20 400
17,250 16,500 15,500 14,900 14,900
Less: Abnormal
Gain (Note 2) 250 100 250 100 250 100 250 100 250
,----
17,000 17,000 16,250 15,250 14,650 14,650

(b) Statement of Cost

Element of Cost Cost Equivalent Cost per
~ Production (Unit) Unit (~)
1. Materials (1)
Cost of previous period 4,000
Cost of current period 81,000
85,000
Less: Scrap Value of normal loss (750 x ~ 5) 3,750
81,250 16,250 5
2. Materials (2)
Cost of previous period 2,000
Cost of current period 43,750
45,750 15,250 3
3. Direct Labour
Cost of previous period 350
Cost of current period 14,300
14,650 14,650 1
4. Factory Overhead
Cost of previous period 800
Cost of current period 28,500
29,300 14,650 2
Total 11

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10.68 Process Costing

(c) Statement of Evaluation

Particulars Element of Cost Equivalent Cost per Cost Total
Production (Unit) Unit (~) (~) Cost (~)
1. Units Completed and transferred
to Process 3 14,500 11 1,59,500
2. Closing W.I.P. Materials (1) 2,000 5 10,000
Materials (2) 1,000 3 3,000
Labour 400 1 400
Overhead 400 2 800 14,200
3. Abonrmal Gain 250 11 2,750

In the books of K Ltd.

Dr. Process 2 Account Cr.
Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Opening Stock of WIP 1,000 7,150 By Normal Loss A/c 750 5 3,750
To Process 1 A/c 16,000 81,000 By Process 3 A/c 14,500 11 1,59,500
To Direct Materials 43,750 By Closing Stock of W.I.P. 2,000 14,200
To Direct Labour 14,300
To Factory Overheads 28,500
To Abnormal Gains 250 11 2,750
17,250 1,77,450 17,250 1,77,450

Dr. Normal Loss Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Process 2 A/c 750 5 3,750 By Bank A/c 500 5 2,500

I I I 750 3,750 Ii
By Abnormal Gain A/c
I I t----1
250
750
5 1,250
3,750

Dr. Abnormal Gain Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Normal Loss A/c 250 5 1,250 By Process 2 A/c 250 11 2,750
To Costing P/L A/c (Net Gain)

Working Notes:
I I I I250
1,500
2,750 I I 250 2,750
t - - - - 1

(1) Normal loss is 5% of production.

Production = Opening WIP + transfer from Process 1 - Closing WIP
= 1,000 + 16,000 - 2,000 = 15,000.
Normal loss = 5% of 15,000 = 750 units.
It should be noted that percentage of completion for normal loss is immaterial. Therefore, it is to be
ignored.
(2) Abnormal gain is deducted at the end taking 100% complete because all units have been transferred to
Process 3.

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 Cost and Management Accounting - I 10.69

Inter-Process Profit
So far we have seen that finished product of one process is transferred to the next process at cost. Now-a-days
many manufacturing organizations are transferring finished product of one process to the next process at a
price (called transfer price), which includes some percentage of profit. The established transfer price is a cost
to the transferee (receiving) process and a revenue to the transferor (sending) process.
The main objectives are :
1. To provide some useful information for evaluating the preference of each process.
2. To evaluate whether the cost of production is in line with market price.
3. To ensure that the transferee process is not given the benefit of economies achieved by the transferor
process.
4. To expose the inefficiencies of different processes.
5. To ensure that the autonomy of each process is not undermined.
Limitations of this system
1. Unfortunately the system involves an unnecessary complication of the accounts.
2. For Balance Sheet purpose, the closing stock value to be recomputed after deducting the unrealised
profit in stock balance. This is very time consuming and complicated.
3. There is no universally accepted transfer pricing method (e.g., cost plus profit, market price, etc.).
Wrong transfer pricing policy may demotivate some processing departments.
Preparation of Process Account
Process Account is prepared in 'T' form with three columns on each side. First column for total, second column
for cost and third column for profit. Ruling of a Process Account is given below:
Dr. Process 1 Account Cr.
Particulars Total Cost Profit Particulars Total Cost Profit
(~) (~) (~) (~) (~) (~)

I I I I I I I
Steps for Preparing First Process Account
1. First item to be entered on the debit side of the Process Account is opening stock. The cost of opening
stock is entered in the first column (i.e., 'Total' column) and second column (i.e., 'Cost' column). Nothing
is entered in the profit column as there will be no profit element in the opening stock of First Process.
2. Second item to be entered on the debit side of the Process Account is the direct materials cost. It is
entered in the 'Total' column and 'Cost' column only. Nothing is entered in the 'Profit' column.
3. Third item to be entered on the debit side of the Process Account is the direct labour cost. It is entered
in the 'Total' column and 'Cost' column only. Nothing is entered in the 'Profit' column.
4. Add both 'Total' column and 'Cost' column.
5. Deduct closing stock (if it is valued at prime cost) from 'Total' column and 'Cost' column. The resultant
figures of both the columns represent prime cost of goods transferred to next process.
6. Last item to be entered on the debit side of the Process Account is the factory overhead. It is entered in
the 'Total' column and 'Cost' column only. Nothing is entered in the 'Profit' column.
7. Add both 'Total' column and 'Cost' column. The resultant figures of both the columns represent Process
Cost.
8. Calculate the amount of gross profit based on percentage of profit on cost or on transfer price.
If it is based on cost, the calculation is simple. Just find out the figure by multiplying process cost with the
percentage of profit.

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10.70 Process Costing

Example: Process cost is ~ 1,00,000. Transfer price is based on 20% profit on cost. In this case, gross
profit will be : ~ 1,00,000 � 20% = ~ 20,000.
If it is based on transfer price, the calculation is different. First you calculate percentage of profit on cost,
then you multiply this percentage with the process cost. It will give you the figure for gross profit.
Example: Process cost is ~ 1,00,000. Goods are transferred to next process based on 20% profit on
transfer price.
In this case, percentage of profit on cost to be calculated first as follows:
Let transfer price be ~ 100, then profit is ~ 20 (20% of ~ 100) and cost will be ~ 80 (~ 100 - ~ 20).
The percentage of profit on cost = ~ 20 / ~ 80 � ~ 100 = 25%
Gross Profit will be : ~ 1,00,000 � 25% = ~ 25,000.
9. Enter gross profit in the 'Total' column and 'Profit' column. Nothing is entered in the 'Cost' column.
10. Add all the three columns (i.e., 'Total', 'Cost' and 'Profit'). The first column (i.e., 'Total') will show transfer
price for second process. The sum of 'Cost' and 'Profit' columns will be equal to first column.
11. On the credit side of the Process Account enter the respective figures of 'Total' column, 'Cost' column
and 'Profit' column. Close the Process Account by putting double lines on each column of debit side and
credit side.
12. Bring down the balance of closing stock on the debit side of the Process Account as opening stock of
next period.
Steps for Preparing Second and Subsequent Processes
1. First item to be entered on the debit side of the Second Process Account is the opening stock. The
figure of opening stock of second process includes profit (It is given in the Problem).
Deduct profit from the figure of opening stock to get the cost of opening stock.
Now, enter gross figure of opening stock in the 'Total' column, Cost (gross figure less profit) in the 'Cost'
column and profit in the 'Profit' column.
2. Second item to be entered on the debit side of the Second Process Account is the value of goods
received from First Process. Enter the respective figures in the respective columns.
3. Enter direct materials, direct labour in usual manner (i.e., in the 'Total' and 'Cost' columns only).
4. Add all the three columns. Sum of 'Cost' and 'Profit' columns will be equal to 'Total' column.
5. Deduct closing stock from 'Total', 'Cost' and 'Profit' columns. The profit element in closing stock is
calculated as follows:
'Profit' column total
Profit in Closing Stock = 'T: l' l l x Closing Stock
ota co umn tota

Example:
(a) Closing stock = ~ 4,500.
(b) 'Total' column total ~ 90,000
(c) 'Profit' column total ~ 15,000
(d) 'Cost' column total ~ 75,000
15,000
(e) Profit in Closing Stock = 90 000 x 4,500 = ~ 750
,
Here cost of closing stock = ~ 4,500 - ~ 750 = ~ 3,750.

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 Cost and Management Accounting - I 10.71

If we take the figures of above example, the different items will appear in the Process Account as follows:
Dr. Second Process Account Cr.
Particulars Total Cost Profit Particulars Total Cost Profit
(~) (~) (~) (~) (~) (~)
To Sundries 90,000 75,000 15,000
Less: Closing Stock 4,500 3,750 750
Prime Cost
6.
I 85,500 I 71,250 I 14,250 I I I I
Last item to be entered on the debit side of the Process Account is the factory overhead. It is entered in
the 'Total' column and 'Cost' columns only. Nothing is entered in the 'Profit' column.
7. Add all the three columns. The resultant figures represent Process Cost.
8. Calculate the amount of gross profit in the usual manner (as we have done in case of First Process
Account).
9. Enter gross profit in the 'Total' column and 'Profit' column. Nothing is entered in the 'Cost' column.
10. Add all the three columns (i.e., 'Total', 'Cost' and 'Profit'). The first column will show transfer price for
third process / finished stock. The sum of 'Cost' and 'Profit' columns will be equal to first column.
11. On the credit side of the Process Account, enter the respective figures of 'Total' column, 'Cost' column
and 'Profit' column. Close the Process Account by putting double lines on each column of the debit side
and credit side.
12. Bring down the balance of closing stock on the debit side of the Process Account as opening stock of
the next period.
Illustration 37
A Ltd. produces product 'AXE' which passes through two processes before it is completed and transferred to
finished stock. The following data relate to October 2007.
Particulars Process Finished Stock
I (~) II (~) (~)
Opening Stock 7,500 9,000 22,500
Direct Materials 15,000 15,750
Direct Wages 11,200 11,250
Factory Overheads 10,500 4,500
Closing Stock 3,700 4,500 11,250
Inter-process Profit included in opening stock – 1,500 8,250
Output of process I is transferred to process II at 25% profit on the transfer price.
Output of process II is transferred to finished stock at 20% profit on the transfer price. Stocks in process are
valued at prime cost. Finished stock is valued at the price at which it is received from the process II. Sales during
the period are ~ 1,40,000.
Required: Process Cost Accounts and Finished Goods Account showing the profit element of each stage.
Solution
A three-column (1st for 'Total', 2nd for 'Cost' and last for 'Profit') ledger is used for the Process Accounts.
This ruling of ledger is adopted to facilitate the calculation of the provision for profit in closing stocks.
For calculating prime cost, closing stock has been deducted on the debit side. Students must bring it down
after ruling off the account at the end of the period.

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10.72 Process Costing

Dr. Process I Account Cr.

Particulars Total Cost Profit Particulars Total Cost Profit
(~) (~) (~) (~) (~) (~)
To Opening Stock 7,500 7,500 By Process II A/c (Transfer) 54,000 40,500 13,500
To Direct Materials 15,000 15,000
To Direct Wages 11,200 11,200
33,700 33,700
Less: Closing Stock 3,700 3,700
Prime Cost 30,000 30,000
To Factory Overhead 10,500 10,500
Process Cost 40,500 40,500
To Gross Profit (Note 1) 13,500 – 13,500
54,000 40,500 13,500 54,000 40,500 13,500
To Opening Stock b/d 3,700 3,700

Dr. Process II Account Cr.

Particulars Total Cost Profit Particulars Total Cost Profit
(~) (~) (~) (~) (~) (~)
To Opening Stock 9,000 7,500 1,500 By Finished Stock A/c 1,12,500 75,750 36,750
To Process I A/c (Transfer) 54,000 40,500 13,500 (Transfer)
To Direct Materials 15,750 15,750
To Direct Wages 11,250 11,250
90,000 75,000 15,000
Less: Closing Stock (Note 2) 4,500 3,750 750
Prime Cost 85,500 71,250 14,250
To Factory Overhead 4,500 4,500
Process Cost 90,000 75,750 14,250
To Gross Profit (Note 3) 22,500 – 22,500
1,12,500 75,750 36,750 1,12,500 75,750 36,750
To Opening Stock b/d 4,500 3,750 750

Dr. Finished Stock Account Cr.

Particulars Total Cost Profit Particulars Total Cost Profit
(~) (~) (~) (~) (~) (~)
To Opening Stock 22,500 14,250 8,250 By Sales 1,40,000 82,500 57,500
To Process II A/c 1,12,500 75,750 36,750
1,35,000 90,000 45,000
Less: Closing Stock (Note 4) 11,250 7,500 3,750
1,23,750 82,500 41,250
To Gross Profit 16,250 16,250
1,40,000 82,500 57,500 1,40,000 82,500 57,500
To Opening Stock b/d 11,250 7,500 3,750
Working Notes:
Let the transfer price be ~ 100, then profit is ~ 25 and cost will be (~ 100 – ~ 25) = ~ 75.
When cost is ~ 75 then profit is ~ 25
When cost is ~ 1 then profit is ~ 25/75
When cost is ~ 40,500 then profit is (~ 25 / 75) � 40,500 = ~ 13,500.
2. Out of ~ 90,000 total cost, profit is ~ 15,000.
If total cost is ~ 4,500, then profit is 15,000 / 90,000 � 4,500 = ~ 750.

