PROCESS COSTING WHEN ALL OUTPUT IS FULLY COMPLETE WITH NO OPENING

OR ENDING INVENTORY AND PROCESS IS COMPLETED IN ONE DEPARTMENT.

Following 7 situations may arise :

1 No losses with process
2 Normal loss with no scrap value.
3 Abnormal loss with no scrap value
4 Normal loss with scrap value
5 Abnormal loss with scrap value
6 Abnormal gain with no scrap value
7 Abnormal gain with scrap value

ILLUSTARTION:

Normal Abnormal Abnormal Scrap value of lost

Case Input Output Loss Loss Gain Units
(Kg) (Kg) (Kg) (Kg) (Kg) (Rs per Kg).)
1 12,000 12,000 - - - -
2 12,000 10,000 2,000 - - -
3 12,000 9,000 2,000 1,000 - -
4 12,000 10,000 2,000 - - 5
5 12,000 9,000 2,000 1,000 - 5
6 12,000 11,000 2,000 - 1,000 -
7 12,000 11,000 2,000 - 1,000 5

Cost Incurred ----- Rs.120,000/-

Note : In all situations :

1) No cost will be assigned to normal loss units.
2) Units of abnormal loss and abnormal gain will be irrelevent while calculating cost per unit.
3) Normal loss and abnormal loss units will have same scrap value, if given.

1) NO LOSS WITH PRICESS

a) Simply divide the total cost incurred by the output for the period as follows :

Cost per unit = Total cost incurred

Total output

Cost per unit = Rs.120,000

12000
Cost per unit = Rs.10/-

Process Account
Unit Rate (Rs.) Units Rate (Rs.)

Input 12000 10 120000 Output 12000 10 120000

Page 1 Process costing

2) NORMAL LOSS WITH NO SCRAP VALUE
a) Divide the total cost incurred with good out (good output=Input - normal loss)
b) No cost is to be assigned to normal loss. All cost is to be assigned to gppd/actual output.
Note : No separate (T) account is required for normal loss.

Cost per unit = Total cost incurred

Total input - normal loss

Cost per unit = Rs.120,000

12000 - 2000
Cost per unit = Rs.12/-

Process Account
Unit Rate (Rs.) Units Rate (Rs.)
Input 12000 10 120000 Normal loss 2000 - -
Output 10000 12 120000

12000 120000 12000 120000

3) ABNORMAL LOSS WITH NO SCRAP VALUE

a) Diveide the total cost incurred with good output i.e input units less normal loss only. Abnormal
loss is irrelevent for this purpose.
b) Assign the same cost per unit to abnormal loss which is assigned to good output ( which is
determined in step a).
c) Open an 'abnormal loss' account and close it with profit and loss account (P & L).
d) No cost is to be assigned to normal loss (and no separate (T) account is required).

Cost per unit = Total cost incurred

Total input - normal loss

Cost per unit = Rs.120,000

12000 - 2000
Cost per unit = Rs.12/-

Process Account
Unit Rate (Rs.) Units Rate (Rs.)
Input 12000 10 120000 Normal loss 2000 - -
Anormal loss 1000 12 12000
Output 9000 12 108000
12000 120000 12000 120000

Page 2 Process costing

 Abnormal Loss Account
Unit Rate (Rs.) Units Rate (Rs.)
Process A/C 1000 12 12000 Profit & Loss Acc 1000 12 12000

4) NORMAL LOSS WITH SCRAP VALUE

a) Determine the unit cost by the following formula :
Cost per unit = Input cost - Total scrap value of normal loss
Input - Normal Loss
b) Credit the process account with total scrap value of normal loss.
c) Open a 'normal loss account' and close it with cash/account receivable.(If nothing is mentioned in
question, close it cash).

Cost per unit = Rs.120,000 - (2000 units x Rs,5 per unit)

12000 - 2000
Cost per unit = Rs.11/-

Process Account
Unit Rate (Rs.) Units Rate (Rs.)
Input 12000 10 120000 Normal loss 2000 5 10000
Output 10000 11 110000

12000 120000 12000 120000

Abnormal Loss Account

Unit Rate (Rs.) Units Rate (Rs.)
Process A/C 2000 5 10000 Cash 2000 5 10000

Page 3 Process costing

5) ABNORMAL LOSS WITH SCRAP VALUE
a) Determine the unit cost by the following formula :
Cost per unit = Input cost - Total scrap value of normal loss
Input - Normal Loss
b) Remember that normal loss and abnormal loss units will have same scrap value.
c) In process account, credit the normal loss with scrap value.
d) Open a 'normal loss account' and close it with cash/account receivable account.
e) In process account, credit the abnormal loss with the cost per unit (as determined in step a)
f) Open an abnormal loss account and credit it with scrap value. Close abnormal loss account
with P & L account.

