Process Costing Cost and Management Accounting

CAP II ICAN

Process Costing:- Used in industries where the material has to pass through two or more
processes for being converted into a final product.

Operation Costing:- It is the refinement of process costing. It is concerned with the determination
of the cost of each operation rather than the process

Techniques

Methods Character Suitable for

1. Process Costing Continuous Production Sugar, Cement, Chemical,

Fertilizer

AN
2. Job / Contract Costing One Job differ from other Job. Construction of Road, Bridge, Hospital
(Tailor made job)
3. Operation Costing Service Provider Transportation, Hospital, Hotel,

C
Batch Costing A lot produce at once Pharma, Jewelry

Joint Costing
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To some extent Joint then separate Crude Oil

Multiple Costing Various method applied Car, Radio, TV and Electronics

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Techniques :

The features of process costing are:

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1) The production is in continuous flow and is uniform. All units coming out as finished products
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are uniform with each other in all respects.

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2) The product is manufactured in a continuous flow and hence individual units lose their identity.

3) The unit cost is obtained by dividing the total cost for a particular period by the total output.
This is the average cost of the product units.
A

4) Cost per process is ascertained and cost of each process is transferred to the subsequent process
C

until the finished product emerges.

5) In a particular process normal and abnormal losses emerge. Normal loss is a loss, which is
inevitable in any process and thus cannot be avoided or controlled. Any loss, which, is over and
above, the normal loss is called as abnormal loss and is to be accounted for separately.

6) Sometimes each process may be treated as profit center and so while transferring the cost from
one process to another, a percentage of profit is added in the cost of that process. This is known as
inter process profit and needs to be accounted for in the process cost accounts.

7) Though the cost per unit is computed by dividing the total cost by the number of units, there can
be a problem on incomplete units at the end of a particular accounting period. In such cases
equivalent units have to be worked out for computing the cost per unit.
Process Costing Cost and Management Accounting
CAP II ICAN

Treatment of certain Items

Normal Loss: The fundamental principle of costing is that the good units should bear the amountof
normal loss. Normal loss is anticipated and in a process it is inevitable. The cost of normal loss
istherefore not worked out. The number of units of normal loss is credited to the Process Account
andif they have some scrap value or realizable value the amount is also credited to the process
account.If there is no scrap value or realizable value, only the units are credited to the process
account.

Abnormal Loss: If the units lost in the production process are more than the normal loss,
thedifference between the two is the abnormal loss. The relevant process of account is credited
andabnormal loss account is debited with the abnormal loss valued at full cost of finished output.

AN
The amount realized from sale of scrap of abnormal loss units is credited to the abnormal
lossaccount and the balance in the abnormal loss account is transferred to the Costing Profit
andLoss Account.

C
Abnormal Gain: If the actual production units are more than the anticipated units after
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deductingthe normal loss, the difference between the two is known as abnormal gain. The valuation
ofabnormal gain is done in the same manner like that of the abnormal loss. The units and
theamount is debited to the relevant Process Account and credited to the Abnormal Gain Account.
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Equivalent production means converting the incomplete production units into their equivalent
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completed units.
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Equivalent completed units = {Actual number of units in the process of manufacture} × {

Percentage of work completed}
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Valuation of Work-in process: The valuation of work-in-process can be made in the following
As

three ways, depending upon the assumptions made regarding the flow of costs.
– First-in-first-out (FIFO) method
– Last-in-first-out (LIFO) method
– Average cost method
A

A brief account of the procedure followed for the valuation of work-in-process under the above
three methods is as follows;
C

FIFO method: According to this method the units first entering the process are completed first.
Thus the units completed during a period would consist partly of the units which were incomplete
at the beginning of the period and partly of the units introduced during the period.
The cost of completed units is affected by the value of the opening inventory, which is based on the
cost of the previous period. The closing inventory of work-in-process is valued at its current cost.
LIFO method: According to this method units last entering the process are to be completed first.
The completed units will be shown at their current cost and the closing-work in process will
continue to appear at the cost of the opening inventory of work-in-progress along with current cost
of work in progress if any.
Average cost method: According to this method opening inventory of work-in-process and its
costs are merged with the production and cost of the current period, respectively. An average cost
Process Costing Cost and Management Accounting
CAP II ICAN

per unit is determined by dividing the total cost by the total equivalent units, to ascertain the value
of the units completed and units in process.

Format of process Account

Process I Account
Particulars Units Rs. Particulars Unit Rs.
To Direct Materials By Normal Loss
To direct Wages By Abnormal loss
To direct Expense By process II Account
To production OH By profit and loss A/c (output
sold)

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To cost of rectification of
normal defectives

C
Expected Normal loss = Input * expected % of Normal Loss
Realisable value of unit of normal scrap = Unit of normal scrap * scrap value per unit
Note: Unit of normal wastage have no recoverable value -I
No. of unit of abnormal loss = Expected output (i.e. input – normal loss) – Actual output
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Cost of abnormal loss = (Total cost incurred – scrap value of normal loss)* units of abnormal loss
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( input- units of normal loss)

No. of units of abnormal gain = Actual output - Expected output (i.e. input – normal loss)
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Cost of abnormal gain = (Total cost incurred – scrap value of normal loss)* units of abnormal gain
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( input- units of normal loss)

As

Work in progress:
Incomplete production units represent those production units on which percentage of completion with
regards to all elements of cost (i.e. materials, labour and overhead) is not 100%.
A

Equivalent production units:

C

Equivalent production units represent the notional quantity of completed units substituted for an
actual quantity of incomplete units.
Equivalent production units = number of incomplete units * percentage of completion
Equivalent production units can be computed separately for each element of cost (viz. material, labour
and overheads) because percentage of completion with regards to different element of cost may be
different.

