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Process & Operation Costing
Assignment
Q. Question/Answer
No.
1 Following details are related to the work done in Process-I by XYZ Company during the month
of March, 202X;
Particulars (₹)
Opening work-in-process (2,000 units);
Materials 80,000
Labour 15,000
Overheads 45,000
Materials introduced in Process-I (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-process; 2,000 units
Degree of Completion;
Materials 100%
Labour and Overheads 80%
Units finished and transferred to Process-II: 35,000 units
Normal Loss;
5% of total input including opening work-in-process.
Scrapped units fetch ₹ 20 per piece

You are required to Prepare using average method;

a) Statement of equivalent production.
b) Statement of Cost.
c) Statement of distribution Cost, and
d) Process-I Account, Normal Loss Account and Abnormal Loss Account.
(ICAI SM, Nov. 2015, Modified Jan 2021 & Nov. 2020, Modified MTP May 2019, Modified
MTP Nov. 2022)
Sol. a) Statement showing the equivalent production of XYZ ltd. during the month of March:
Material Labour Overhead
Input Particulars output % unit % unit % Unit
Opening work in
2,000 progress 2,000 100 2,000 100 2000 100 2,000
38,000 Input
Finished goods 33,000 100 33,000 100 33,000 100 33,000
Normal loss 2,000 - - - - - -
Abnormal loss 1,000 100 1,000 80 800 80 800
Closing Work in
progress 2,000 100 2,000 80 1,600 80 1600
40,000 40,000 38,000 37,400 37,400

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b) Statement of Cost:
Computation of cost per unit
Total Cost−Scrap value of Normal loss
Material cost per unit = Input − Normal loss
Material cost = {80,000 + 14,80,000 – (2,000 × ₹ 20 per unit)} ÷ 38,000 = ₹ 40 per unit
Labour cost = (15,000 + 3,59,000) ÷ 37,400 = ₹ 10 per unit
Overhead = (45,000 + 10,77,000) ÷ 37,400 = ₹ 30 per unit

c) Valuation/ Distribution of cost:

Closing Work in progress
✓ Material = 2,000 units × ₹ 40 per unit = ₹ 80,000
✓ Labour = 1,600 units × ₹ 10 per unit = ₹ 16,000
✓ Overheads = 1,600 units × ₹ 30 per unit = ₹ 48,000
Total cost = ₹ 80,000 + ₹ 16,000 + ₹ 48,000 = ₹ 144,000

Abnormal loss:
✓ Material = 1,000 units × ₹ 40 per unit = ₹ 40,000
✓ Labour = 800 units × ₹ 10 per unit = ₹ 8,000
✓ Overheads = 800 units × ₹ 30 per unit = ₹ 24,000
Total Cost = ₹ 40,000 + ₹ 8,000 + ₹ 24,000 = ₹ 72,000

Finished goods
✓ Material = 35,000 units × ₹40 per unit = ₹14,00,000
✓ Labour = 35000 units × ₹10 per unit = ₹3,50,000
✓ Overheads = 35000 units × ₹30 per unit = ₹10,50,000
d)
Dr. Process I Account Cr.
Particulars units Amount (₹) Particulars units Amount (₹)
To Opening work 2,000 1,40,000 By Normal 2,000 40,000
in progress Loss
To Material 38,000 14,80,000 By Abnormal 1,000 72,000
loss
To Labour - 3,59,000 By Process B 35,000 28,00,000
To Overhead 10,77,000 By Closing 2,000 1,44,000
WIP
40,000 30,56,000 40,000 30,56,000

Dr. Normal Loss Account Cr.

Particulars Units Amount (₹) Particulars units Amount (₹)
By Cost ledger
To Process Account 2,000 40,000 control account 2,000 40,000
2,000 40,000 2,000 40,000

Dr. Abnormal loss Account Cr.