Cost per unit = Rs.120,000 - (2000 units x Rs.5 per unit)

12000 - 2000
Cost per unit = Rs.11/-

Process Account
Unit Rate (Rs.) Units Rate (Rs.)
Input 12000 10 120000 Normal loss 2000 - -
Abnormal loss 1000 11 11000
Output 9000 11 99000
12000 120000 12000 120000

Normal Loss Account

Unit Rate (Rs.) Units Rate (Rs.)
Process A/C 2000 5 10000 Cash 2000 5 10000

Abnormal Loss Account

Unit Rate (Rs.) Units Rate (Rs.)
Process A/C 1000 11 11000 Cash 1000 5 5000
Profit & Loss Acc - - 6000
11000 11000

Page 4 Process costing

6) ABNORMAL GAIN WITH NO SCRAP VALUE
a) Determine the unit cost by the following formula :
Cost per unit = Input cost
. Input - Normal Loss
b) Debit the process account with abnormal gain units assigning the cost determined in step a.
c) Open an 'abnormal gain account' and close it with profit & loss account.
d) Credit the process account with normal loss units wothout assiging any value.(There is no need
normal loss account).
(Note : Actuall output will be equal to normal good output plus abnormal gain)

Cost per unit = Rs.120,000

12000 - 2000
Cost per unit = Rs.12/-

Process Account
Unit Rate (Rs.) Units Rate (Rs.)
Input 12000 10 120000 Normal loss 2000 - -
Abnormal Output 11000 12 132000
gain 1000 12 12000
12000 132000 12000 120000

Abnormal Gain Account

Unit Rate (Rs.) Units Rate (Rs.)
P & L Acc 1000 12 12000 Process Account 1000 12 12000

Page 5 Process costing

7) ABNORMAL GAIN WITH SCRAP VALUE
a) Determine the unit cost by the following formula :
Cost per unit = Input cost - Total scrap value of normal loss
Input - Normal Loss
b) Debit the process account and credit the abnormal gain account with abnormal gain units,
assigning the cost as determined in step a.
c) Credit the process account with normal loss units without assigning any value.
d) Important Point
Debit the abnormal gain account (with same units which we credited in step b) with scrap value and
credit the the normal loss account. Then close the abnormal gain account with profit & loss account.
e) Close the normal loss account with cash/account receivable account.
(Note : Actuall output will be equal to normal good output plus abnormal gain)

Cost per unit = Rs.120,000 - (2000 units x Rs.5 per unit)

12000 - 2000
Cost per unit = Rs.11/-

Process Account
Unit Rate (Rs.) Units Rate (Rs.)
Input 12000 10 120000 Normal loss 2000 5 10000
Abnormal Output 11000 11 121000
gain 1000 11 11000
13000 131000 13000 131000

Abnormal Gain Account

Page 6 Process costing

 Unit Rate (Rs.) Units Rate (Rs.)
Normal loss 1000 5 5000 Process account 1000 11 11000
P & L Acc 6000
11000 11000

Normal Loss Account

Unit Rate (Rs.) Units Rate (Rs.)
Process Acc 2000 5 10000 Abnormal gain 1000 5 5000
Cash 1000 5 5000
10000 10000

PROCESS COSTING WITH ENDING WORK-IN-PROCESS(WIP) PARTIALLY COMPLETED

(WHILE PROCESS IS COMPLETED IN ONE/SAME DEPARTMENT)

This topic is related to equivalent production ---- some times referred to as finished equivalents.

To do this, we must estimate the % degree of completion of the WIP and multiply this by the number
of units of process at the end of the accounting period .

Consider the following example :

Units put into production 10000 units

Units completed 8000 units
Units in process (50% complete) 2000 units
Cost for the period Rs.180,000/-

Equivalent Production Units

Units completed 8000
WIP --- (2000 units * 50%) 1000
9000

Cost per unit = Cost incurred

Equivalent units

= Rs.180,000
9000 units

Page 7 Process costing

 = Rs.20 per unit

Allocation of cost (Rs.)

Units completed (8000 units @ Rs.20 per unit) 160,000
WIP (1000units @ Rs.20 per unit) 20,000
180,000

ELEMENT OF COST WITH DIFFERENT DEGREES OF COMPLETION OF WIP ENDING AND

PROCESS IS COMPLETED IN MORE THAN ONE DEPARTMENT

Example
The XYZ Company manufacrures a product that passes through two process. The following
information relates to the two processes:
Process A Process B
Opening WIP (Units) - -
Units introduced into the process (Units) 14000 10000
Units completed and transferred to the next process or
finished goods inventory (Units) 10000 9000
Closing WIP (Units) 4000 1000
Cost of production transferred from Process A - Rs.270,000
Material costs added Rs.210,000 Rs.108,000
Conversion costs Rs.144,000 Rs.171,000

Matrials are added at the end of process A and at the end of process B and conversion costs are
added uniformly throughout the processes. The closing WIP is estimated to be 50% complete for
both processes.