Question A.
JK Ltd. produces a product “AZE”, which passes through two processes, viz., process I and
process II. The output of each process is treated as the raw material of the next process to
which it is transferred and output of the second process is transferred to finished stock.
Process Costing Cost and Management Accounting
CAP II ICAN

The following data related to December, 2007:

Process I Process II
25,000 units introduced at a cost of 2,00,000 -
Material consumed 1,92,000 96,020
Direct labour 2,24,000 1,28,000
Manufacturing expenses 1,40,000 60,000
Normal wastage of input 10% 10%
Scrap value of normal wastage (per 9.90 8.60
unit)
Output in Units 22,000 20,000

AN
Required:
(i) Prepare Process I and Process II account.

C
(ii) Prepare Abnormal effective/wastage account as the case may be each process

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(Ans: Abnormal loss 16,250 Abnormal Gain: 9,900)

Question No.1 Following information is available regarding process A for the month of February,
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1999:
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Production Record.
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Units in process as on 1.2.1999 4,000

(All materials used, 25% complete for labour and overhead)
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New units introduced 16,000

Units completed 14,000
As

Units in process as on 28.2.1999 6,000

(All materials used, 33-1/3% complete for labour and overhead)
Cost Records
Work-in-process as on 1.2.1999 (Rs.)
A

Materials 6,000
C

Labour 1,000
Overhead 1,000
8,000
Cost during the month

Materials 25,600
Labour 15,000
Overhead 15,000
55,600
Presuming that average method of inventory is used, prepare:
(i) Statement of equivalent production.
(ii) Statement showing cost for each element.
Process Costing Cost and Management Accounting
CAP II ICAN

(iii) Statement of apportionment of cost.

(iv) Process cost account for process A.
(Ans: Completed units: Rs.50,120 WIP: 13,480)
Question No.2 From the following Information for the month ending October, 2005, prepare
Process Cost accounts for Process III. Use First-in-fist-out (FIFO) method to value equivalent
production.
Direct materials added in Process III (Opening WIP) 2,000 units at Rs.25,750
Transfer from Process II 53,000 units at Rs. 4,
11,500
Transferred to Process IV 48,000 units
Closing stock of Process III 5,000 units

AN
Units scrapped 2,000 units
Direct material added in Process III Rs. 1,97,600
Direct wages Rs. 97,600

C
Production Overheads Rs. 48,800
Degree of completion:

Materials
Labour
Opening Stock
80%
60%
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Closing Stock
70%
50%
Scrap
100%
70%
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Overheads 60% 50% 70%
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The normal loss in the process was 5% of production and scrap was sold at Rs. 3 per unit.
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Question No.3 A Company produces a component, which passes through two processes. During the
month ofApril, 2006, materials for 40,000 components were put into Process I of which 30,000
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werecompleted and transferred to Process II. Those not transferred to Process II were 100%
completeas to materials cost and 50% complete as to labour and overheads cost. The Process I
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costsincurred were as follows:

Direct Materials Rs. 15,000
Direct Wages Rs.18,000
Factory Overheads Rs.12,000
A

Of those transferred to Process II, 28,000 units were completed and transferred to finishedgoods
stores. There was a normal loss with no salvage value of 200 units in Process II.There were 1,800
C

units, remained unfinished in the process with 100% complete as tomaterials and 25% complete as
regard to wages and overheads.
No further process material costs occur after introduction at the first process until the end ofthe
second process, when protective packing is applied to the completed components. Theprocess and
packing costs incurred at the end of the Process II were:
Packing Materials Rs. 4,000
Direct Wages Rs. 3,500
Factory Overheads Rs. 4,500
Required:
(i) Prepare Statement of Equivalent Production, Cost per unit and Process I A/c.
(ii) Prepare statement of Equivalent Production, Cost per unit and Process II A/c.
Process Costing Cost and Management Accounting
CAP II ICAN

Question No.4 A Chemical Company carries on production operation in two processes. The
material firstpass through Process I, where Product ‘A’ is produced.
Following data are given for the month just ended:
Material input quantity 2,00,000kgs.
Opening work-in-progress quantity
(Material 100% and conversion 50% complete) 40,000 kgs.
Work completed quantity 1,60,000kgs.
Closing work-in-progress quantity
(Material 100% and conversion two-third complete) 30,000 kgs.
Material input cost Rs. 75,000

AN
Processing cost Rs. 1,02,000
Opening work-in-progress cost
Material cost Rs. 20,000

C
Processing cost Rs. 12,000
Normal process loss in quantity may be assumed to be 20% of material input. It has no realisable
value. -I
Any quantity of Product ‘A’ can be sold for Rs. 1.60 per kg.
Alternatively, it can be transferred to Process II for further processing and then sold as Product ‘AX’
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for Rs. 2 per kg. Further materials are added in Process II, which yield two kgs. Of product ‘AX’ for
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every kg. of Product ‘A’ of Process I.