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 Cost and Management Accounting - I 10.73

3. Let the transfer price be ~ 100, then profit is ~ 20 and cost will be (~ 100 – ~ 20) = ~ 80.
When cost is ~ 80 then profit is ~ 20
When cost is ~ 1 then profit is ~ 20 / 80
When cost is ~ 90,000 then profit is ~ 20 / 80 � ~ 90,000 = ~ 22,500.
4. Out of ~ 1,35,000 total cost, profit is ~ 45,000.
If total cost is ~ 11,250, profit is 45,000 / 1,35,000 � 11,250 = ~ 3,750.
Illustration 38
P Ltd. produces product 'Zed' which passes through three processes before it is completed and transferred to
finished stock. The following data will be available for the month of November, 2017 (all figures in ~):
Particulars Process Finished
A B C Stock
Opening Stock 7,000 11,200 14,000 28,000
Direct Materials 56,000 16,800 21,000
Direct Labour 49,000 56,000 49,000
Factory Overhead 28,000 33,600 28,000
Closing Stock 14,000 5,600 21,000 42,000
Inter-process Profit included in Opening Stock – 1,953 3,766 9,148
Additional information :
(i) Output of process A is transferred to process B at 25% on the transfer price.
(ii) Output of process B is transferred to process C at 20% on the transfer price.
(iii) Output of process C is transferred to finished stock at 10% on the transfer price.
(iv) Stock in process is valued at prime cost.
(v) Finished stock is valued at price at which it is received from process C.
(vi) Sales during the period are ~ 5,60,000.
You are required to show:
(a) Process Cost Accounts; (b) Finished Stock Account; (c) Provision for Unrealised Profit in
Stock Account; and (d) Extract of the Balance Sheet.
Solution (a)
Dr. Process A Account Cr.
Particulars Total Cost Profit Particulars Total Cost Profit
(~) (~) (~) (~) (~) (~)
To Opening Stock 7,000 7,000 By Process B A/c (Transfer) 1,68,000 1,26,000 42,000
To Direct Materials 56,000 56,000
To Direct Labour 49,000 49,000
1,12,000 1,12,000
Less: Closing Stock 14,000 14,000
Prime Cost 98,000 98,000
To Factory Overhead 28,000 28,000
Process Cost 1,26,000 1,26,000
To Gross Profit (Note 1) 42,000 42,000
1,68,000 1,26,000 42,000 1,68,000 1,26,000 42,000
To Opening Stock b/d 14,000 14,000

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10.74 Process Costing

Dr. Process B Account Cr.

Particulars Total Cost Profit Particulars Total Cost Profit
(~) (~) (~) (~) (~) (~)
To Opening Stock 11,200 9,247 1,953 By Process C A/c 3,50,000 2,37,024 1,12,976
To Process A A/c (Transfer) 1,68,000 1,26,000 42,000 (Transfer)
To Direct Materials 16,800 16,800
To Direct Labour 56,000 56,000
2,52,000 2,08,047 43,953
Less: Closing Stock (Note 2) 5,600 4,623 977
Prime Cost 2,46,400 2,03,424 42,976
To Factory Overhead 33,600 33,600
Process Cost 2,80,000 2,37,024 42,976
To Gross Profit (Note 3) 70,000 70,000
3,50,000 2,37,024 1,12,976 3,50,000 2,37,024 1,12,976
To Opening Stock b/d 5,600 4,623 977

Dr. Process C Account Cr.

Particulars Total Cost Profit Particulars Total Cost Profit
(~) (~) (~) (~) (~) (~)
To Opening Stock 14,000 10,234 3,766 By Finished Stock A/c 4,90,000 3,29,907 1,60,093
To Process B A/c (Transfer) 3,50,000 2,37,024 1,12,976 (Transfer)
To Direct Materials 21,000 21,000
To Direct Wages 49,000 49,000
4,34,000 3,17,258 1,16,742
Less: Closing Stock (Note 4) 21,000 15,351 5,649
Prime Cost 4,13,000 3,01,907 1,11,093
To Factory Overhead 28,000 28,000
Process Cost 4,41,000 3,29,907 1,11,093
To Gross Profit (Note 5) 49,000 49,000
4,90,000 3,29,907 1,60,093 4,90,000 3,29,907 1,60,093
To Opening Stock b/d 21,000 15,351 5,649

Dr. (b) Finished Stock Account Cr.

Particulars Total Cost Profit Particulars Total Cost Profit
(~) (~) (~) (~) (~) (~)
To Opening Stock 28,000 18,852 9,148 By Sales 5,60,000 3,20,481 2,39,519
To Process C A/c 4,90,000 3,29,907 1,60,093
5,18,000 3,48,759 1,69,241
Less: Closing Stock (Note 6) 42,000 28,278 13,722
4,76,000 3,20,481 1,55,519
To Gross Profit 84,000 — 84,000
5,60,000 3,20,481 2,39,519 5,60,000 3,20,481 2,39,519
To Opening Stock b/d 42,000 28,278 13,722

Dr. (c) Provisions for Unrealised Profit in Stock Account Cr.

Particulars (~) (~) Particulars (~) (~)
To Profit and Loss A/c (Note 7) By Balance b/d:
Process B 976 Process B 1,953
Process C 3,766
Finished Stock 9,148 14,867

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 Cost and Management Accounting - I 10.75

To Balance c/d: By Profit and Loss A/c (Note 8)

Process B 977 Process C 1,883
Process C 5,649 Finiished Stock 4,574 6,457
Finished Goods 13,722 20,348
21,324 21,324
By Balance b/d:
Process B 977
Process C 5,649
Finished Stock 13,722 20,348
Gross Profit for the month of November 2010 will be : ~
Process A 42,000
Process B 70,000
Add: Excess provision 976 70,976
Process C 49,000
Less: Addition Provision 1,883 47,117
Finished Stock 84,000
Less: Additional Provision 4,574 79,426
Total 2,39,519
Students should check this figure of gross profit with the profit column of Finished Stock Account.

(d) Balance Sheet (Extract)

Stock will appear in the Balance Sheet as: ~
Process A 14,000
Process B 4,623
Process C 15,351
Finished Stock 28,278 62,252
Working Notes:
(1) Let the transfer price be ~ 100, then profit is ~ 25 and cost will be (~ 100 – ~ 25) = ~ 75.
When cost is ~ 75 then profit is ~ 25
When cost is ~ 1 then profit is 25 / 75
When cost is ~ 1,26,000 then profit is (25 / 75) � 1,26,000 = ~ 42,000.
(2) Out of ~ 2,52,000 total cost, profit is ~ 43,953.
If total cost is ~ 5,600, then profit is 43,953 / 2,52,000 � 5,600 = ~ 977.
(3) Let transfer price be ~ 100, then profit is ~ 20 and cost will be (~ 100 – ~ 20) = ~ 80.
When cost is ~ 80 then profit is ~ 20
When cost is ~ 1 then profit is 20 / 80
When cost is ~ 2,80,000 then profit is (20 / 80) � 2,80,000 = ~ 70,000.
(4) Out of ~ 4,34,000 total cost, profit is ~ 1,16,742. If total cost is ~ 21,000, the profit is ~ 1,16,742 / 4,34,000
� ~ 21,000 = ~ 5,649.
(5) Let transfer price be ~ 100, then profit is ~ 10 and cost will be (~ 100 – ~ 10) = ~ 90.
When cost is ~ 90 then profit is ~ 10
When cost is ~ 1 then profit is 10 / 90
When cost is ~ 4,41,000 then profit is (10 / 90) � 4,41,000 = ~ 49,000.
(6) Out of ~ 5,18,000 total cost, profit is ~ 1,69,241. If total cost is ~ 42,000 then profit is 1,69,241 / 5,18,000 �
~ 42,000 = ~ 13,722.
(7) Excess provision in respect of Process B
Opening balance of provision ~ 1,953
Less: Provision required for closing stock 977 976

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10.76 Process Costing

(8) Additional provision in respect of Process C and finished stock.

New Old Required
Process C 5,649 3,766 1,883
Finished Stock 13,722 9,148 4,574

Previous Years’ C.U. Question Paper (with Solution)

[For General Candidates Only]
Illustration 39
A chemical product passes through three different processes to convert into a finished product. Data relating
to the product for the month of January 2008 are given below:
Total Process - I Process - II Process - III
Basic raw materials (20,000 units) 20,000 20,000 - -
Other materials (~) 13,000 4,000 5,000 4,000
Direct wages (~) 30,000 12,000 10,000 8,000
Direct expenses (~) 57,590 14,000 29,140 14,450
Production Overhead (~) 15,000 - - -
(absorbed as a percentage of wages)
Output (in units) - 18,200 17,400 16,400
Normal Loss in process of Input - 10% 7.5% 5%
Scrap Value per Unit - ~ 1.00 ~ 2.00 ~ 3.00
There was no stock at start or at end in any process. All goods are sold at 20% profit on sales.
You are required to prepare the necessary accounts.
[C.U.B.Com. (Hons.) - 2008]

Solution
Dr. Process - I Account Cr.
Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Raw Materials 20,000 1 20,000 By Normal Loss A/c 2,000 1 2,000
To Other Materials 4,000 By Process - II A/c 18,200 3 54,600
To Direct Wages 12,000
To Direct Expenses 14,000
To Production Overheads
(50% of Wages) 6,000
To Abnormal Gain A/c 200 3 600
20,200 56,600 20,200 56,600

Dr. Process - II Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Process - I A/c 18,200 3 54,600 By Normal Loss A/c 1,365 2 2,730
To Other Materials 5,000 By Process - III A/c 17,400 6 1,04,400
To Direct Wages 10,000
To Direct Expenses 29,140
To Production Overheads 5,000
To Abnormal Gain A/c 565 6 3,390
18,765 1,07,130 18,765 1,07,130

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 Cost and Management Accounting - I 10.77

Dr. Process - III Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Process - II A/c 17,400 6 1,04,400 By Normal Loss A/c 870 3 2,610
To Other Materials 4,000 By Abnormal Loss A/c 130 8 1,040
To Direct Wages 8,000 By Finished Stock A/c 16,400 8 1,31,200
To Direct Expenses 14,450
To Production Overheads 4,000
17,400 1,34,850 17,400 1,34,850

Dr. Normal Loss Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Process - I A/c 2,000 1 2,000 By Abnormal Gain A/c 200 1 200
To Process - II A/c 1,365 2 2,730 By Abnormal Gain A/c 565 2 1,130
To Process - III A/c 870 3 2,610 By Bank A/c 3,470 6,010
4,235 7,340 4,235 7,340

Dr. Abnormal Gain Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Normal Loss A/c - Process I 200 1 200 By Process - I A/c 200 3 600
To Normal Loss A/c - Process II 565 2 1,130 By Process - II A/c 565 6 3,390
To Profit and Loss A/c 2,660
765 3,990 765 3,990

Dr. Abnormal Loss Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)

I I I I I I ---1
To Process - III A/c 130 8 1,040 By Bank A/c 130 3 390
By Profit and Loss A/c 650
130 1,040 130 1,040

Dr. Finished Stock Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Process - III A/c I 16,400 I 8 I 1,31,200 I By Cost of Goods Sold A/c I16,400 I 8 I
1,31,200

Dr. Costing Profit and Loss Account Cr.