Solution
1) Calculation of cost per unit for process A.

Page 8 Process costing

 Total Completed WIP Total Cost per
Cost Element Cost Units Equivalent Equivalent units
(Rs.) Units Units (Rs.)
(a) (b) (C) (d) a/d
Material 210,000 10000 4000* 14000 15
Conversion costs 144,000 10000 2000* 12000 12
354,000 27

* 4000 units completed (Material 100% i.e 4000 x 100=4000------

Conversion costs is 50% completed i.e 4000 x 50% = 2000)

Cost Allocation OR Cost accounted for as follows : (Rs.)

Units completed (10000 units @ Rs.27/- per unit) and transferred to process B 270,000
Work-in-process:
Material (4000 units @ Rs.15/- per unit) 60,000
Conversion costs (2000 units @ Rs.12/- per unit) 24,000 84,000

354,000
Note : These figures should be matched

Process Account
Pariculars (Rs.) Particulars (Rs.)
Material 210,000 Units completed 270,000
Conversion costs 144,000 WIP b/f 84000
354,000 354,000

2) Calculation of cost per unit for process B

Total Completed WIP Total Cost per

Cost Element Cost Units Equivalent Equivalent units
(Rs.) Units Units (Rs.)
(a) (b) (C) (d) a/d
Previous process cost 270,000 9000 1000 1000 27
Material 108,000 9000 0* 9000 12
Conversion costs 171,000 9000 500 9500 18
549,000 57

* Units are completed upto 50% while material is added at the end of process. Therefore, no WIP
units for material.
Note : Treat prevoius cost (ie units transferred from process A) just like cost elements of process B.
Do not forget to include equivalent units of previous cost in WIP.

Cost Allocation OR Cost accounted for as follows : (Rs.)

Units completed & transferred to finished goods :
9000 units @ Rs.57/- per unit 513,000

Page 9 Process costing

Work in process :
Previous cost (1000 units @ Rs.27 per unit) 27,000
Material -
Conversion costs (500 units @ Rs.18 per unit) 9,000 36,000
549,000

Process Account
Pariculars (Rs.) Particulars (Rs.)
Previous process cost 270,000 Units completed 513,000
Material 108,000 WIP b/f 36,000
Conversion costs 171,000

549,000 549,000

Note : All units of WIP should always be included in WIP irrespective of their stage of completion.
For example, in most of the questions, it is mentioned that material is added at the start of the
process and about ending WIP, WIP has 1000 units (coonversion cost 50% and material 100%). If no
stage of completion is given about material including in WIP, it will be definitely 100%. It means WIP
has 1000 units of materail and 500 units of conversion cost for costing/valuation purpose.
Never include these 1000 units of material in completed units. These will always be a part of WIP.

BEGINNING AND ENDING WORK IN PROCESS OF UNCOMPLETED UNITS (AND 2 OR MORE

DEPARTMENTS ARE INVOLVED)

There are two (2) methods for solving the problem.

a) Weighted Average Method :
In this method, it is assumed that opening WIP is merged with the units introduced (put into the
production) in the current period and can longer be identified separately.

b) FIFI Method (FIFO = First In First Out)

In this method, it is assumed that the opening WIP is first group of units to be processed and
completed during the current period first, i.e completed before the completion of input units
introduced during the current period.

Example :
A plastic industry has two processes, X and Y. Material is added at the start of process X, and an
additional material is added to process Y, when the process is 70% complete. Conversion costs

Page 10 Process costing

are applied uniformly through out the both processes. The completed units of process X are
immediately transferred to process Y, and the completed production of process Y is transferred
to finished goods stock. Data for the period include the following:

Process X Process Y
Opening WIP 6000 units 60% 2000 units 80%
converted, consisting converted. Consisting
of materials Rs.72,000 of previous cost of
and conversion costs Rs.91,800, and
Rs.45,900 conversion costs o
Rs.38,400

Units started during the period 16000 units 18000 units

Closing WIP 4000 units 8000 units

75% completed 50 % completed

Material cost added during the period Rs.192,000 Rs.60,000

Conversion costs added during the period Rs.225,000 Rs.259,200

Solution

a) Weighted Average Method :

i. Process X

Cost Opening Current Total Completed WIP Total Cost per

Element WIP Cost Cost Units* Equivalent Equivalent Unit
(Rs.) (Rs.) (Rs.) Units Units (Rs.)
Materail 72,000 192,000 264,000 18000 4000 22000 12.00

Conversion
costs 45,900 225,000 270,900 18000 3000 21000 12.90

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 117,900 417,000 534,900 24.90
* See working at the end of process Y.