Of the 1,60,000kgs. per month of work completed in Process I, 40,000 kgs are sold as Product ‘A’
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and 1,20,000 kgs. are passed through Process II for sale as Product ‘AX’. Process II has facilities to
handle upto 1,60,000kgs. of Product ‘A’ per month, if required.
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The monthly costs incurred in Process II (other than the cost of Product ‘A’) are:
1,20,000kgs. of Product ‘A’ input 1,60,000 kgs. of Product ‘A’ input
As

(Rs.) (Rs.)
Materials Cost 1,32,000 1,76,000
Processing Costs 1,20,000 1,40,000
Required:
A

(i) Determine, using the weighted average cost method, the cost per kg. of Product ‘A’ in Process I
and value of both work completed and closing work-in-progress for the month just ended.
C

(ii) Is it worthwhile processing 1,20,000kgs. of Product ‘A’ further?

(iii) Calculate the minimum acceptable selling price per kg., if a potential buyer could be found for
additional output of Product ‘AX’ that could be produced with the remaining Product ‘A’ quantity.

Question No.5 Following details are related to the work done in Process ‘A’ of XYZ Company during
the
month of March, 2007:
Opening work-in-progress (2,000 units) (Rs.)
Materials 80,000
Labour 15,000
Overheads 45,000
Process Costing Cost and Management Accounting
CAP II ICAN

Materials introduced in Process ‘A’ (38,000 units) 14,80,000

Direct labour 3,59,000
Overheads 10,77,000
Units scrapped: 3,000 units
Degree of completion:
Materials 100%
Labour and overheads 80%
Closing work-in-progress : 2,000 units
Degree of Completion:
Materials 100%
Labour and overheads 80%

AN
Units finished and transferred to Process ‘B’ : 35,000
Normal Loss:
5% of total input including opening work-in-progress

C
Scrapped units fetch Rs. 20 per piece.
You are required to prepare:
(i) Statement of equivalent production;
(ii) Statement of cost;
(iii) Statement of distribution cost; and
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(iv) Process ‘A’ Account, Normal and Abnormal Loss Accounts.
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Question No.6 A product passes through three processes ‘X’, ‘Y’ and ‘Z’. The output of process ‘X’
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and ‘Y’ is transferred to next process at cost plus 20 per cent each on transfer price and the output
of process ‘Z’ is transferred to finished stock at a profit of 25 per cent on transfer price. The
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following information are available in respect of the year ending 31st March, 2008:
Process Process Process Finished
As

X Y Z Stock
(Rs.) (Rs.) (Rs.) (Rs.)
Opening stock 15,000 27,000 40,000 45,000
Material 80,000 65,000 50,000
A

Wages 1,25,000 1,08,000 92,000

Manufacturing Overheads 96,000 72,000 66,500
C

Closing stock 20,000 32,000 39,000 50,000

Inter process profit included in
Opening stock NIL 4,000 10,000 20,000
Stock in processes is valued at prime cost. The finished stock is valued at the price at which itis
received from process ‘Z’. Sales of the finished stock during the period was Rs. 14,00,000.
You are required to prepare:
(i) Process accounts and finished stock account showing profit element at each stage.
(ii) Profit and Loss account.
(iii) Show the relevant items in the Balance Sheet.
Process Costing Cost and Management Accounting
CAP II ICAN

Question No.7 A product passes through two processes A and B. During the year 2011, the input to
process A of basic raw material was 8,000 units @ Rs. 9 per unit. Other information for the year is
as follows:
Process A Process B
Output units 7,500 4,800
Normal loss (% to input) 5% 10%
Scrap value per unit (Rs. ) 2 10
Direct wages (Rs. ) 12,000 24,000
Direct expenses (Rs. ) 6,000 5,000
Selling price per unit (Rs.) 15 25
Total overheads Rs. 17,400 were recovered as percentage of direct wages. Selling expenses were Rs

AN
. 5,000. There are not allocate to the processes. 2/3 of the output ofProcess A was passed on to the
next process and the balance was sold.The entireoutput of Process B was sold.
Prepare Process A and B Accounts.

C
(Ans: Abnormal loss 1,250 Abnormal Gain: 6,540 Net profit 19,100)
Question No.8 Product B is obtained after it passes through three distinct processes. The following

Particulars Total Amount

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information is obtained from the accounts for the week ending on 31st March 2006

Process I Process II Process III

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Direct material Rs.7,542 Rs. 2,600 Rs. 1,980 Rs. 2,962
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Direct wages Rs. 9,000 Rs. 2,000 Rs. 3,000 Rs. 4,000
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Production overheads Rs.9,000

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1,000 units @ Rs. 3 each were introduced in Process I. There was no stock of materials or work
inprogress at the beginning or at the end of the period. The output of each process passes direct to
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next process and finally to finished store. Production overheads are recovered on 100% of direct
wages.The following additional data are obtained.

Particulars Output duringthe week % of normalloss to inputValue of scrapper unit

A

Process I 950 units 5% Rs. 2

C

Process II 840 units 10% Rs. 4

Process III 750 units 15% Rs. 5

Prepare Process Cost Accounts and Abnormal Loss and Abnormal Gain Account.