Particulars Units Amount (₹) Particulars units Amount (₹)
To Process
Account 1,000 72,000 By Cash account 1,000 20,000
By Costing profit
and loss account - 52,000
1,000 72,000 1,000 72,000

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2. “Healthy Sweets” is engaged in the manufacturing of jaggery. Its Process involve sugarcane
crushing for juice extraction, then filtration and boiling of juice along with some chemicals and
then letting it cool to cut solidified jaggery blocks.

The main process of juice extraction (Process-I), is done in conventional crusher, which is then
filtered and boiled (Process- II), in iron pots. The solidified jaggery blocks are then cut, packed
and dispatched. For manufacturing 10 kg. of jaggery, 100 kg of sugarcane is required, which
extracts only 45 litres of juice.

Following information regarding Process-I has been obtained from the manufacturing
department of Healthy Sweets for the month of January. 202X;
Particulars (₹)
Opening work-in-process (4,500 litre);
Sugarcane 80,000
Labour 15,000
Overheads 45,000
Sugarcane introduced for juice extraction (1,00,000 kg.) 5,00,000
Direct Labour 2,00,000
Overheads 6,00,000

Abnormal Loss; 1,000 kg

Degree of Completion;
Sugarcane 100%
Labour and Overheads 80%
Closing work-in-process; 9,000 litres
Degree of Completion;
Sugarcane 100%
Labour and Overheads 80%
Extracted Juice transferred for filtering and boiling; 39,500 litre
(Consider mass of 1 litre of juice equivalent to 1 kg.)

You are required to Prepare using average method: -

a) Statement of equivalent production.
b) Statement of Cost.
c) Statement of distribution cost, and
d) Process-I Account.
(ICAI SM, May 2013, Nov. 2014, Modified MTP Nov 2020)
Sol. 1) Statement of Equivalent Production;
Material Labour & O.H.
Input Particulars Output % unit % unit
Opening work in
4,500 progress 4500 100 4,500 100 4,500
1,00,000 Input
Finished goods 35,000 100 35,000 100 35,000
Normal loss 55,000 - - - -
Abnormal loss 1,000 100 1,000 80 800
Closing Work in
progress 9,000 100 9,000 80 7,200
1,04,500 1,04,500 49,500 47,500

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*100 kg of Sugarcane Extracts Only 45 Litre of Juice.
Thus, Normal Loss = 100−45 = 55%

2) Statement Showing Cost for each element;

Particulars Sugarcane Labour Overheads Total
(₹) (₹) (₹) (₹)
✓ Cost of Opening work-in-process 50,000 15,000 45,000 1,10,000
✓ Cost incurred during the month 5,00,000 2,00,000 6,00,000 13,00,000
✓ Total Cost; (A) 5,50,000 2,15,000 6,45,000 14,10,000
✓ Equivalent Units: (B) 49,500 47,500 47,500 ----
✓ Cost per equivalent unit; (C) = (A 11.111 4.526 13.579 29.216
÷ B)

3) Statement of Distribution of Cost;

Particulars (₹) (₹)
1) Value of units completed and transferred (39,500 units × 11,54,032
₹ 29.216)
2) Value of Abnormal Loss;
− Sugarcane (1,000 units × ₹ 11.111) 11,111
− Labour (800 units × ₹ 4.526) 3,621
− Overheads (800 units × ₹ 13.579) 10,863 25,595
3) Value of Closing W-I-P;
− Sugarcane (9,000 units × ₹ 11.111) 99,999
− Labour (7,200 units × ₹ 4,526) 32,587
− Overheads (7,200 units × ₹ 13.579) 97,769 2,30,355

4)
Dr. Process-I A/c Cr.
Particulars Units (₹) Particulars Units (₹)
To Opening W.I. P By Normal Loss 55,000 ----
− Sugarcane 4,500 50,000 By Abnormal Loss 1,000 25,613
[₹ 25,595 + ₹ 18
(difference due to
approximation)]
− Labour ---- 15,000 By Process-II A/c 39,500 11,54,032
− Overheads ---- 45,000 By Closing WIP 9,000 2,30,355
To Sugarcane 100,000 5,00,000
introduced
To Direct Labour ---- 2,00,000
To Overheads ---- 6,00,000
104,500 14,10,000 104,500 14,10,000