Particulars ~ Particulars ~
To Cost of Goods Sold A/c 1,31,200 By Sales A/c 1,64,000
to Abnormal Loss A/c
To Net Profit

Working Notes :
II 650
34,810
1,66,660
By Abnormal Gain A/c

---1
2,660

1,66,660

(1) Process - I
(a) (i) Normal loss is 10% of input = 10% of 20,000 units = 2000 units
Scrap value = 2,000 � Re 1 = ~ 2,000.
(ii) Expected output (2,0000 – 2,000) 18,000 units
Actual output 18,200 units
Abnormal Gain 200 units

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10.78 Process Costing

Total Cost of the Process - Scrap Value of Normal Loss

(b) CostperUnit = - - -Expected
- - - Output
- - -(Input
- - --Normal
- - -Loss)
----

56,000 - 2,000 54,000

= ----- = =~3
20,000 - 2,000 18,000
(c) Value of Abnormal Gain = 200 � ~ 3 = ~ 600.
(2) Process - II
(a) (i) Normal loss is 7.5% of input = 7.5% of 18,200 units = 1365 units
Scrap value = 1365 � ~ 2 = ~ 2,730.
(ii) Expected output (18200 – 1365) 16,835 Units
Actual output 17 400 Units
Abnormal Gain 565 Units
Total Cost of the Process - Scrap Value of Normal Loss
(b) CostperUnit = - - - - - - - - - - - - - - - - - - -
Expected Output (Input - Normal Loss)

1,03,740 - 2,730 1,01,010

18,200 - 1,365
= 16,835
= ~ 6.
(c) Value of Abnormal Gain = 565 � ~ 6 = ~ 3,390.
(2) Process - III
(a) (i) Normal loss is 5% of input = 5% of 17,400 units = 870 units
Scrap value = 870 � ~ 3 = ~ 2,610.
(ii) Expected output (17,400 – 870) 16,530 units
Actual output 16 400 units
Abnormal Loss 130 units
Total Cost of the Process - Scrap Value of Normal Loss
(b) CostperUnit = - - - - - - - - - - - - - - - - - - -
Expected Output (Input - Normal Loss)

1,34,850 - 2,610 1,32,240

17,400 - 870
= 16,530
= ~ 8.
(c) Value of Abnormal Gain = 130 � ~ 8 = ~ 1,040.
Illustration 40
The following information is available in respect of Process II of a product :
Input (1,000 Units) ~ 5,000 (Cost)
Further materials introduced ~ 6,000
Direct labour ~ 4,000
Overhead Charges 75% of labour cost
Output of Process II 900 units
Normal wastage 15% input
Scrap value of wastage ~ 2 per unit
Prepare :
(i) Process II Account; and
(ii) Abnormal Gain Account.
[C.U.B.Com. (Hons.) [ 2009]

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 Cost and Management Accounting - I 10.79

Solution
Dr. Process II Account Cr.
Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Process I A/c (Input) 1,000 5 5,000 By Normal Loss 150 2 300
To Materials 6,000 By Finished Stock A/c 900 20.82 18,740
To Direct Labour 4,000
To Overheads (75% of Direct Wages) 3,000
To Abnormal Gain A/c 50 20.82 1,040
1,050 19,040 1,050 19,040

Dr. Abnormal Gain Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Normal Loss A/c 50 2 100 By Process II A/c 50 20.82 1,040
To Costing Profit and Loss A/c
I 50 I I
940
1,040 I I I 1----1
50 1,040

Working Notes :
(1) Process - II
(a) (i) Normal loss is 15% of input = 15% of 1,000 units = 150 units
Scrap value = 150 � ~ 2 = ~ 300.
(ii) Expected output (1,000 – 150) 850 units
Actual output 900 units
Abnormal Gain 50 units
Total Cost of the Process - Scrap Value of Normal Loss
(b) CostperUnit = ------------------
Expected Output (Input- Normal Loss)

18,000 � 300 17,700

= = = ~ 20.82
1,000 � 150 850
(c) Value of Abnormal Gain = 50 � ~ 20.82 = ~ 1,040 (Approx.).
Illustration 41
A product passes through three processes — A, B, C. 1,000 units @ ~ 4 per unit was introduced in process A.
Production overheads are absorbed as a percentage of direct wages. The following information is available
from the cost records :
Particulars Process A Process B Process C Total
(~) (~) (~) (~)
Other materials 5,200 4,000 2,050 11,250
Direct wages 4,500 7,360 2,800 14,660
Production overheads 14,660
The actual output and information relating to normal loss of the different processes are given below :
Particulars Normal Loss as a Output Variable of Scrap
percent of input Units per unit (~)
Process A 10% 900 2
Process B 20% 680 4
Process C 25% 540 5

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10.80 Process Costing

Prepare Process Accounts, Abnormal Loss Account and Abnormal Gain Account.
[C.U.B.Com. (Hons.) - 2010]

Solution
Dr. Process A Account Cr.
Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Materials (Input) 1,000 4 4,000 By Normal Loss 100 2 200
To Other Materials 5,200 By Process B A/c (Note 1b) 900 20 18,000
To Direct Wages 4,500
To Production Overheads 4,500
1,000 18,200 1,000 18,200

Dr. Process B Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Process A A/c 900 20 18,000 By Normal Loss 180 4 720
To Other Materials 4,000 By Abnormal Loss A/c 40 50 2,000
To Direct Wages 7,360 By process C A/c 680 50 34,000
To Production Overheads 7,360
900 36,720 900 36,720

Dr. Process C Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Process B A/c 680 50 34,000 By Normal Loss 170 5 850
To Other Materials 2,050 By Finished Stock A/c 540 80 43,200
To Direct Wages 2,800
To Production Overheads 2,800
To Abnormal Gain A/c 30 80 2,400
710 44,050 710 44,050

Dr. Abnormal Loss Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Process B A/c 40 50 2,000 By Bank A/c 40 4 160
By Costing Profit and Loss A/c 1,840
I 40 I I 2,000 I I 40, I 1----1
2,000

Dr. Abnormal Gain Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Normal Loss A/c 30 5 150 By Process C A/c 30 80 2,400
To Costing Profit and Loss A/c
I 30 I I 2,250
2,400 I I 30 I ,______I
2,400

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 Cost and Management Accounting - I 10.81

Dr. Normal Loss Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Process A A/c 100 2 200 By Bank A/c (Sale of
To Process B A/c 180 4 720 Normal Loss of Process A) 100 2 200
To Process C A/c 170 5 850 By Bank A/c (Sale of
Normal Loss of Process B) 180 4 720
By Bank A/c (Sale of
Normal Loss of Process C) 140 5 700)
By Abnormal Gain A/c
(Adjustment of abnormal gain) 30 5 150
1,770 1,770

Working Notes :
(1) Process - A
(a) (i) Normal loss is 10% of input = 10% of 1,000 units = 100 units
Scrap value = 100 � ~ 2 = ~ 200.
(ii) Expected output (1,000 – 100) 900 units
Actual output 900 units
Abnormal Loss / Gain Nil
Total Cost of the Process - Scrap Value of Normal Loss
(b) CostperUnit = -------------------
Expected Output (Input- Normal Loss)

18,200 � 200 18,000

= = = ~ 20
1,000 � 100 900

(2) Process - B
(a) (i) Normal loss is 20% of input = 20% of 900 units = 180 units
Scrap value = 180 � ~ 4 = ~ 720.
(ii) Expected output (900 – 180) 720 units
Actual output 680 units
Abnormal Loss 40 units
Total Cost of the Process - Scrap Value of Normal Loss
(b) CostperUnit = -------------------
Expected Output (Input- Normal Loss)

36,720 � 720 36,000

== = = ~ 50
900 � 180 720
(c) Value of Abnormal Loss = 40 � ~ 50 = ~ 2,000.
(3) Process - C
(a) (i) Normal loss is 25% of input = 25% of 680 units = 170 units
Scrap value = 170 � ~ 5 = ~ 850.
(ii) Expected output (680 – 170) 510 units
Actual output 540 units
Abnormal Gain 30 units

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10.82 Process Costing

Total Cost of the Process - Scrap Value of Normal Loss

(b) CostperUnit = - - -Expected
---- -------------
Output (Input- Normal Loss)

41,650 � 850 40,800

= = = ~ 80
680 � 170 510
(c) Value of Abnormal Loss = 30 � ~ 80 = ~ 2,400.
Illustration 42
XYZ Ltd. produces a standard product through Process A and Process B. Finished product of Process A is
used as raw materials of Process B.
From the following details prepare Process A A/c, Process B A/c, Abnormal Loss A/c, Abnormal Gain A/c
and Normal Loss A/c :
Particulars Process A Process B
Input (Units) 15,000 13,000
Labour cost (~) 18,000 15,275
Normal Loss 10% 5%
Material cost (~) 30,000 4,000
Factory overhead (~) 9,000 10,950
Scrap value per unit (~) 2.00 3.00
There was no opening or closing work-in-progress.
The final output from Process B was 12,500 units.
[B.Com. (Hons.) - 2012]

Solution In the books of XYZ Ltd.

Dr. Process A Account Cr.
Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Materials 15,000 2 30,000 By Normal Loss A/c 1,500 2 3,000
To Labour Cost 18,000 By Abnormal Loss A/c 500 4 2,000
To Factory Overheads 9,000 To Process B A/c 13,000 4 52,000
15,000 57,000 15,000 57,000

Dr. Process B Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Process A A/c 13,000 4 52,000 By Normal Loss A/c 650 3 1,950
To Materials 4,000 By Finished Stock A/c 12,500 6.5 81,250
To Labour Cost 15,275
To Factory Overheads 10,950
To Abnormal Gain A/c 150 6.5 975
13,150 83,200 13,150 83,200

Dr. Normal Loss Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Process A A/c 1,500 2 3,000 By Bank A/c 1,500 2 3,000
To Process B A/c 650 3 1,950 By Bank A/c 500 3 1,500
By Abnormal Gain A/c 150 3 450
2,150 4,950 2,150 4,950

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 Cost and Management Accounting - I 10.83

Dr. Abnormal Loss Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Process A A/c 500 4 2,000 By Bank A/c 500 2 1,000

I 500 I I 2,000 I
By Costing Profit and Loss A/c
I I 1----1
500
1,000
2,000

Dr. Abnormal Gain Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) (~) (~) (Units) (~) (~)
To Normal Loss A/c 150 3 450 By Process B A/c 150 6.5 975
To Costing Profit and Loss A/c
I 150 I I
525
975 I I 150
I ,______I
975

Working Notes :
(1) Process - A
(a) (i) Normal loss is 10% of input = 10% of 15,000 units = 1,500 units
Scrap value = 1,500 � ~ 2 = ~ 3,000.
(ii) Expected output (15,000 – 1,500) 13,500 units
Actual output 13,000 units
Abnormal Loss 500 units
Total Cost of the Process - Scrap Value of Normal Loss
(b) CostperUnit = - - -Expected
- - - Output
- - -(Input-
- - -Normal
- - -Loss)
----

57,000 � 3,000 54,000

= = =~4
15,000 � 1,500 13,500

(2) Process - B
(a) (i) Normal loss is 5% of input = 5% of 13,000 units = 650 units
Scrap value = 650 � ~ 3 = ~ 1,950.
(ii) Expected output (13,000 – 650) 12,350 units
Actual output 12,500 units
Abnormal Gain 150 units
Total Cost of the Process - Scrap Value of Normal Loss
(b) CostperUnit = - - - - - - - - - - - - - - - - - - -
Expected Output (Input- Normal Loss)

82,225 � 1,950
= = ~ 6.50
12,350
(c) Value of Abnormal Gain = 150 � ~ 6.50 = ~ 975.
Illustration 43
Following details are given in respect of a manufacturing unit for the month of April, 2011:
(i) Opening work-in-progress 5000 units.
(a) Materials (100% complete) ~ 18,750
(b) Labour (60% complete) ~ 7,500
(c) Overheads (60% complete) ~ 3,750
(ii) Units introduced into the process 17,500 units

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10.84 Process Costing

(iii) 17,500 units are transferred to the next process.

(iv) Process costs for the period are: ~
Materials 2,50,000
Labour 1,95,000
Overheads 97,500
(v) The stage of completion of units in closing WIP are estimated to be:
Materials 100%;
Labour 50%;
Overheads 50%.
You are required to prepare a Statement of Equivalent Units of Production and Statement of Cost. Also find
the value of:
(i) Output transferred;
(ii) Closing work-in-progress using average cost method.
[C.U.B.Com. (Hons.) - 2013]

Solution Statement of Equivalent Units of Production

Input Output Equivalent Units
Materials Labour and Overheads
Details Units Details Units % Units % Units
Opening W.I.P. 5,000 Units completed and transferred 17,500 100 17,500 100 17,500
Units Introduced 17,500 Closing W.I.P. 5,000 100 5,000 50 2,500
during the current period (Balancing figure)
22,500 22,500 22,500 20,000

Statement of Cost
Element of Cost Cost Equivalent Cost per
~ Production (Unit) Unit (~)
1. Materials :
Cost of previous period 18,750
Cost of current period 2,50,000
2,68,750 22,500 11.944
2. Labour :
Cost of previous period 7,500
Cost of current period 1,95,000
2,02,500 20,000 10.125
3. Overhead :
Cost of previous period 3,750
Cost of current period 97,500
1,01,250 20,000 5.063
Total 27.132

Statement of Evaluation
Particulars Element of Cost Equivalent Cost per Cost Total
Production (Unit) Unit (~) (~) Cost (~)
1. Units completed and transferred 17,500 27.132 4,74,810
2. Closing W.I.P. Materials 5,000 11.944 59,720
Labour 2,500 10.125 25,313
Overhead 2,500 5.063 12,657 97,690
Total 5,72,500

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 Cost and Management Accounting - I 10.85

Illustration 44
X Ltd. produced a product through two distinct processes A and B and then to finished stock. From the
following information, prepare Process A A/c, Process B A/c, Normal Loss A/c, Abnormal Loss A/c and
Abnormal Gain A/c: Process A Process B
Input (Units) 15,000 13,000
Materials (~) 30,000 4,000
Labour (~) 18,000 15,275
Overhead (~) 9,000 10,950
Normal Loss 10% ?
Scrap value per unit (~) 2.00 3.00
There is no opening and closing work-in-progress. The final output from process B transferred to finished
stock 12,500 units. The finished goods are sold at ~ 7.50 per unit with a profit of ~ 1.00 per unit.
[C.U.B.Com. (Hons.) - 2014]

Solution In the books of X Ltd.