(Ans: Finished goods Rs.28,500)

Question No. 9In a manufacturing unit, raw material passes through four processes, I, II, III, and IV
and the output ofeach process is the input for the subsequent process. The losses in the four
processes are respectively25%, 20%, 20% and 16 2/3 % respectively for I, II, III and IV processes of
the input. If the end productat the end of the IV process is 40,000 kg, what is the quantity of raw
Process Costing Cost and Management Accounting
CAP II ICAN

material required to be fed at thebeginning of Process I and the cost of the same at Rs. 5 per kg?

Question No.10A product passes through two processes A and B. Prepare the process accounts
from thefollowing details.

Particulars Process A Process B

10, 000 units introduced at a cost Rs. 20,000 —

Materials consumed Rs. 24,000 12,000

Direct labor Rs. 28,000 16,000

AN
Manufacturing expenses Rs. 8,000 8,566

Normal wastages on input 5% 10%

C
Scrap value of normal wastage Rs. Per 100 units 40 50

Output [units] -I 9,400

Also prepare the abnormal wastage/effective account as the case may be with each process account
8,500
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.
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Question No.10A material used for building is produced in three grades. The following information
is available.
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Particulars Process I – Rs. Process II – Rs. Process III– Rs.

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Raw material used [1000 tons] 1, 00, 000 — —

As

Wages 87, 500 39, 500 10, 710

Weight lost [% of input] 5% 10% 20%

A

Scrap [sales price of Rs.50 per ton] 50 tons 30 tons 51 tons

C

Sale price per ton of finished goods Rs.350 Rs.500 Rs.800

Management expenses were Rs.17,500 and selling expenses Rs.10,000. 2/3rd of output of process
Iand 50% of the output of process II is passed to the next process and remaining is sold. The
entireoutput of process III is sold. Prepare Process Accounts and Statement of Profit.

Question No.11AB Ltd is engaged in the process engineering industry. During the month, October
2007, 2000 unitswere introduced in process ‘X’. The normal loss is estimated at 5% of input. At the
end of the month,1400 units had been produced and transferred to process ‘Y’, 460 were
incomplete units, and 140 unitshad to be scrapped at the end of the process. The incomplete units
reached the following degree ofcompletion:

Material: 75%, Labor: 50%, overheads: 50%

Process Costing Cost and Management Accounting
CAP II ICAN

Following are the further details regarding process X.

Cost of 2000 units introduced: Rs. 58,000

Additional material consumed Rs. 14,400

Direct labor: Rs. 33,400

Allocated overheads: Rs. 16,700

Note: The scrapped units fetched Rs.10 each.

Required: [As per First In First Out Method]

AN
A] Statement of equivalent production

B] Statement of cost

C
C] Statement of evaluation

D] Process ‘X’ Account.

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Question No.12From the following particulars, prepare the following in the books of X Ltd.
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I] Statement of equivalent production

II] Statement of apportionment of cost

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III] Process Account

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A] Opening stock as on 1st August: 200 units @ Rs. 4 per unit

As

B] Degree of completion: Materials 100%, Labor and Overheads: 40%

C] Units introduced during August: 1,050 units

A

D] Output transferred to the next process: 1,100 units

C

E] Closing stock: 150 units

F] Degree of completion: Materials 100%, Labor and Overheads: 70%

G] Other relevant information regarding the process,

 Materials: Rs.3,150
 Labor: Rs.4,500
 Overheads: Rs.2,250

Question No.13Vinal Ltd. produces Article B from a material, which passes through two processes,
namely P and Q.
Process Costing Cost and Management Accounting
CAP II ICAN

The details relating to a month are as under,

Particulars Process P Process Q

Materials introduced - units 10,000

Transferred to next process 9,000

Work in progress: At the beginning of themonth – units 600

At the end of the month – units 400

Expenses: Work in progress – beginning of the month Rs. 9,400

AN
Materials introduced at the beginning of the monthRs. 1,20,000

Labor and overheads: Rs. 27,600 Rs. 18,200

C
Stage of completion of work in progress:
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Process P: Closing work in progress 20% complete in respect of labor and overheads

Process Q: Opening work in progress 331/3% complete in respect of labor and overheads
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Closing work in progress 25% complete in respect of labor and overheads

The finished output B, emerging out of Process Q is sold for Rs. 20 per unit
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The management is considering an alternative by which the finished output B could be

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furtherprocessed by installing a new machine at a capital cost of Rs. 8 lakhs. In such an event, the
finalproduct known as article N produced by this operation could be sold at Rs. 25 per unit. The
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operatingexpenses of the aforesaid further treatment are estimated at Rs. 23, 000. The company
desires a returnon investment of 25%

Required:
A

I] Prepare the process cost accounts for Process P and Q [Show the working of equivalent units and
C

cost per equivalent unit in each process according to FIFO method]

II] Prepare a statement of profitability of Product B as it emerges from Process Q

III] Advise the management whether further treatment of Product B by installing the new machine

should be taken up or not.

Question No.14A certain product passes through three processes before it is completed. The
output of each processis charged to next process at a price calculated to give a profit of 20% on
transfer price.[i.e. 25% onthe cost price] The output of Process III is charged to finished goods stock
account on a similar basis.There was no work in progress at the beginning of the year and
Process Costing Cost and Management Accounting
CAP II ICAN

overheads had been ignored. Stocksin each process have been valued at prime cost of the processes
.