3. Following information is available regarding Process A for the month of October 20X1;
Production Record;
1) Opening Work-in-Progress 40,000 units
(Material: 100% complete, 25% complete for labour &
overheads)
2) Units Introduced 1,80,000 units
3) Units Completed 1,50,000 units

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4) Units in-process on 31.10.20X1 70,000 units
(Material: 100% complete, 50%
Complete for labour & overheads)
Cost Record:
Opening Work-in-Progress:
Material ₹ 1,00,000
Labour ₹ 25,000
Overheads ₹ 45,000
Cost incurred during the month:
Material ₹ 6,60,000
Labour ₹ 5,55,000
Overheads ₹ 9,25,000

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

Required: -
a) Statement of Equivalent Production.
b) Statement showing Cost for each element.
c) Statement of apportionment of Cost
d) Process A Account
(Nov. 2010, Modified in ICAI SM and RTP Nov. 2021, MTP Dec. 2021)
Sol. a) Statement of Equivalent Production
(Under FIFO Method)
Particulars Equivalent Production
Input Material Labour & Overheads
(Units) Output Units % Qty. % Qty.
Completion Completion
Opening 40,000 Transfer to 40,000 -- 75% 30,000
WIP Process II
Opening
WIP
Introduced 1,80,000 completed 1,10,000 100% 1,10,000 100% 1,10,000
introduced
&
WIP 70,000 100% 70,000 50% 35,000
2,20,000 2,20,000 1,80,000 1,75,000

b) Statement Showing Cost for Each Element

Item of Cost Equivalent Cost Incurred Cost per Unit
Production (A) (B) (B÷A)
Material 1,80,000 6,60,000 3.66667
Labour & Overheads 1,75,000 14,80,000 8.45714
12.12381

c) Statement of Evaluation
Transfer to Process II
Opening WIP Completed
Cost Incurred already 1,70,000
Cost Incurred during the Month
Labour & Overheads 2,53,714 4,23,714
30,000 × 8.45714
Introduced & Completed 1,10,000 × 12.12381 13,33,619
Transfer to process II 17,57,333

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Closing WIP
Material 70,000 × 3.6667 2,56,667
Labour and Overheads 35,000 × 8.45714 2,96,000 5,52,667

d) Process A A/c
Particulars Units Amount Particulars Units Amount
₹ ₹
To Opening WIP 40,000 1,70,000 By Process II A/c 1,50,000 17,57,333
To Materials 1,80,000 6,60,000 By Closing WIP 70,000 5,52,667
To Labour 5,55,000
To Overheads 9,25,000
2,20,000 23,10,000 2,20,000 23,10,000
4. MJ Pvt. Ltd. Produces a product “SKY” which passes through two processes, viz. Process – A and
Process – B, the details for the year ending 31st March, 202X are as follows;
Particulars Process – A Process – B
40,000 Units introduced at a cost of ₹ 3,60,000 ----
Material Consumed ₹ 2,42,000 ₹ 2,25,000
Direct Wages ₹ 2,58,000 ₹ 1,90,000
Manufacturing Expenses ₹ 1,96,000 ₹ 1,23,720
Output in Units 37,000 27,000
Normal Wastage of Input 5% 10%
Scrap Value (per unit) ₹ 15 ₹ 20
Selling Price (per unit) ₹ 37 ₹ 61

Additional Information: -
i) 80% of the output of Process-A, was passed on to the next process and the balance was
sold. The entire output of Process-B was sold.
ii) Indirect expenses for the year were ₹ 4,48,080.
iii) It is assumed that Process-A and Process-B are not responsibility centre.