Cost Allocation (Rs.)

Units cpmpleted & Transferred to Process Y (18000units @ Rs.24.90) 448,200
Work-in-process:
Material (4000 units @ Rs.12.00 per unit) 48,000
Conversion cost (3000 units @ Rs.12.90 per unit) 38,700 86,700
534,900
ii. Process Y

Cost Opening Current Total Completed WIP Total Cost per

Element WIP Cost Cost Units* Equivalent Equivalent Unit
(Rs.) (Rs.) (Rs.) Units Units (Rs.)
Previos cost 91,800 448,200 540,000 12000 8000 20000 27.00
Materail 12,000 60,000 72,000 12000 0 12000 6.00
Conversion
costs 38,400 259,200 297,600 12000 4000 16000 18.60
142,200 767,400 909,600 51.60

Cost Allocation (Rs.)

Units completed and transferred to finished goods
(12000 units @ Rs.51.60 per unit) 619,200
Work-in-process:
Previous cost (8000 units @ Rs.27) 216,000
Material -
Conversion costs (12000 units @ Rs.18.60) 74,400 290,400
909,600

* Quantity Schedule Process X Process Y

Opening WIP 6000 2000
Units started during the period 16000 18000
Input units for the period 22000 20000
Less; Closing WIP 18000 12000
Units completed

b) FIFO :

i. Process X
Completed units less Closing Current
Current Opening WIP = WIP Total Cost Per
Cost element Costs Equivalent Units Equivalent Equivalent Unit
units Units
(Rs.) (Rs.)
Material 192,000 12000 = 4000 16000 12.00
18000 - 6000

Page 12 Process costing

Conversion costs 225,000 14400 = 3000 17400 12.93 12.93103448
18000 - 3600
417,000 24.93

Cost Allocation (Rs.)

Units Completed
WIP (Rs.72,000+Rs.45900) 117,900
Material (12000 [email protected] per unit) 144,000
Conversion costs (14400 units @ Rs.12.93 per unit) 186,207 448,107
Work-in-process
Material (4000 units @ Rs.12 per unit) 48,000
Conversion costs (3000 units @ Rs.12.93 per unit) 38,793 86,793
534,900

Note : Rs.534,900 - Rs.417,000 = Rs.117,900

ii. Process Y
Completed units less Closing Current
Current Opening WIP = WIP Total Cost Per
Cost element Costs Equivalent Units Equivalent Equivalent Unit
units Units
(Rs.) (Rs.)

Page 13 Process costing

Previous costs 448,107 10000 = 8000 18000 24.89 24.894833333
12000 - 2000
Material 60,000 10000 = - 10000 6.00
12000 - 2000
Conversion costs 259200 10400 = 4000 14400 18.00
12000 - 1600
767,307 48.89

Cost Allocation (Rs.)

Units Completed
WIP (Rs.91,800+Rs.12,000+Rs.38400) 142,200
Previous costs (10000 units @ Rs.24.89) 248948
Material (10000 units @ Rs.6 per unit) 60,000
Conversion costs (10400 units @ Rs.18 per unit) 187,200 638,348
Work-in-process
Previous costs (8000 units @ Rs.24.89 per unit) 199,159
Material -
Conversion costs (4000 units @ Rs.18 per unit) 72,000 271,159
909,507

Note : Rs.909,507 - Rs.767,307 = Rs.142,200

Test Question

NF' is an industrial lubricant, which is formed by subjecting certain crude chemicals to two
successive processes. The output of process 1 is passed to process 2, where it is blended with

Page 14 Process costing

other chemicals. The process costs for the period are as follows:

Process 1
Material : 3000 kg @Rs0.25 per kg
Labour : Rs.120
Process Plant Time : 12 hours @ Rs.20 per hour

Process 2
Material : 2000 kg @Rs.0.40 per kg
Labour : Rs.84
Process Plant Time : 20 hours @ Rs.13.50 per hour

General overheads for the period amounted to Rs.357 and is absorbed into process costs on a process
labour basis.

The normal output of process 1 is 80% of input, while that of process 2 is 90% of input.

Waste matter from process 1 is sold for Rs.0.20 per kg, while that from pocess to is sold for
Rs.0.30 per kg.

The output for the period is as follows:

Process 1 2300 kg
Process 2 4000 kg

There was no stock or WIP at either beginning or end of the period, and it may be assumed that all
available waste matter had been sold at the prices indicated.

You are required to show how the foregoing data would be recorded in a system oof cost accounts.

Hint : Start the solution with 'Quantity Schedule'.

Page 15 Process costing