The following data are obtained at the end of December 2007

Particulars Process I Rs. Process II Rs. Process III Rs. Finished Stock Rs

Direct Material 30,000 20,000 40,000

Direct Wages 20,000 30,000 10,000

Stock as on 31st December 10,000 20,000 30,000 30,000

AN
Sales during the year — — - 1,70,000

From the above information prepare,

C
[a] Process cost accounts showing the profit element at each stage

[b] Actual realized profit

[c] Stock valuation as would appear in the Balance Sheet

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Question No.15 RTP MAY 2015The following data are available in respect of Process-I for October
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2014:

(1) Opening stock of work in process: 600 units at a total cost of Rs.4,200.
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(2) Degree of completion of opening work in process:

As

Material 100%

Labour 60%
A

Overheads 60%
C

(3) Input of materials at a total cost of Rs. 55,200 for 9,200 units.

(4) Direct wages incurred Rs. 18,600

(5) Overheads Rs. 8,630.

(6) Units scrapped 200 units. The stage of completion of these units was:

Materials 100%

Labour 80%

Overheads 80%
Process Costing Cost and Management Accounting
CAP II ICAN

(7) Closing work in process; 700 units. The stage of completion of these units was:

Material 100%

Labour 70%

Overheads 70%

(8) 8,900 units were completed and transferred to the next process.

(9) Normal loss is 4% of the total input (opening stock plus units put in)

(10) Scrap value is Rs.6 per unit.

AN
You are required to:

(a) Compute equivalent production,

C
(b) Calculate the cost per equivalent unit for each element.
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(c) Calculate the cost of abnormal loss (or gain), closing work in process and the unitstransferred to
the next process using the FIFO method.
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Question No.16 RTP NOV 2014Oleum Refinery Ltd. refines crude oil and produces two joint
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product Gasoline and HSDin the ratio of 4:6. The refining is done in three processes.

Crude oil is first fed in Process-A, from where the two products Gasoline and HSD areget separated.
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After separation from Process-A, Gasoline and HSD are furtherprocessed in Process- B and Process-
C respectively. During the month of July, 2014,4,50,000Ltr. of crude oil were processed in Process-A
As

at a total cost of Rs.1,71,99,775.

In Process-B, Gasoline is further processed at a cost of Rs. 10,80,000.

A

In Process- C, HSD is further processed at a cost of Rs. 1,35,000.

C

The Input output ratio for the each process is as follows:

Process- A 1 : 0.80

Process- B 1 : 0.95

Process- C 1 : 0.90

The details of sales during the month are:

Gasoline HSD

Quantity sold (Ltr.) 1,32,000 1,88,000

Process Costing Cost and Management Accounting
CAP II ICAN

Sales price per Ltr.(Rs.) 68 46

There were no opening stocks. If these products were sold at split-off point, the selling

price of Gasoline and HSD would be Rs.64 and Rs.41 per Ltr. respectively.

Required:

(i) Prepare a statement showing the apportionment of joint cost to Gasoline and HSDin proportion
of sales value at split off point.

(ii) Prepare a statement showing the cost per Ltr. of each product indicating joint cost,processing
cost and total cost separately.

AN
(iii) Prepare a statement showing the product wise profit or loss for the month.

Question No.17 RTP MAY 2014M J Pvt. Ltd. produces a product "SKY" which passes through two

C
processes, viz.Process-A and Process-B. The details for the year ending 31st March, 2014 are as
follows:
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Process A Process - B
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40,000 Units introduced at a cost of Rs. 3,60,000 -
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Material Consumed Rs.2,42,000 2,25,000

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Direct Wages Rs. 2,58,000 1,90,000

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Manufacturing Expenses Rs. 1,96,000 1,23,720

Output in Units 37,000 27,000

As

Normal Wastage of Input 5% 10%

Scrap Value (per unit) Rs. 15 20

A

Selling Price (per unit) Rs. 37 61

C

Additional Information:

(a) 80% of the output of Process-A, was passed on to the next process and the balancewas sold. The
entire output of Process- B was sold.

(b) Indirect expenses for the year was Rs. 4,48,080.

(c) It is assumed that Process-A and Process-B are not responsibility centre.

Required:

(i) Prepare Process-A and Process-B Account.

Process Costing Cost and Management Accounting
CAP II ICAN

(ii) Prepare Profit & Loss Account showing the net profit I net loss for the year.

Question No.18 NOV 2013From the following information for the month of January, 2013, prepare
Process-III costaccounts.

Opening WIP in Process-III 1,600 units at Rs. 24,000

Transfer from Process-II 55,400 units at Rs. 6,23,250

Transferred to warehouse 52,200 units

AN
Closing WIP of Process-III 4,200 units

Units Scrapped 600 units

C
Direct material added in Process-III Rs. 2,12,400

Direct wages

Production overheads
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Rs.96,420

Rs. 56,400
s
Degree of completion:
nt

Opening Stock Closing Stock Scrap

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Material 80% 70% 100%

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Labour 60% 50% 70%

As

Overheads 60% 50% 70%

The normal loss in the process was 5% of the production and scrap was sold @ Rs. 5 perunit.
A

(Students may treat material transferred from Process – II as Material – A and freshmaterial used in
Process – III as Material B)
C

Question.No.19

From the following Information for the month ending October, 2005, prepare Process Cost accounts
for Process III. Use First-in-fist-out (FIFO) method to value equivalent production.