Dr. Process A Account Cr.
Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) ~ ~ (Units) ~ ~
To Materials (Input) 15,000 2 30,000 By Normal Loss A/c 1,500 2 3,000
To Labour – 18,000 By Abnormal Loss A/c 500 4 2,000
To Overheads – 9,000 By Process B A/c 13,000 4 52,000
15,000 57,000 15,000 57,000

Dr. Process B Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) ~ ~ (Units) ~ ~
To Process A A/c 13,000 4 52,000 By Normal Loss A/c 650 3 1,950
To Materials 4,000 By Finished Stock A/c 12,500 6.50 81250
To Labour 15,275
To Overheads 10,950
To Abnormal Gain A/c 150 6.50 975
13,150 83,200 13,150 83,200

Dr. Normal Loss Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) ~ ~ (Units) ~ ~
To Process A A/c 1,500 2 3,000 By Bank A/c 1,500 2 3,000
To Process B A/c 650 3 1,950 By Bank A/c 500 3 1,500
By Abnormal Gain A/c 150 3 450
2,150 4,950 2,150 4,950

Dr. Abnormal Loss Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) ~ ~ (Units) ~ ~
To Process A A/c 500 4 2,000 By Bank A/c 500 2 1,000

I I I500 2,000 Ii
By Costing Profit and Loss A/c
I I 1----1
500
1,000
2,000

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10.86 Process Costing

Dr. Abnormal Gain Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) ~ ~ (Units) ~ ~
To Normal Loss A/c 150 3 450 By Process B A/c 150 6.5 975
To Costing Profit and Loss A/c

Working Notes:
I 150 I I
525
975 I I I 1----1
150 975

(1) Process - A
(a) (i) Normal Loss is 10% of input = 10% of 15,000 units = 1,500 units
(ii) Scrap value = 1,500 � ~ 2 = ~ 3,000.
(iii) Expected Output (15,000 – 1,500) 13,500 units
Actual Output 13,000 units
Abnormal Loss 500 units
Total Process Cost - Scrap Value of Normal Loss
(b) CostperUnit = ------------------
Expected Output (Input - Normal Loss)

57,000 � 3,000 54,000

= = = ~ 4.
15,000 � 1,500 13,500
(c) Value of abnormal loss = 50 � ~ 4 = ~ 2,000.
Process - B
(a) Good units transferred to finished stock = 12,500 units. All these units were sold @ ~ 750 which
includes a profit of ~ 1 per unit. The cost per unit = (~ 7.50 – ~ 1.00) = ~ 6.50
Therefore, the total cost of finished goods = 12,500 ��~ 6.5 = ~ 81,250.
We know,
Total Process Cost - Scrap Value of Normal Loss
CostperUnit = - -Expected
---- ------------
Output (Input - Normal Loss)
In this problem, normal loss has not been given. Let us assume that total normal loss = x.
[(52,000 + 4,000 + 15,275 + 10,950) � 3x]
So, Cost per unit =
13,000 � x
82,225 � 3x
or, 6.5 =
13,000 � x
or, 6.5 (13,000 – x) = 82,225 - 3x
or, 84,500 - 6.5x = 82,225 - 3x
or 3.5x = 2,275 or x = 650
Therefore, % of normal loss = 650 / 13,000 � 100 = 5%.
(b) Expected Output (13,000 – 650) 12,350 units
Actual Output 12,000 units
Abnormal Gain 150 units
(c) Value of abnormal loss = 150 � ~ 6.5 = ~ 975.
Illustration 45
At the end of process A carried on in a factory during the month ending 31st December, 2014, the number of
units produced was 1,900 excluding 110 units abnormally damaged during the process. The damaged units
realised ~ 4.00 per unit of scrap. A normal wastage of 8% occurs during the process, the wastage realised was
~ 3.00 per unit.

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 Cost and Management Accounting - I 10.87

A unit of raw material cost was ~ 5.00. The other expenses for the month were : ~
Wages 900.00
Power 300.00
General expenses 800.00
45% of the output is sold so as to show a profit of 162/3% on selling price. The rest of the output of Process
A transferred to Process B A/c
Prepare Process A A/c and Abnormal Loss A/c.
[C.U.B.Com. (Hons.) - 2015]

Solution
In this problem quantity of raw materials introduced has not been given. Before preparing Process A
Account, it is necessary to calculate the quantity of input first. It has been calculated as under :
Number of units produced 1,900
Add: Abnormal loss 110
Number of Units produced after 8% loss of input as normal loss 2,010
2,010
Therefore, Input = × 100 = 2,185 units
92
Dr. Process A Account Cr.
Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) ~ ~ (Units) ~ ~
To Materials (Input) 2,185 5 10,925 By Normal Loss A/c 175 3 525
To Wages – 900 By Abnormal Loss A/c 110 6.169 679
To Power 300 By Cost of Goods Sold (Note 3) 855 6.169 5,274
To General Expenses – 800 By Process B A/c 1,045 6.169 6,447
2,185 12,925 2,185 12,925

Dr. Abnormal Loss Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) ~ ~ (Units) ~ ~
To Process A A/c 110 6.169 679 By Bank A/c 110 4 440

Working Notes:
I 110 I I 679 I
By Costing Profit and Loss A/c
I I 1----1
110
239
679

(1) Process - A
(a) (i) Normal Loss is 8% of input = 8% of 2,185 units = 175 units
(ii) Scrap value = 175 � ~ 3 = ~ 525.
Total Process Cost - Scrap Value of Normal Loss
(b) CostperUnit = ---------------
Expected Output (Input- Normal Loss)

12,925 � 525 12,400

= = = ~ 6.169.
2,185 � 175 2,010
(c) Cost of Goods Sold = (45% of 1,900) � ~ 6.169 = ~ 5,274.

The Question set in C.U.B.Com.Hons. - 2016 is similar to Illustration 37 (Page 10.71). therefore, no
answer has been provided here. Students are requested to refer Page 10.71 for answer.

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10.88 Process Costing

Illustration 46
Digvijoy Ltd. manufactures a product which passes through two distinct process — Process A and Process B
and then it is transferred to finished stock. From the following particulars, prepare (a) Process Accounts; (b)
Abnormal Loss Account; and (c) Abnormal Gain Account :

Process A Process B
Input (units) 60,000 52,000
Material (~) 60,000 8,000
Labour (~) 36,000 30,550
Overhead (~) 18,000 21,900
Normal Loss 10% ?
Scrap value per unit (~) 1.00 3.00
There was no opening or closing work-in-progress. The final output from Process B transferred to finished
stock was 50,000 units. These finished goods are sold at ~ 3.90 per unit fetching a profit of 20% on cost.
[C.U.B.Com. (Hons.) - 2017]

Solution In the books of Digvijoy Ltd.

Dr. Process A Account Cr.
Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) ~ ~ (Units) ~ ~
To Materials (Input) 60,000 1 60,000 By Normal Loss A/c 6,000 1 6,000
To Labour 36,000 By Abnormal Loss A/c 2,000 2 4,000
To Overhead 18,000 By Process B A/c (Note 1) 52,000 2 1,04,000
60,000 1,14,000 60,000 1,14,000

Dr. Process B Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) ~ ~ (Units) ~ ~
To Process A A/c 52,000 2 1,04,000 By Normal Loss A/c (Note 2) 18,200 3 54,600
To Materials 8,000 By Finished Stock A/c 50,000 3.25 1,62,500
To Labour 30,550
To Overhead 21,900
To Abnormal Gain A/c 16,200 3.25 52,650
68,200 2,17,100 68,200 2,17,100

Dr. Normal Loss Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) ~ ~ (Units) ~ ~
To Process A A/c 6,000 1 6,000 By Bank A/c (Scrap sold) 6,000 1 6,000
To Process B A/c 18,200 3 54,600 By Abnormal Gain A/c 16,200 3 48,600
By Bank A/c (Scrap sold) 2,000 3 6,000
24,200 60,600 24,200 60,600

Dr. Abnormal Loss Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) ~ ~ (Units) ~ ~
To Process A A/c 2,000 2 4,000 By Bank A/c (Scrap sold) 2,000 1 2,000
By Costing Profit and Loss A/c 2,000
2,000 4,000 2,000 4,000

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 Cost and Management Accounting - I 10.89

Dr. Abnormal Gain Account Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
(Units) ~ ~ (Units) ~ ~
To Normal Loss A/c 16,200 3 48,600 By Process B A/c 16,200 3.25 52,650
To Costing Profit and Loss A/c
I 16,200 I I
4,050
52,650 I I16,200 I 1------1
52,650
Working Notes :
(1) Process – A
(a) (i) Normal Loss is 10% of input = 10% of 60,000 units = 6,000 units
Scrap Value = 6,000 � ~ 1 = ~ 6,000
(ii) Expected output (60,000 – 6,000) 54,000 units
Actual output 52,000 units
Abnormal Loss 2,000 units
Total Process Cost - Scrap Value of Normal Loss
(b) CostperUnit = - - --------------
Expected Output (Input- Normal Loss)

1,14,000 � 6,000 1,08,000

= = = ~ 2.
60,000 � 6,000 54,000
(c) Value of Abnormal Loss = 20,000 ��~ 2 = ~ 4,000.
(2) Process – B
In the question, normal loss percentage of Process B has not been given. Finished goods are sold at
a profit of 20% on cost. If the cost is ~ 100, then profit is ~ 20 and selling price is ~ 120. When selling
price is ~ 120, the cost is ~ 100. Therefore, the cost per unit of finished goods = ~ 3.90 � 100 � 120
= ~ 3.25.
Let Normal Loss be x
Total Cost of the Process � 3 × �
Cost per Unit =
52,000 � �
or 3.25 (52,000 – x) = 1,64,450 – 3x
or 1,69,000 – 3.25x = 1,64,450 – 3x
or – 3.25x + 3x = 1,64,450 – 1,69,000
or 0.25x = 4,550
or x = 18,200
Therefore, Normal Loss = 18,200 units
(3) Expected output = 52,000 – 18,200 33,800
Actual output 50,000
Abnormal Gain 16,200
THEORETICAL QUESTIONS
1. (a) What do you mean by 'Process Costing'? (Page 10.1)
(b) Mention few industries where this method can be applied. (Page 10.3) [C.U. B.Com. (Hons.) - Adapted]
2. Describe the general features of Process Costing. (Page 10.3)
[C.U. B.Com. (Hons.) - Adapted], [Madras University - April, 2008]
3. What are the advantages and limitations of process costing system ? (Page 10.4)
4. What are the different methods of processing ? Describe any one method with the help of a diagram.
(Page 10.5)
5. Compare job-order costing and process costing system. (Page 10.4)

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10.90 Process Costing

6. Explain clearly how an abnormal gain arises in a process. Indicate where would it appear in a process
account and how it would be valued. (Page 10.11)
7. Explain the term 'Normal Loss'. (Page 10.11) [Madras University - April, 2006]
8. How is the normal loss treated in process costing ? (Page 10.12) [Madras University - April, 2008]
9. How would you treat the abnormal loss and abnormal gain in process costing ? (Page 10.12)
[Madras University - April, 2006]
10. Explain how abnormal loss arises in a process. State where it would appear in the Process Account and
how would it be valued. (Page 10.12)
11. What are equivalent units ? Why are they needed in process costing system ? (Page 10.43)
12. Why is it necessary to treat 'previous process cost' as a separate element of cost in process costing
system ? (Page 10.54)
13. "The value of scrap generated in a process should be credited to the process account." Do you agree
with this statement ? (Page 10.11) [C.A. (Inter) - Nov., 1995]
14. Distinguish between job costing and process costing. (Page 10.4) [C.A. (Inter) - Nov., 1996]
15. Write short notes on: (a) Abnormal Gain in Process Costing. (Page 10.16) [C.A. (INter) - May, 1993]
16. Explain the treatment of by-product in process costing. (Page 10.38) [C.S. (Inter) - Adapted]

PRACTICAL QUESTION

Preparation of Process Accounts When There is no WIP

Preparation of Process Account
10.1 Ravindra Manufacturing Company's product passes through two distinct processes A and B and then
to finished stock. It is known from past experience that wastage occurs in the process as under:
In process A, 5% of the units entering to process and in process B, 10% of the units entering the
process. The scrap value of wastage in process A is ~ 16 per 100 units and in process B is ~ 20 per 100
units. The process figures are (in ~) : Process A Process B
Material consumed 6,000 3,000
Wages 7,000 4,000
Manufacturing expenses 2,000 2,000
5,000 units were brought into process A, costing ~ 5,000. The outputs were: process A - 4,700 units,
process B - 4,150 units. Prepare Process Accounts showing the cost per unit of the output.
[D.U.B.Com. (Hons.) - 2007]
10.2 A product passes through three distinct processes A, B and C. The normal loss of units in each process
is 5%, 10% and 15% and the same is sold at ~ 2, ~ 4, ~ 5 per unit respectively.
Expenses for the month were as follows: Process
A B C
(~) (~) (~)
Sundry Materials 5,200 3,960 3,924
Wages 4,000 6,000 8,000
Actual output in unit 1,900 1,680 1,500
2000 units @ ~ 3 per unit were put into process A. The total overheads are ~ 18,000 which are to be
recovered at 100% of wages. Prepare necessary Process Account. [D.U.B.Com. (Hons.) - 2006]

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 Cost and Management Accounting - I 10.91

Preparation of Process Account, Abnormal Loss Account, Abnormal Gain Account and
Normal Loss Account
10.3 From the following information relating to process X, prepare Process Account and Abnormal Loss
Account:
Units introduced 2000 @ ~ 20 per unit.
Labour cost ~ 10,000.
Manufacturing overheads ~ 15,000.
Normal loss is 10% of input. Sale of scrap @ ~ 5 per unit.
Units produced 1700.
[D.U.B.Com. (Hons.) - Adapted]
10.4 The product of a company passes through three distinct processes - A, B and C. It is ascertained that
wastage in these processes is 2%, 5% and 10% respectively. In each case, the percentage of wastage is
computed on the number of units entering the process concerned. The wastage of each process pos-
sesses a scrap value. The wastage of processes A and B is sold at ~ 5 per 100 units and that of process
C at ~ 20 per 100 units. The following information is obtained:
Process
A B C
(~) (~) (~)
Material consumed 4,000 2,000 1,000
Direct labour 6,000 4,000 3,000
Manufacturing expenses 1,000 1,000 1,500
20,000 units have been issued to process A at a cost of ~ 8,000. The output of process A, B and C is
19,500, 18,800 and 16,000 units respectively. There is no stock or work-in-progress in any process. Show
the Process Accounts, Abnormal Loss Account, Normal Loss Account and Abnormal Gain Account.
[C.S. (Inter) - Adapted]
10.5 A product is completed in two processes A and B. During a particular month, the input to process A of
the basic raw material was 5,000 units at ~ 2 per unit. Other information for the month is as follows:
Particulars Process A Process B
Output (units) 4,700 4,300
Normal loss (% of input) 5 10
Scrap value per unit (~.) 1 5
Direct wages (~) 3,000 5,000
Direct expenses 9,750 9,910
Total overheads ~ 16,000 were recovered as percentage of direct wages.
There were no opening or closing work-in-progress stocks.
Prepare Process A and Process B Accounts, Normal Loss Account, Abnormal Loss / Gain Account.
[D.U.B.Com. (Hons.) - Adapted]
10.6 A product is finally obtained after it passes through three distinct processes. The following information
is available from the cost records (in ~) :
Process I Process II Process III Total
Materials 2,600 2,000 1,025 5,625
Direct wages 2,250 3,680 1,400 7,330
Production overheads - - - 7,330
500 units @ ~ 4 per unit were introduced in process I. Production overheads are absorbed as a percent-
age of direct wages.

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10.92 Process Costing

The actual output and normal loss of the respective processes are given below:
Output (units) Normal loss as a Value of scrap (per unit)
percentage of input
Process I 450 10% ~2
Process II 340 20% ~4
Process III 270 25% ~5
Prepare the Process Accounts and the Abnormal Gain / Loss Accounts. [I.C.W.A. (Inter) - Adapted]
10.7 The input to a purifying process was 16,000 kgs of basic material purchased @ ~ 1.20 per kg. Process
wages amounted to ~ 720 and overhead was applied @ 240% of the labour cost. Indirect materials of
negligible weight were introduced into the process at a cost of ~ 336. The actual output from the process
weighed 15,000 kgs The normal yield of the process is 92%. Any difference in weight between the input
of basic material and output of purified material (product) is sold @ Re 0.50 per kg
The process is operated under a licence which provides for the payment of royalty @ ~ 0.15 per kg of the
purified material produced.
Prepare: (i) Purified Process Account; (ii) Normal Wastage Account; (iii) Abnormal Wastage / Yield
Account; and (iv) Royalty Payable Account. [C.A. (Inter) - Adapted]
10.8 A chemical compound is made by raw material being processed through two processes. The output of
process A is passed to process B, where further material is added to the mix. The details of the process
costs for the financial period number 10 were as shown below:
Process A
Direct material 2000 kgs at ~ 5 per kg
Direct labour ~ 7,200
Process plant time 140 hours at ~ 60 per hour
Process B
Direct material 1400 kgs at ~ 12 per kg
Direct labour ~ 4,200
Process plant time 80 hours at ~ 72.50 per hour
The departmental overhead for period 10 was ~ 6,840 and is absorbed into the costs of each process on
direct labour cost.
Process A Process B
Expected output was 80% of input 90% of input
Actual output was 1400 kgs 2620 kgs
Assume no finished stock at the beginning of the period and no work-in-progress at either the begin-
ning or the end of the period.
Normal loss is contaminated material which is sold as scrap for ~ 0.5 per kg from Process A and ~ 1.825
per kg from Process B, for both of which immediate payment is received.
You are required to prepare the accounts for period 10 for:
(i) Process A; (ii) Process B; (iii) Normal Loss/Gain; (iv) Abnormal Loss/Gain; (v) Finished Goods;
(vi) Profit and Loss (Extract).
Normal Loss Percentage has not been Given
10.9 Ayush Ltd. produces a herbal shampoo which is made by subjecting certain crude herbs to two succes-
sive process: A and B. The following data in respect of processing have been obtained from the
accounting records of the company for a cost period:
Particulars Process A Process B
Inputs (units) 50,000 45,000
Normal loss 10% ?

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 Cost and Management Accounting - I 10.93

Costs incurred: ~ ~
Materials (Herbs) 9,00,000 1,96,000
Direct labour 4,26,000 2,47,000
Production overhead 2,84,000 1,78,000
Realisable scrap value / unit 7 20
The output of process A is transferred direct to process B. The output of process B was 43,200 units,
which were sold at ~ 60 per unit showing a profit of 20% on cost.
You are required to prepare the Process Cost Accounts assuming that there was no closing stock of
WIP and finished goods.
[C.U. B.Com. (Hons.) - 2004; [D.U.B.Com. (Hons.) - 2005]

Material Added in Next Process

10.10 The following particulars related to two process X and Y for the month of January 2005:
Process X Process Y
Total input (units) 50,000 1,000
@ ~ 1.50 per unit
Normal loss (% of input) 10 5
Additional costs incurred:
Materials — 3,600
Direct labour 35,000 45,000
Overheads 27,500 39,500
Realisable value of scrap per unit ~ 0.50 ~2
Output (units) 43,000 43,000
The entire output of process X was transferred to process Y. The entire output of process Y was sold at
~ 6 per unit. Assume there was no opening or closing stock of any type in process X or Y.
You are required to prepare the necessary accounts for the period.
[D.U.B.Com. (Hons.) - 2005]

Some of the Outputs are Sold

10.11 Product X in a manufacturing unit passes through three processes - A, B and C. The expenses incurred
in the three processes during the year 2017 were as under:
Process A Process B Process C
Units of input issued 9,000 — —
~ ~ ~
Cost per unit 150 - -
Sundry materials 23,500 25,000 15,000
Direct labour 80,000 2,07,200 26,110
Direct expenses 2,250 7,200 8,100
Selling price per unit of output 200 280 600
The actual outputs obtained vis-à-vis normal process losses from the three processes were:
Output (units) Process loss (%)
Process A 8,400 5
Process B 5,700 10
Process C 3,660 3
During the year, three-fourth of the output of process A and two-third of the output of process B were
transferred to the next process and the balances were sold outside. The entire output of process C was,

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10.94 Process Costing

however, sold outside. The losses of three processes were sold at ~ 5 per unit for process A, ~ 10 per unit
for process B and ~ 15 per unit for process C.
Prepare the three process accounts and a statement of income considering a total selling and distribu-
tion expenses of ~ 45,000 which is not allocated to processes.
Preparation of Process Stock Accounts
10.12. The product of a manufacturing unit passes through two distinct process. From past experience the
incidence of wastage is ascertained as under:
Process A : 2 per cent Process B : 10 per cent
In each case the percentage of wastage is computed on the number of units entering the process
concerned. The sales realisation of wastage in Process A and B are ~ 25 per 100 units and ~ 50 per 100
units respectively.
The following information is obtained for the month of April 2017. 40,000 units of crude material were
introduced in process A at a cost of ~ 16,000.
Process A Process B
Other material ~ 16,000 ~ 5,000
Direct Labour 9,000 8,000
Direct Expenses 8,200 1,500
Units Units
Output 39,000 36,500
Finished Product Stock:
April 1 6,000 5,000
April 30 5,000 8,000
Value of Stock per unit on April 1 ~ 1.20 ~ 1.60
Stocks are valued and transferred to subsequent process at weighted average costs.
Prepare respective Process Accounts and Stock Accounts. [I.C.W.A. (Inter) – Adapted]

Calculation of Input of Process I

10.13 In a manufacturing unit, raw material passes through four processes I, II, III and IV and the output of
each process is the input of the subsequent process. The loss in the four processes are respectively
25%, 20%, 20% and 16-2/3% of the input. If the end product at the end of process IV is 40,000 kg, what
is the quantity of the material required to be fed at the beginning of process I and the cost of the same
at ~ 5 per kg?
Find out also the effect of increase or decrease in the material cost of the end product for variation of
every rupee in the cost of the raw material.
10.14 In a manufacturing company, a product passes through 5 operations. The output of the 5th operation
becomes the finished product. The input, rejection, output and labour and overheads of each operation
are as under:
Operation Input Rejection Output Labour and Overhead
(units) (units) (units) (~)
1 21,600 5,400 16,200 1,94,400
2 20,250 1,350 18,900 1,41,750
3 18,900 1,350 17,550 2,45,700
4 23,400 1,800 21,600 1,40,400
5 17,280 2,880 14,400 86,400

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 Cost and Management Accounting - I 10.95

You are required to:

(i) Determine the input required in each operation for one unit of final output.
(ii) Calculate the labour and overhead cost at each operation for one unit of final output and the total
labour and overhead cost of all operation for one unit of final output.
Calculation of Percentage of Wastage
10.15 A product passes through three process - A, B and C. 10,000 units at a cost of ~ 1.10 were issued to
process A. The other direct expenses were as follows (all figures in ~):
Process A Process B Process C
Sundry materials 1,500 1,500 1,500
Direct labour 4,500 8,000 6,500
Direct expenses 1,000 1,000 1,503
The wastage of process A was 5% and of process B 4%. The wastage of process A sold at ~ 0.25 per unit
and that of B ~ 0.50 per unit and that of C at ~ 1.00 per unit.
The overhead charges were 160% of the labour. The final product was sold at ~ 10 per unit fetching a
profit of 20% on sales. Find out the percentage of wastage in process C.
10.16 The following data are available pertaining to a product after passing through two processes A and B:
Output transferred to process C from process B - 9120 units for ~ 49,263.
Expenses incurred in process C: ~
Sundry materials 1,480
Direct labour 6,500
Direct expenses 1,605
The wastage of process C is sold at ~ 1.00 per unit. The overhead charges were 168% of direct labour.
The final product was sold at ~ 10.00 per unit fetching a profit of 20% on sales.
Find the percentage of wastage in process C and prepare Process C Account.
Preparation of Process Account When There is a By-product
10.17 A product is manufactured by passing through three processes A, B and C. In process C a by-product
is also produced, which is then transferred to process D, where it is completed. For the first week in
October actual data included:
Process A Process B Process C Process D
Normal loss of input (%) 5 10 5 10
Scrap value (~ per unit) 1.50 2.00 4.00 2.00
Estimated sales value of by-product (~ per unit) - - 8.00 -
Output (units) 5,760 5,100 4,370 -
Output of by-product (units) - - 510 450
~ ~ ~ ~
Direct materials (6000 units) 12,000 - - -
Direct materials added in process 5,000 9,000 4,000 220
Direct wages 4,000 6,000 2,000 200
Direct expenses 800 1,680 2,260 151
Budgeted production overhead for the week is ~ 30,500.
Budgeted direct wages for the week is ~ 12,200.
You are required to prepare:
(a) Accounts for process A, B, C and D.
(b) Abnormal Loss Account and Abnormal Gain Account.