Direct materials added in Process III (Opening WIP) 2,000 units at Rs. 25,750

Transfer from Process II 53,000 units at Rs.4,11,500

Transferred to Process IV 48,000 units

Closing stock of Process III 5,000 units

Process Costing Cost and Management Accounting
CAP II ICAN

Units scrapped 2,000 units

Direct material added in Process III Rs.1,97,600

Direct wages Rs.97,600

Production Overheads Rs.48,800

Degree of completion:

Opening Stock Closing Stock Scrap

Materials 80% 70% 100%

AN
Labour 60% 50% 70%

Overheads 60% 50% 70%

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The normal loss in the process was 5% of production and scrap was sold at Rs. 3 per unit.

Question.No.20
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Following information is available regarding Process A for the month of October 2010:
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Production Record:

(i) Opening work-in progress 40,000 Units

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(Material: 100% complete, 25% complete for

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labour& overheads)
As

(ii) Units Introduced 1,80,000 Units

(iii) Units Completed 1,50,000 Units

A

(iv) Units in-process on 31.10.2010 70,000 Units

C

(Material: 100% complete, 50% complete for

labour& overheads)

Cost Record:

Opening Work-in-progress:

Material 1,00,000

Labour 25,000

Overheads 45,000
Process Costing Cost and Management Accounting
CAP II ICAN

Cost incurred during the month:

Material 6,60,000

Labour 5,55,000

Overheads 9,25,000

Assure that FIFO method is used for W.I.P. inventory valuation.

Required:

(i) Statement of Equivalent Production

AN
(ii) Statement showing Cost for each element

(iii) Statement of apportionment of Cost

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(iv) Process A Account

JOINT PRODUCT/BY PRODUCT

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Joint Products - Two or more products of equal importance, produced, simultaneously from the
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same process, with each having a significant relative sale value are known as joint products.
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Co-Products - Two or more products which are contemporary but do notemerge necessarily from
the same material in the same process.
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By-Products - “products recovered from material discarded in a main process,or from the
production of some major products
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Treatment of By-Product Cost in Cost-Accounting

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(i) When they are of small total value:

1. The sales value of the by-products may be credited to the Profit and LossAccount and no credit
be given in the Cost Accounts. The credit to theProfit and Loss Account here is treated either as
A

miscellaneous income oras additional sales revenue.

2. The sale proceeds of the by-product may be treated as deductions fromthe total costs. The sale
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proceeds in fact should be deducted either fromthe production cost or from the cost of sales.
(ii) When the by-products are of considerable total value - The joint costs may bedivided over joint
products and by-products by using relative market values ;physical output method (at the point of
split off) or ultimate selling prices (if sold).
(iii) Where they require further processing -The net realisable value of the byproductat the split-off
point may be arrived at by subtracting the furtherprocessing cost from the realisable value of by-
products.
If total sales value of by-products at split-off point is small, it may be treated as perthe provisions
discussed above under (i).
In the contrary case, the amount realised from the sale of by-products will beconsiderable and thus
it may be treated as discussed under (ii).
Process Costing Cost and Management Accounting
CAP II ICAN

Method of apportioning joint cost over joint products:

The commonly used methods for apportioning total process costs upto the point ofseparation over
the joint products are as follows :
(i) Physical unit method
(ii) Average unit cost method
(iii) Survey method
(iv) Contribution margin method
(v) Market value method :
(a) At the point of separation
(b) After further processing
(c) Net realisable value.

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i)Average Unit Cost Method: under this method, total process cost (upto the point ofseparation) is
divided by total units of joint products produced. On division average costper unit of production is

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obtained. The effect of application of this method is that all jointproducts will have uniform cost per
unit.
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(ii) Contribution Margin Method: under this method joint costs are segregated into twoparts –
variable and fixed. The variable costs are apportioned over the joint products onthe basis of units
produced (average method) or physical quantities. If the products arefurther processed, then all
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variable cost incurred be added to the variable costdetermined earlier. Then contribution is
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calculated by deducting variable cost from theirrespective sales values. The fixed costs are then
apportioned over the joint products onthe basis of contribution ratios.
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(iii) Market Value at the Time of Separation: This method is used for apportioning jointcosts to
joint products upto the split off point. It is difficult to apply if the market value ofthe products at the
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point of separation are not available. The joint cost may beapportioned in the ratio of sales values
of different joint products.
As

(iv) Market Value after further Processing: Here the basis of apportionment of joint costsis the
total sales value of finished products at the further processing. The use of thismethod is unfair
where further processing costs after the point of separation aredisproportionate or when all the
joint products are not subjected to further processing.
A

(v) Net Realisable Value Method: Here joint costs is apportioned on the basis of netrealisable
value of the joint products,
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Net Realisable Value = Sale value of joint products (at finished stage)
(-) estimated profit margin
(-) selling & distribution expenses, if any
(-) post split off cost

Question N. 21
The Sunshine Oil Company purchases crude vegetable oil. It does refining of the same. The refining
process results in four products at the split off point: M, N, O and P.
Product O is fully processed at the split off point. Product M, N and P can be individually further
refined into ‘Super M’, ‘Super N’ and ‘Super P’. In the most recent month (October, 1999), the output
at split off point was:
Process Costing Cost and Management Accounting
CAP II ICAN