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10.96 Process Costing

Preparation of Process Account When There are Joint Products

10.18 Maybud Ltd. operates Process X which creates two joint products, A and B, in the ratio of 3:2 by
volume. There is no work in progress. The following information relates to Process X for last month:
(i) 80,000 litres of raw materials with a total cost of ~ 1,58,800 were input into the process and
conversion costs were ~ 1,33,000.
(ii) A normal process loss of 5% of the input was expected. An actual loss of 5,500 litres was
identified at the end of the process. Losses have a realisable value of 75 paise per liter.
It is company's policy to apportion joint costs to products using the net realisable value method. After
process X, both product A and product B are further processed at a cost of ~ 2 per liter and ~ 3 per liter
respectively. The final selling prices of the products are as follows:
Product ~ per liter
A 8
B 12
Prepare the Process Account for last month including the output volume and cost of products A and B
separately.
Calculation of Normal Price and Discounted Price
10.19 Following costs were incurred in producing 800 MT of M.S. Rods: ~
Materials 2,80,000
Labour 1,00,000
Processing Charges 1,00,000
Total Cost 4,80,000
Of the total output 10% was defective and had to be sold after a discount of 10% off the normal price.
The scrap arising out of the production realised a sum of ~ 8,760. The sale price is calculated to yield
15% profit on sales.
You are required to find out the normal price as well as the discounted price per MT of M.S. rods.
Calculation of Standard and Actual Process Cost
10.20 A product passes through two consecutive processes having relative standard output of 80% and 90%
of inputs. In addition, standard yield is obtained by giving scrap allowances of 10% and 5% of outputs
of Process I and II respectively. Scraps of each process are sold at ~ 1,000 per tonne.
There was no work in process at any stage. All materials, as follows, were issued in Process I only and
all scrap arising from processes were sold, excepting closing stock of 10 tonnes (opening stock was nil).
Material issues: A 100 tonnes @ ~ 2,000 per tonne
B 400 tonnes @ ~ 1,500 per tonne
C 500 tonnes @ ~ 1,200 per tonne
The actual outputs and scraps were 85% and 8% in Process I and 80% and 10% in Process II. Assume
that there was no price variance.
You are required to find out the Standard Cost and Actual Cost per tonne of a product. (Answer to be
given in the nearest ~).

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 Cost and Management Accounting - I 10.97

Preparation of Process Accounts When There is WIP

Equivalent Production - No Opening Stock
10.21 A company manufactures a product which involves two consecutive processes, viz., Pressing and
Polishing. For the month of October 2017, the following information is available:
Pressing Polishing
Opening stock - -
Input of units in process 1,200 1,000
Units completed 1,000 500
Units under process 200 500
Materials cost ~ 96,000 ~ 8,000
Conversion cost ~ 3,36,000 ~ 54,000
For incomplete units in process, charge materials cost at 100 per cent and conversion cost at 60 per cent
in the Pressing Process and 50 per cent in Polishing Process. Prepare a statement of cost and calculate
selling price per unit which will result in 25 per cent profit on sale price.
10.22 Following data is available for a product for the month of July, 2017:
Process I Process II
Opening work-in-progress Nil Nil
Costs incurred during the month:
Direct materials ~ 60,000 -
Labour ~ 12,000 ~ 16,000
Factory overheads ~ 24,000 ~ 20,000
Units of Production:
Received in process 40,000 36,000
Completed and transferred 36,000 32,000
Closing work-in-progress 2,000 ?
Normal loss in process 2,000 1,500
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.
10.23 A cleansing agent is manufactured from the input of three ingredients. At 1 January there was no work-
in-progress. During January the ingredients were put into the process in the following quantities:
A - 2000 kgs at ~ 8 per kg; B - 3000 kgs at ~ 5 per kg; C - 6000 kgs at ~ 4 per kg
Additionally, labour working 941 hours and being paid ~ 40 per hour was incurred and overhead
recovered on the basis of 50% of labour cost. There was no loss in the process. Output was 8600 kgs
The remaining items in work-in-progress were assessed by the company's works manager as follows:
Complete so far as materials were concerned:
One quarter of the items were 60% complete for labour and overheads.
Three quarters were 25% complete for labour and overheads.
Required: A cleansing agent process account, showing clearly the cost of the output and work-in-
progress carried forward.

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10.98 Process Costing

10.24 The product manufactured by a light engineering factory undergoes two operations: Machining and
Finishing. The following data are available relating to expenses incurred on production during November,
2017: Machining Finishing
Units as input 90,000 60,000
Expenses incurred in process:
Direct material ~ 2,70,000 Nil
Direct labour ~ 1,28,000 ~ 45,000
Overheads ~ 64,000 ~ 1,35,000
At the end of the month there were 30,000 units lying incomplete in Machining Operation. While the full
quantity of materials had been consumed for the total production, the expenditure on labour and
overheads was estimated to be 66-2/3% in respect of the incomplete products.
You are required to prepare a detailed cost statement showing the final cost per unit assuming:
(i) Completed units of Machining Operations are transferred to the Finishing Operation.
(ii) Finishing Operation has completed all the units received from the earlier operation during
November 2017, leaving no work-in-process at the end of the month.
10.25 A manufacturing concern produces standardised electric meters in one of its departments. From the
following particulars relating to a job of 50 meters, you are required to determine the value of the work-
in-progress and the finished goods:
(a) Cost incurred as per job card: ~
Direct materials 7,500
Direct labour 2,000
Overheads 6,000
(b) Selling price per meter 450
(c) Selling and distribution expenses: 30% of the sale value.
(d) 25 meters are completed and transferred to the stock of finished goods.
(e) Completion stage of work-in-progress:
Direct materials 100%
Direct labour 60%
Overheads 60%
[I.C.W.A. (Inter) - Adapted]
10.26 AB Ltd. is engaged in the process engineering industry. During the month of April, 2017, 2000 units were
introduced in Process X. The normal loss is estimated at 5% of input. At the end of the month 1,400 units
had been produced and transferred to Process Y; 460 units were incomplete and 140 units had to be
scrapped at the end of the process. The incomplete units reached the following degree of completion:
Materials 75%
Labour 50%
Overheads 50%
Following are the further details regarding Process X:
Cost of 2000 units introduced ~ 58,000
Additional materials consumed ~ 14,400
Direct labour ~ 33,400
Allocated overheads ~ 16,700
Note: The scrapped units fetched ~ 10 each.
Required:
(i) Statement of equivalent production; (ii) Statement of cost; (iii) Statement of evaluation; and
(iv) Process X Account. [I.C.W.A. (Inter) - Adapted]

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 Cost and Management Accounting - I 10.99

Equivalent Production - FIFO Method

10.27 From the following particulars extracted from the books of Y Ltd. for the month of August, 2017 prepare
the following using FIFO Method:
(i) Statement of Equivalent Production;
(ii) Statement of Apportionment of Cost; and
(iii) Process Account.
Particulars
(a) Opening stock as on 1st August : 200 units @ ~ 4 per unit
Degree of completion Materials 100%
Labour and Overheads 40%
(b) Inputs introduced during August : 1,050 units
(c) Outputs transferred to the next process : 1,100 units
(d) Closing stock as on 31st August : 150 units
Degree of completion : Materials 100%
Labour and Overheads 70%
(e) Other relevant information regarding the process are: ~
Materials 3,150
Labour 4,500
Overheads 2,250
FIFO Method — Losses in Process
10.28 Prepare a statement of Equivalent Production, Cost Statement, Statement of Valuation and Process
Account from the following particulars using FIFO method:
(a) Opening work-in-progress - 900 units at ~ 4,500
Degree of completion: Materials - 100%; Labour and overheads - 60%.
(b) Input of materials - 9,100 units at ~ 27,300.
Expenses: Labour - ~ 12,300; Overheads - ~ 8,200.
(c) Units scrapped - 1,200 units.
Degree of completion: Material - 100%; Labour and overheads - 70%.
(d) Closing work-in-progress - 1000 units
Degree of completion: Materials - 100%; Labour and overheads - 80%.
(e) Finished units transferred to next process - 7,800.
(f) Normal scrap - 10% of input: Scrap realisation @ ~ 3 per unit.
If the above statements are prepared under Average Cost Method do you need any more details?
10.29 The manufacturing of one of the products of A Ltd. requires three separate processes. In the last of the
three processes, costs, production and stock for the month just ended were:
1. Transfers from Process 2 - 1,80,000 units at a cost of ~ 3,94,200.
2. Process 3 costs : Materials ~ 1,10,520; conversion costs ~ 76,506.
3. Work-in-progress at the beginning of the month: 20,000 units at a cost of ~ 55,160 (based on FIFO
pricing method). Units were 70% complete for materials and 40% complete for conversion costs.
4. Work-in-progress at the end of the month: 18,000 units which were 90% complete for materials
and 70% complete for conversion costs.
5. Product is inspected when it is complete. Normally no losses are expected, but during the month
60 units were rejected and sold for ~ 1.50 per unit.
Required:
(a) Prepare the Process 3 Account for the month just ended.
(b) Explain how and why, your calculations would be affected if the 60 units lost were treated as
normal losses.
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10.100 Process Costing

10.30 Adam, the management accountant of Mark Limited, has on file the costs per equivalent unit for the
company's process for the last month but the input costs and quantities appear to have been mislaid.
Information that is available to Adam for last month is as follows:
Opening work-in-progress 100 units, 30% complete
Closing work-in-progress 200 units, 40% complete
Normal loss 10% of input valued at ~ 2 per unit
Output 1,250 units
The losses were as expected and Adam has a record of there being 150 units scrapped during the month.
All materials are input at the start of the process. The cost per equivalent unit for materials was ~ 2.60
and for conversion cost was ~ 1.50.
Mark Limited uses the FIFO method of stock valuation in its process account.
Required:
(a) Calculate the units input into the process.
(b) Calculate the equivalent units for materials and conversion costs.
(c) Using your answer from (b) calculate the input costs.
FIFO Method — Abnormal Gains
10.31 The following data pertain to Process I for March 2017 of Beta Limited:
Opening work-in-progress : 1,500 units at ~ 15,000
Degree of completion: Materials: 100%; Labour and overheads : 33-1/3%
Input of materials : 18,500 units at ~ 52,000.
Direct labour ~ 14,000
Overheads ~ 28,000
Closing work-in-progress : 5,000 units
Degree of completion: Materials : 90%; Labour and overheads : 30%.
Normal process loss is 10% of total (units representing opening work-in-progress + units put in).
Scrap value ~ 2.00 per unit.
Units transferred to the next process - 15,000 units.
You are required to:
(a) Compute equivalent units of production.
(b) Compute cost per equivalent unit for each cost element, i.e., materials, labour and overheads.
(c) Compute the cost of finished output and closing work-in-progress.
(d) 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 process.
[C.A. (Inter) - Adapted]
10.32 Partlet Ltd. makes a product that passes through two manufacturing processes. A normal loss equal to
8% of the raw material input occurs in Process I but no loss occurs in Process II. Losses have no
realisable value.
All the raw materials required to make the product is input at the start of Process I. The output from
Process I each month is input into Process II in the same month. Work-in-Progress occurs in Process II
only.
Information for last month for each process is as follows:
Process I
Raw material input 50,000 litres at a cost of ~ 3,65,000
Conversion costs ~ 2,56,000
Output to Process II 47,000 litres

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 Cost and Management Accounting - I 10.101

Process II
Closing Work-in-progress : 5,000 litres (40% complete for conversion costs) valued at ~ 80,000
Conversion costs : ~ 3,92,000
Closing Work-in-Progress : 2,000 litres (50% complete for conversion costs)
Required:
(a) Prepare the Process I Account for last month.
(b) Calculate in respect of Process II for last month:
(i) the value of the completed output; and
(ii) the value of closing work-in-progress.
(c) If the losses in Process I were toxic and the company incurred costs in safely disposing of them,
state how the disposal costs associated with the normal loss would have been recorded in the
Process I Account. No calculations are required.
10.33 A company operates several production processes involving the mixing of ingredients to produce bulk
animal feedstuff. One such product is mixed in two separate process operations. The information below
is of the costs incurred in, and output from, Process 2 during the period just completed:
Costs incurred: ~
Transfers from Process 1 1,87,704
Raw materials costs 47,972
Conversion costs 63,176
Opening work-in-progress 3,009
Production: Units
Opening work-in-progress 1,200
(100% complete, apart from Process 2 conversion costs which were 50% complete)
Transfers from Process 1 1,12,000
Completed output 1,05,400
Closing work-in-progress 1,600
(100% complete, apart from Process 2 conversion costs which were 75% complete)
Normal wastage of materials (including product transferred from process I), which occurs in the early
stages of Process 2 (after all materials have been added), is expected to be 5% of input. Process 2
conversion costs are all apportioned to units of good output. Wastage materials have no saleable value.
Prepare the Process 2 Account for the period, using FIFO principles.
10.34 From the following information for the month ending October 2017, prepare Process Cost Accounts for
Process III. Use FIFO method to value equivalent production.
Direct material added in Process III (Opening WIP) 2,000 units at ~ 25,750
Transfer from Process II 53,000 units at ~ 4,11,500
Transferred to Process IV 48,000 units
Closing Stock of Process III 5,000 units
Units Scrapped 2,000 units
Direct material added in Process III ~ 1,97,600
Direct Wages ~ 97,600
Production Overheads ~ 48,800
Degree of Completion : Opening Stock Closing Stock Scrap
Materials 80% 70% 100%
Labour 60% 50% 70%
Overheads 60% 50% 70%
The normal loss in the process was 5% of production and scrap was sold at ~ 3 per unit.