Product M 3,00,000 gallons

Product N 1,00,000 gallons
Product O 50,000 gallons
Product P 50,000 gallons
The joint cost of purchasing the crude vegetable oil and processing it were Rs. 40,00,000. Sunshine
had no beginning or ending inventories. Sales of Product O in October were Rs. 20,00,000. Total
output of products M, N and P was further refined and then sold. Data related to October, 1999 are
as follows:
Further Processing Costs to Sales
Make Super Products
Super M 80,00,000 1,20,00,000

AN
Super N 32,00,000 40,00,000
Super P 36,00,000 48,00,000

C
Sunshine had the option of selling products M, N and P at the split off point. This alternative
would have yielded the following sales for the October, 1999 production:
Product M
Product N
Product P
Rs.20,00,000
Rs.12,00,000
Rs.28,00,000
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You are required to answer:
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(i) How the joint cost of Rs.40,00,000 would be allocated between each product under each of the
following methods (a) sales value at split off; (b) physical output (gallons); and (c) estimated net
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realizable value?
(ii) Could Sunshine have increased its October, 1999 operating profits by making different
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decisions about the further refining of product M, N or P? Show the effect of any change you
recommend on operating profits.
As

Question No. 22
ABC Ltd. operates a simple chemical process to convert a single material into three separate items,
referred to here as X, Y and Z. All three end products are separated simultaneously at a single split-
off point.
A

Product X and Y are ready for sale immediately upon split off without further processing or any
other additional costs. Product Z, however, is processed further before being sold. There is no
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available market price for Z at the split-off point.

The selling prices quoted here are expected to remain the same in the coming year. During 2002-03
, the selling prices of the items and the total amounts sold were:
X – 186 tons sold for Rs.1,500 per ton
Y – 527 tons sold for Rs.1,125 per ton
Z – 736 tons sold for Rs.750 per ton
The total joint manufacturing costs for the year were Rs.6,25,000. An additional Rs.3,10,000 was
spent to finish product Z.
There were no opening inventories of X, Y or Z at the end of the year, the following inventories
of complete units were on hand:
X 180 tons
Process Costing Cost and Management Accounting
CAP II ICAN

Y 60 Tons
Z 25 tons
There was no opening or closing work-in-progress.
Required:
(i) Compute the cost of inventories of X, Y and Z for Balance Sheet purposes and cost of goods sold
for income statement purpose as of March 31, 2003, using:
(a) Net realizable value (NRV) method of joint cost allocation
(b) Constant gross-margin percentage NRV method of joint-cost allocation.
(ii) Compare the gross-margin percentages for X, Y and Z using two methods given in requirement (
i)

AN
Question No.23 A Company operates process which produces four products: K, L, M, N from a
basic raw material. The company’s budget for a month is as under:
Raw Material consumption 17,520

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Initial processing wages 16,240
Initial processing overhead 16,240

Product Product Sales

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Additional Processing
Costs after split off
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K 16,000 109600 28,800
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L 200 5600 -
M 2,000 30000 16,000
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N 360 21600 6,600

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The Company presently intends to sell product L at the point of split off without further processing.
The remaining products, K , L, N are to be further processed and sold. However, the management
As

has been advised that it would be possible to sell all the four products at the split off point without
further processing and if this course was adopted, the selling prices would be as under:

Product K L M N
A

Selling Price (per Kg) 4.00 28.00 8.00 40.00

C

The joint cost are to be apportioned on the basis of the sales value realization at the point of split off
.
Required:
1. Prepare the statement showing the apportionment of joint costs.
2. Present a statement showing the product wise and total budgeted profit or loss based on
the proposal to sell product L at the split off point and products K, M and N after further
processing.
3. Prepare a statement to show the product wise and total profit or loss if the alternative
strategy to sell all the products at split off stage was adopted.
4. Recommended any other alternative which in your opinion can increase the total profit
further. Calculate the total profit as also the product wise profit or loss, based on your
recommendation.
Process Costing Cost and Management Accounting
CAP II ICAN

Question No.24 A company produces two joint products X and Y, from the same basic materials.
The processing is completed in three departments.
Materials are mixed in department I. At the end of this process X and Y get separated. After
separation X is completed in the department II and Y is completed in department III. During a
period 200,000 Kgs of raw material were processed in department I, at the total cost of Rs.875,000.
and the resultant 60% becomes X and 30% becomes Y and 10% normally lost in processing.
In department II, 1/6 of the quantity received from department I is lost in processing. X is further
processed in department II at the cost of Rs.180,000.
In department III further new material is added to the material received from department I and
weight mixture is doubled, there is no quantity loss in the department and further processing cost (

AN
with material cost) is Rs. 150,000.
The details of sales during the year:
Product X Product Y

C
Quantity sold (Kgs) 90,000 115,000
Sales price per Kg (Rs.) 10 4

Y would be Rs.8 and Rs.4 per kg respectively.

Required:
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There were no opening stocks. If there products sold at the split off point, the selling price of X and
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1. Prepare a statement showing the apportionment of joint cost to X and Y in the
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proportion of sales value at the split off point.

2. Prepare a statement showing the cost per Kg of the each product indicating joint cost,
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processing cost and the total cost separately.