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10.102 Process Costing

Equivalent Production – Weighted Average Method

10.35 Process 2 receives units from Process 1 and after carrying out work on the units transfers them to
Process 3. For the accounting period the relevant data were as follows:
Opening WIP 200 units (25% complete) valued at ~ 5,000
800 units received from Process I valued at ~ 8,600
840 units were transferred to Process 3
Closing WIP 160 units (50% complete)
The costs of the period were ~ 33,160 and no units were scrapped.
Required: Prepare the Process Account for Process 2 using the Average Cost method of valuation.
[C.A. (Inter) – Adapted]
10.36 A company produces a component, which passes through two processes. During the month of April
2006, materials for 40,000 components were put into Process I of which 30,000 were completed and
transferred to Process II. Those are not transferred to Process II were 100% complete as to materials
cost and 50% complete as to labour and overheads cost. The Process I costs incurred were as follows:
Direct Materials ~ 15,000
Direct Wages ~ 18,000
Factory Overheads ~ 12,000
Of those transferred to Process II, 28,000 units were completed and transferred to finished goods stores.
There was a normal loss with no salvage value of 200 units in Process II. There were 1,800 units,
remained unfinished in the process with 100% complete as to materials and 25% complete as regard to
wages and overheads.
No further process material costs occur after introduction at the first process until the end of the second
process, when protective packing is applied to the completed components. The process and packing
costs incurred at the end of the Process II were :
Packing Materials ~ 4,000
Direct Wages ~ 3,500
Factory Overheads ~ 4,500
Required:
(i) Prepare Statement of Equivalent Production, Cost per unit and Process I Account.
(ii) Prepare Statement of Equivalent Production, Cost per unit and Process II Account.
[C.A. (PE-II) – May, 2006]
10.37 A company operates expensive process plant to produce a single product from one process. At the
beginning of October, 3,400 completed units were still in the process plant, awaiting transfer to finished
stock. They were valued as follows: ~
Direct material 25,500
Direct wages 10,200
Production overhead (200% of direct wages) 20,400
During October 37,000 further units were put into process and the following costs charged to the
process:
~
Direct materials 2,76,340
Direct wages 1,12,000
Production overhead 2,24,000
36,000 units were transferred to finished stock and 3,200 units remained in work-in-progress at the end
of October, which were complete as to material and half complete as to labour and production overhead.
A loss of 1,200 units being normal occurred during the process.
The average method of pricing is used.

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 Cost and Management Accounting - I 10.103

You are required to prepare, for the month of October, a statement (or statements) showing:
(i) production cost per unit in total and by element of cost
(ii) the total cost of production transferred to finished stock
(iii) the valuation of closing work-in-progress in total and by element of cost.
10.38 Chemical Processors manufacture Wonderchem using two processes, mixing and distillation. The fol-
lowing details relate to the distillation process for a period.
No opening work-in-progress (WIP) ~
Input from mixing 36,000 kg at a cost of 1,66,000
Labour for period 43,800
Overheads for period 29,200
Closing WIP of 8,000 kg which was 100% complete for materials and 50% complete for labour and
overheads. The normal loss in distillation is 10% of fully complete production. Actual loss in the period
was 3,600 kg fully complete, which were scrapped.
Required:
(a) Calculate whether there was a normal or abnormal loss or abnormal gain for the period.
(b) Prepare the Distillation Process Account for the period, showing clearly weights and values.
10.39 SG Ltd. produces a product which passes through two processes namely CRA and REF. The particulars
for May 2017 are as under:
(i) Stock as on 1st May, 2017 Units ~ ~
Raw materials 25,000
Work-in-process - CRA 5,000
Direct materials, 100% complete 62,500
Direct labour, 50% complete 15,000
Overheads, 50% complete 18,000 95,500
Work-in-process - REF 1,000
Direct materials, 100% complete 1,00,000
Direct labour, 25% complete 3,250
Overheads, 25% complete 2,600 1,05,850
(ii) Cost and output for May, 2017
Raw material purchased 3,50,000
Raw materials issued to:
Process CRA 2,61,450
Process REF 67,150 3,28,600
Other costs of Process CRA:
Direct labour 1,16,250
Overheads 1,32,690 2,48,940
Other costs of Process REF:
Direct labour 76,750
Overheads 61,114 1,37,864
(iii) Finished output of process CRA transferred to process REF : 20,000
Finished output of process REf transferred to stock of finished goods :20,200
(iv) On 31st May, 2017 the stocks of work-in-progress are:
Process CRA 4,000 Units
Degree of completion:
Raw materials 100%
Labour and overheads 25%

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10.104 Process Costing

Process REF 800

Degree of completion:
Raw materials 100%
Labour and overheads 50%
You are required to prepare statements showing the following for both the processes:
(a) Cost per unit of equivalent production; (b) Value of closing stock as on 31st May, 2017; and
(c) Process Cost Accounts.
Inter-process Profit
10.40 A certain product passes through three processes before it is transferred to finished stock. The following
information is obtained for the month of January (all figures in ~):
Process I II III Finished stock
Opening stock 20,000 24,000 16,000 60,000
Direct material 40,000 42,000 60,000 -
Direct wages 30,000 30,000 32,000 -
Production overheads 28,000 12,000 80,000 -
Closing stock 10,000 12,000 8,000 30,000
Profit on cost of each process 33-1/3% 25% 25% -
Inter-process Profit for opening stock - 4,000 4,000 22,000
Stock in processes are valued at prime cost and finished stock has been valued at price at which it is
received from Process II. Sales during the period were ~ 7,00,000. [I.C.W.A. (Inter) - Adapted]
10.41 A Limited produces a product which passes through two processes before it is completed and trans-
ferred to finished stock. The following data relate to September, 2017 (all figures in ~):
Process I Process II Finished Stock
Opening stock 3,000 3,600 9,000
Direct materials 6,000 6,300 -
Direct wages 4,480 4,500 -
Factory Overheads 4,200 1,800 -
Closing Stock 1,480 1,800 4,500
Inter-process profit including in opening stock- 600 3,300
Output of Process I is transferred to Process II at 25% profit on transfer price and output of Process II
is transferred to finished stock at 20% profit on the transfer price. Stocks in process are valued at prime
cost. Finished stock is valued at the price at which it is received from Process II. Sales during the period
were ~ 56,000.
You are required to prepare Process Cost Accounts and Finished Stock Account showing the profit
element at each stage. [C.A. (Inter) - Adapted]

Guide to Answers
10.1 Process A : Abnormal loss : 50 units; cost of abnormal loss : ~ 210 (50 @ ~ 4.202 approx.)
Cost of goods transferred to process B : ~ 19,750 (4,700 @ ~ 4.202 approx.)
Process B : Abnormal loss : 80 units ; cost of abnormal loss : ~ 542 (80 @ ~ 6.774)
Cost of goods transferred to finished stock : ~ 28,114 (4,150 @ ~ 6.774)
10.2 Process A : Cost per unit : ~ 10; Cost of goods transferred to Process B : ~ 19,000.
Process B : Cost per unit : ~ 20; Cost of abnormal loss : ~ 600 (30 @ ~ 20); Cost of goods transferred to
Process C : ~ 33,600 (~ 1,680 @ ~ 20)
Process C : Cost per unit : ~ 38; Cost of abnormal loss : ~ 2,736 (72 @ ~ 38); Cost of goods transferred
to finished stock : ~ 57,000 (1,500 @ ~ 38)

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 Cost and Management Accounting - I 10.105

10.3 Cost per unit : 35.56 (approx.) Cost of abnormal loss = ~ 3,556 (100 units @ ~ 35.56). Abnormal loss
debited to costing Profit and Loss Account = ~ 3,056. Cost of goods transferred to next process :
~ 60,444 (1,700 units @ ~ 35.56).
10.4 Process A : Abnormal loss : 100 units; Cost per unit : ~ 0.97. Cost of abnormal loss : ~ 97. Cost of goods
transferred to Process B : ~ 18,883 (19,500 @ Re 0.97).
Process B : Abnormal Gain : 275 units. Cost per unit : ~ 1.395 (approx.); Value of abnormal gain : ~ 384;
Cost of goods transferred to Process C : ~ 26,218 (18,800 @ ~ 1.395 approx.).
Process C : Abnormal loss : 920 units. Cost per unit : ~ 1.852 (approx.); Cost of abnormal loss : ~ 1,704.
Cost of goods transferred to finished stock : ~ 29,638 (16,000 @ 1.852).
Abnormal loss debited to Costing Profit and Loss Account = ~ 1,612 (92 + 1,520). Abnormal gain
credited to Costing Profit and Loss Account ~ 370.
10.5 Process A : Abnormal loss : 50 units; Cost per unit : ~ 6. Cost of abnormal loss : ~ 300. Cost of goods
transferred to process B : ~ 28,200 (4,700 � ~ 6).
Process B : Abnormal gain : 70 units. Cost per unit : ~ 12. Value of abnormal gain : ~ 840. Cost of goods
transferred to finished stock : ~ 51,600 (4,300 @ ~ 12).
Abnormal loss debited to Costing Profit and Loss Account = ~ 250.
Abnormal gain credited to Costing Profit and Loss Account = ~ 490.
10.6 Process I : Cost per unit : ~ 20; Cost of goods transferred to Process II : ~ 9,000 (450 @ ~ 20).
Process II : Cost per unit : ~ 50; Abnormal loss : 20 units; Cost of abnormal loss : ~ 1,000. Cost of goods
transferred to Process III : ~ 17,000 (340 units @ ~ 50).
Process III : Cost per unit : ~ 80. Abnormal gain : 15 units. Value of abnormal gain : ~ 1,200. Cost of goods
transferred to finished stock : ~ 21,600 (270 units @ ~ 80).
Abnormal loss debited to Costing Profit and Loss Account ~ 920; Abnormal gain credited to Costing
Profit and Loss Account ~ 1,25.
10.7 Cost per unit : ~ 1.60; Abnormal yield ~ 280 units. Value of abnormal yield = ~ 448. Abnormal yield
credited to Costing Profit and Loss Account = ~ 260 [~ 448 - ~ 140 (scrap value) - ~ 92 (royalty payable
on abnormal yield)].
10.8 Process A : Cost per unit = ~ 18.575. Cost of abnormal loss = ~ 3,715. Cost of goods transferred to
Process B = ~ 26,005.
Process B : Cost per unit = ~ 21.75. Abnormal gains 100 units. Value of abnormal gain = ~ 2,175. Cost of
goods transferred to finished stock = ~ 56,989 (2,620 @ ~ 21.75). Abnormal loss debited to Costing Profit
and Loss Account = ~ 3,615.
Abnormal gain credited to costing profit and loss Account = ~ 1,993.
10.9 Process A : Cost per unit = ~ 35. Cost of goods transferred to Process B = ~ 15,75,000.
Process B : Cost per unit = ~ 50. Cost of goods transferred to Finished Stock = ~ 21,60,000.
Normal Loss 4%.
10.10 Process X : Abnormal wastage = 2,000 units. Cost of abnormal loss = ~ 6,000 (2,000 @ ~ 3).
Process Y : Abnormal Gain = ~ 1,200 units,. Value of abnormal gain = ~ 6,106. Net abnormal loss debited
to Costing Profit and Loss Account = ~ 5,000. Net abnormal gain credited to Costing Profit and Loss
Account = ~ 3,706. Net Profit = ~ 37,900.
10.11 Process A : Abnormal loss : 150 units. Cost of abnormal loss = ~ 25,500. Cost per unit = ~ 170. Cost of
goods transferred to Process B = ~ 10,71,000.
Process B : Cost per unit : ~ 230. Abnormal gain 30 units @ ~ 230. Cost of goods transferred to Process
C = ~ 8,74,000.
Process C : Cost per unit : ~ 250. Abnormal loss = 26 units. Cost of abnormal loss = ~ 6,500 (25 � 250).
Net Profit = ~ 13,69,740.

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10.106 Process Costing

10.12 Process A : Cost per unit : ~ 1.25. Abnormal loss = 200 units. Cost of Abnormal loss = ~ 250. Cost of
goods transferred to Process B : ~ 49,733 (40,000 units @ ~ 1.2433 approx.).
Process B : Cost per unit : ~ 1.7287. Abnormal gain = 500 units. Value of abnormal gain ~ 864 (500 @
~ 1.7287). Cost of goods transferred to Finished Stock Account = ~ 57,392 (33,500 units @ ~ 1.7132).
10.13 Input in Process 1 : 1,00,000 kg. Cost of raw materials required = ~ 5,00,000 (1,00,000 � ~ 5).
Effect: The input is 2.5 times of the final output. Therefore, for variation of every rupee in the cost of raw
materials, the final effect will be ~ 2.50.
10.14 Input required for final output : Operation 1 – 2.20; Operation 2 – 1.50; Operation 3 – 1.40; Operation 4
– 1.30; Operation 5 – 1.20. Total labour and overhead cost of all operations for one unit of final output
= ~ 60.50.
10.15 Process A : Cost per unit : ~ 2.639. Cost of goods transferred to Process B : ~ 25,075.
Process B : Cost per unit : ~ 5.283. Cost of goods transferred to Process C = ~ 48,185.
Process C : Cost per unit : ~ 8.00 Cost of goods transferred to Finished Stock = ~ 67,392. Percentage of
wastage = 7.63%.
10.16 Percentage of normal loss in Process C : [(456 units / 9,120 units) � 100] = 5%.
Cost of goods transferred to Finished Stock = ~ 69,312.
10.17 Cost per unit : Process A : ~ 5.50, Process B : ~ 12, Process C : ~ 16, and Process D : ~ 11.
Cost of goods transferred to next Process or Finished Stock : A ~ 31,680; B ~ 61,200; C ~ 69,920; and
D ~ 4,950.
Abnormal Loss (Net) debited to Costing Profit and Loss Account : ~ 921.
Abnormal Gain (Net) credited to Costing Profit and Loss Account : ~ 660.
10.18 Total Joint Production Cost (A + B) = 74,500 litres @ ~ 3.80 = ~ 2,83,100.
Net Realisable Value of A : ~ 2,68,200. Net Realisable Value of B : ~ 2,68,200.
Production : A 44,700 litres; B : 29,800 litres. Share of Joint Production Cost : A ~ 1,41,550, B ~ 1,41,550.
Abnormal Loss : 1,500 litres. Cost of Abnormal Loss : ~ 5,700.
Total of Process Account X = ~ 2,91,800.
10.19 Net cost of production = ~ 4,71,240. Equivalent good units sold = 792 MT. Price per MT (5,54,400 � 792)
= ~ 700 per MT. Discounted price per MT = ~ 630 per MT.
10.20 Consumption of materials : ~ 13,90,000. Standard Production : 615.60 tonnes. Actual Production : 563.04
tonnes. Cost of Finished Product per tonne : Standard = ~ 2,092 (approx.). Actual = ~ 2,255 (approx.).
Sale of Scrap : Standard – ~ 1,02,400. Actual – ~ 1,20,560.
10.21 Pressing Process : Equivalent Production : Materials = 1,200 units. Labour and Overhead = 11,20 units.
Cost of units completed = ~ 3,80,000. Value of WIP = ~ 52,000.
Polishing Process : Equivalent Production : Materials = ~ 1,000 units. Labour and Overhead = 750 units.
Cost per unit = ~ 460. Cost of units completed = ~ 2,30,000. Value of WIP = ~ 2,12,000.
Selling Price per unit = ~ 613.33.
10.22 Process 1 : (a) Equivalent Production : Materials = 38,000 units. Labour and Overhead = 37,000 units.
(b) Cost per Equivalent unit = ~ 2.5519. (c) Cost of goods transferred to Process II = ~ 91,869. Value of
WIP = ~ 4,131.
Process II : (a) Equivalent Production : Materials = 34,500 units. Labour and Overhead = 33,250 units.
(b) Cost per Equivalent unit = ~ 3.7456. (c) Cost of goods transferred to Finished Stock = ~ 1,19,859.
Value of Closing Stock = ~ 8,010.
10.23 It is to be noted that 11,000 kg were put into process. 8,600 kg were completed and transferred. There-
fore, WIP is 2,400 kg consisting of two batches, one of 600 kg, 60% complete and another 1,800 kg, 25%
complete.
(i) Cost per kg of completed production = ~ 11.00 (~ 5 + ~ 4 + ~ 2).
(ii) Value of WIP : Batch (1) = ~ 5,160 + Batch (2) = ~ 11,700 = Total = ~ 16,860.

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 Cost and Management Accounting - I 10.107

10.24 Machining Operations : (a) Equivalent production : Materials = 90,000 units. Labour = 80,000 units; and
Overhead = 80,000 units. (b) Cost per equivalent unit = ~ 5.40. (c) Cost of goods transferred to Finished
Operation = ~ 3,24,000. Value of closing WIP = ~ 1,38,000.
Finishing Operation : (a) Equivalent production = 60,000 units after all element of cost. (b) Cost per
equivalent unit = ~ 8.40.
10.25 Equivalent production : Direct Materials = 50 units. Direct labour and overhead = 40 units. Total cost per
meter is ~ 350.Finished Stock is valued at NRV or Cost whichever is lower : (i) NRV (Net Realisable
Value) = 450 – 135 = 315. (ii) Cost per metre = ~ 350.
(a) Value of finished goods will be : 25 � ~ 315 = ~ 7,875.
(b) Value of WIP : Direct Materials = 25 � ~ 150 3,750
Direct Labour and Overheads = 15 � ~ 200 3,000
Total 6,750
10.26 (a) Equivalent Production : Material = 1,785 units. Labour and Overhead = 1,670 units.
(b) Cost per equivalent unit = ~ 70.
(c) Cost of goods transferred to Process ‘Y’ (1,400 � ~ 70) = ~ 98,000
Cost of Abnormal Loss = ~ 2,800. Value of Closing WIP = ~ 20,700
10.27 (a) Equivalent production : Materials = 1,050 units. Labour and Overhead = 1,125 units.
(b) Cost per equivalent unit = ~ 9.00
(c) Cost of goods transferred to next Process = ~ 9,620. Value of Closing WIP = ~ 1,080.
10.28 (a) Equivalent production : Materials = 8,100 units. Labour and Overhead = 8,200 units.
(b) Cost per equivalent unit = ~ 5.50.
(c) Cost of goods transferred to next Process = ~ 43,350.
Cost of Abnormal Loss = ~ 950. Value of Closing WIP = ~ 5,000.
10.29 (a) Equivalent production :
Material (1) = 1,80,000 units, Material (2) =1,84,200 units. Conversion cost = 1,86,600 units.
(b) Cost per equivalent unit = ~ 3.20.
(c) Cost of completed production = ~ 5,81,888.
Value of Closing WIP = ~ 54,306. Cost of Abnormal Loss = ~ 192.
10.30 (a) Units input into the process = 1,500 units. (b) Equivalent units : Materials = 1,350 units; Conversion
Cost = 1,300 units. (c) Cost incurred in period : Materials = ~ 3,810. Conversion cost = ~ 1,950.
10.31 (a) Equivalent production : Materials = 16,000 units. Labour and Overhead = 14,000 units.
(b) Cost per equivalent unit = ~ 6.
(c) Cost of output transferred to next Process = ~ 99,000.
Value of Closing WIP = ~ 18,000. Value of Abnormal Gain = ~ 12,000.
10.32 (a) Process I : Cost of output transferred to Process II = ~ 6,34,500. Abnormal Gain = ~ 13,500.
(b) Process II : Cost per equivalent litre = ~ 8. (i) Value of completed output = ~ 10,71,500. (iii) Value of
Closing WIP = ~ 35,000. (c) Disposal Cost would be debited to the Process Account.
10.33 It is assumed that the normal loss occurs at the beginning of the process and shall be allocated to
completed production and closing WIP. It is also assumed that Process 2 conversion cost are not
incurred when losses occur. Therefore, loss should not be allocated to Conversion Costs.
(a) Equivalent production : Materials = ~ 1,06,400 units; Conversion cost = ~ 1,06,000 units.
(b) Cost per equivalent unit = ~ 2,215.
(c) Cost of output transferred to Finished Stock = ~ 2,96,273. Cost of Abnormal Loss = ~ 1,329. Value of
Closing WIP = ~ 4,259.

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10.108 Process Costing

10.34 (a) Equivalent production : Material (1) = 50,500 units, Material (2) ~ 49,400 units. Labour and Overhead
= 48,800 units.
(b) Cost per equivalent unit = ~ 15.
(c) Cost of goods transferred to Process IV = ~ 7,19,750.
Value of Abnormal Gain = ~ 7,500.
Value of Closing WIP = ~ 61,500.
10.35 Equivalent production : Materials = 920 units. Labour and Overhead = 920 units.
Average Cost per completed unit = ~ 50.826
Cost of output transferred to Process 3 = ~ 42,694.
Value of Closing WIP = ~ 4,066.
10.36 Process 1 : (a) Equivalent production : Materials = 40,000 units. Labour and Overhead = 35,000 units.
(b) Cost per equivalent unit : Material = ~ 0.375; Labour and Overhead = ~ 0.8571 each.
(c) Cost of output transferred to Process II = ~ 36,964.
Value of Closing WIP = ~ 8,036.
Process 2 : (a) Equivalent production : Materials = 29,800 units. Labour and Overhead = 28,450 units.
(b) Cost per equivalent unit : Material = ~ 1.24; Labour and Overhead = ~ 0.2812 each.
(c) Cost of output transferred to Finished Stock = ~ 46,605.
Value of Closing WIP = ~ 2,359.
10.37 The question does not indicate at what stage in the production process the normal loss is detected. It
is assumed that the normal loss is detected at the end of the production process, consequently it is not
allocated to WIP. Therefore, total cost of production transferred to Finished Stock is ~ 6,29,416.
(a) Equivalent production : Material = 40,400 units; Conversion Cost = 38,800 units.
(b) Cost per unit : Material = ~ 7.47; Conversion Cost = ~ 9.45; Total = ~ 16.92.
10.38 In this problem, normal loss has been allocated between completed units, abnormal loss and WIP.
(a) Equivalent Process Cost = 33,200 units. Conversion Cost = 29,200 units.
(b) Cost per equivalent unit : ~ 7.50 each.
(c) Cost of finished output transferred= ~ 1,83,000
Cost of Abnormal Loss = ~ 6,000.
Value of WIP = ~ 50,000.
10.39 Process CRA :
(a) Equivalent production : Material = 19,000 units; Labour and Overhead = 18,500 units.
(b) Cost per equivalent unit = ~ 27.217 (13.761+ 6.284 + 7.172).
(c) Cost of finished output transferred to Process REF = ~ 5,37,390.
Value of Closing WIP = ~ 68,500.
Process REF :
(a) Equivalent production : Material = 20,000 units; Labour and Overhead = 20,350 units.
(b) Cost per equivalent unit = ~ 37.16 (30.2270 + 3.7715 + 3.0031).
(c) Cost of finished output transferred to Finished Stock = ~ 8,21,362.
Value of Closing WIP = ~ 26,892.
10.40 Process I : Transferred to process II : Total ~ 1,44,000. Cost = ~ 1,08,000; Profit = ~ 36,000
Process II : Transferred to process III : Total ~ 3,00,000. Cost = ~ 2,02,000; Profit = ~ 98,000
Process III ; Transferred to Finished Stock : Total ~ 6,00,000. Cost = ~ 3,80,000; Profit = ~ 2,20,000
Actual Profit = ~ 3,01,000.
10.41 Process I : Transferred to Process II : Total = ~ 21,600; Cost = ~ 16,200; Profit = ~ 5,400.
Process II : Transferred to Finished Stock : Total = ~ 45,000; Cost = ~ 30,300; Profit = ~ 14,700.
Actual Profit = ~ 23,000.

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