3. Prepare a statement showing the product wise profit for the year.
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4. On the basis of the profits before and after processing of product X and Y, give your
comments that products should be further processed or not.
As

Question No.25 In the course of manufacture of the main products ‘P’ by products A and B also
emerge. The joint expenses of manufacture amount to be Rs.119,550. All the three products are
processed further after separation and sold as per details given below:
A

Main Products By Products

C

P A B
Sales Rs. 90,000 60,000 40,000
Costs incurred after separation Rs. 6,000 5,000 4,000
Profit as percentage on sales % 25 20 15

The fixed selling expenses are 10% of total cost of sales which are to be apportioned to the three
products in the ration of 20:40:40.
1. Prepare a statement showing the apportionment of joint costs to the main product and
the two by products.
If the by product A is not subjected to further processing and is sold at the point of separation for
which there is a market, at Rs.58,500 without incurring and selling expenses. Would you advise it’s
disposal at this stage? Show the workings.
Process Costing Cost and Management Accounting
CAP II ICAN

Question.No.26
A Company operates process which produces four products: K, L, M, N from a basic raw
material. The company’s budget for a month is as under:
Raw Material consumption 17,520
Initial processing wages 16,240
Initial processing overhead 16,240
Product Product Sales Additional Processing Costs after split
off
K 16,000 109600 28,800
L 200 5600 -

AN
M 2,000 30000 16,000
N 360 21600 6,600

C
The Company presently intends to sell product L at the point of split off without further
processing. The remaining products, K , L, N are to be further processed and sold. However,
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the management has been advised that it would be possible to sell all the four products at
the split off point without further processing and if this course was adopted, the selling
prices would be as under:
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Product K L M N
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Selling Price (per Kg) 4.00 28.00 8.00 40.00

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The joint cost are to be apportioned on the basis of the sales value realization at the point
of split off.
Required:
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5. Prepare the statement showing the apportionment of joint costs.

As

6. Present a statement showing the product wise and total budgeted profit or loss
based on the proposal to sell product L at the split off point and products K, M and N
after further processing.
A

7. Prepare a statement to show the product wise and total profit or loss if the
alternative strategy to sell all the products at split off stage was adopted.
C

8. Recommended any other alternative which in your opinion can increase the total
profit further. Calculate the total profit as also the product wise profit or loss, based
on your recommendation.

Question.No.27
A company produces two joint products X and Y, from the same basic materials. The
processing is completed in three departments.
Process Costing Cost and Management Accounting
CAP II ICAN

Materials are mixed in department I. At the end of this process X and Y get separated. After
separation X is completed in the department II and Y is completed in department III. During
a period 200,000 Kgs of raw material were processed in department I, at the total cost of Rs
.875,000. and the resultant 60% becomes X and 30% becomes Y and 10% normally lost in
processing.
In department II, 1/6 of the quantity received from department I is lost in processing. X is
further processed in department II at the cost of Rs.180,000.
In department III further new material is added to the material received from department I
and weight mixture is doubled, there is no quantity loss in the department and further
processing cost (with material cost) is Rs. 150,000.

AN
The details of sales during the year:
Product X Product Y
Quantity sold (Kgs) 90,000 115,000

C
Sales price per Kg (Rs.) 10 4
There were no opening stocks. If there products sold at the split off point, the selling price
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of X and Y would be Rs.8 and Rs.4 per kg respectively.
Required:
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5. Prepare a statement showing the apportionment of joint cost to X and Y in the
proportion of sales value at the split off point.
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6. Prepare a statement showing the cost per Kg of the each product indicating joint
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cost, processing cost and the total cost separately.

7. Prepare a statement showing the product wise profit for the year.
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8. On the basis of the profits before and after processing of product X and Y, give
your comments that products should be further processed or not.
As

Question.No.28
In the course of manufacture of the main products ‘P’ by products A and B also emerge. The
joint expenses of manufacture amount to be Rs.119,550. All the three products are
A

processed further after separation and sold as per details given below:
Main Products By Products
C

P A B
Sales Rs. 90,000 60,000 40,000
Costs incurred after separation Rs. 6,000 5,000 4,000
Profit as percentage on sales % 25 20
15
The fixed selling expenses are 10% of total cost of sales which are to be apportioned to the
three products in the ration of 20:40:40.
2. Prepare a statement showing the apportionment of joint costs to the main
product and the two by products.
Process Costing Cost and Management Accounting
CAP II ICAN

3. If the by product A is not subjected to further processing and is sold at the point
of separation for which there is a market, at Rs.58,500 without incurring
and selling expenses. Would you advise it’s disposal at this stage? Show the
workings.
Short Notes:

A Ltd. is engaged in production of sugar. While producing sugar molasses is alsoproduced.

Molasses is identified as by-product of sugar. Suggest the treatment ofmolasses in the cost
accounts of A Ltd.

Molasses is a by product of sugar and treatment of by-product in cost accounting is asfollows.

AN
(i) When they are of small total value, the amount realized from their sale may be dealtas follows:

- Sales value of the by-product may be credited to Profit and Loss Account and nocredit be given in

C
Cost Accounting. The credit to Profit and Loss Account here istreated either as a miscellaneous
income or as additional sales revenue.
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- The sale proceeds of the by-product may be treated as deduction from the totalcosts. The sales
proceeds should be deducted either from production cost or costof sales.
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(ii) When they require further processing: In this case, the net realisable value of theby-product at
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the split-off point may be arrived at by subtracting the furtherprocessing cost from realisable value
of by-product. If the value is small, it may betreated as discussed in (i) above.
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As
A
C