Required: -
a) Prepare Process-A and Process-B Account.
b) Prepare Profit & Loss Account showing the net profit/net loss for the year.
(May 2014, Modified in May 2012 & 2008, Modified MTP May 2020)
Sol. 1)
Dr. Process-A A/c Cr.
Particulars Units (₹) Particulars Units (₹)
To Input 40,000 3,60,000 By Normal wastage 2,000 30,000
(2,000 units × ₹ 15)
To Material ---- 2,42,000 By Abnormal loss A/c 1,000 27,000
(1,000 units × ₹ 27)
To Direct Wages ---- 2,58,000 By Process-B (29,600 29,600 7,99,200
units × ₹ 27)
To Manufacturing ---- 1,96,000 By Profit & Loss A/c 7,400 1,99,800
Exp. (7,400 units × ₹ 27)
40,000 10,56,000 40,000 10,56,000

Calculation of cost per unit:

✓ Cost per unit =
₹ 10,56,000−₹ 30,000
= ₹ 27 per unit
₹ 40,000 unit−2,000 units
✓ Normal wastage = 40,000 units × 5% = 2,000 units

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✓ Abnormal loss = 40,000 units – (37,000 units + 2,000 units)
= 1,000 units
✓ Transfer to Process- B = 37,000 units × 80% = 29,600 units
✓ Sale = 37,000 units × 20% = 7,400 units
Dr. Process – B A/c Cr.
Particulars Units (₹) Particulars Units (₹)
To Process-A A/c 29,600 7,99,200 By Normal Wastage 2,960 59,200
(2,960 units × ₹ 20)
To Material ---- 2,25,000 By Profit & Loss 27,000 12,96,000
A/c (27,000 units ×
₹ 48)
To Direct Wages ---- 1,90,000
To Manufacturing ---- 1,23,720
Exp.
To Abnormal Gain 360 17,280
A/c (360 units × ₹
48)
29,960 13,55,200 29,960 13,55,200

Calculation of cost per unit

✓ Cost per unit =
₹ 13,37,920−₹ 59,200
= ₹ 48 per unit.
₹ 29,600 units−2,960 units
✓ Normal wastage = 29,600 units × 10% = 2,960 units
✓ Abnormal gain = (27,000 units + 2,960 units) − 29,600 units
= 360 units
2)
Dr. Profit & Loss A/c Cr.
Particulars (₹) Particulars (₹)
To Process-A A/c 1,99,800 By Sales;
To Process-B A/c 12,96,000 − Process-A 2,73,800
(7,400 units × ₹ 37)
To Abnormal loss A/c 12,000 − Process-B 16,47,000
(*27,000 units × ₹ 61)
To Indirect Expenses 4,48,080 By Abnormal gain 10,080
By Net loss 25,000
19,55,880 19,55,880

Working Notes: -
Dr. Normal Wastage (Loss) A/c Cr.
Particulars Units (₹) Particulars Units (₹)
To Process-A A/c 2,000 30,000 By Abnormal Gain A/c 360 7,200
(360 units × ₹ 20)
To Process-B A/c 2,960 59,200 By Bank (Sales) 4,600 82,000
4,960 89,200 4,960 89,200

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Dr. Abnormal Loss A/c Cr.
Particulars Units (₹) Particulars Units (₹)
To Process-A A/c 1,000 27,000 By Bank A/c (1,000 1,000 15,000
units × ₹ 15)
By Profit & Loss A/c ---- 12,000
1,000 27,000 1,000 27,000

Dr. Abnormal Gain A/c Cr.

Particulars Units (₹) Particulars Units (₹)
To Normal loss A/c 360 7,200 By Process-B A/c 360 17,280
(360 units × ₹ 20)
To Profit & Loss A/c 10,080
360 17,280 360 17,280

Calculation of abnormal loss and abnormal gain

For Process A
Particulars Quantity
Input 40,000
Less: Output 37,000
Less: Normal loss 5% of 40,000 2,000
Abnormal Gain/ (Abnormal loss) (1,000)

For Process B
Particulars Quantity
Input from process A 29,600
Less: Output 27,000
Less: Normal loss 10% of 29,600 2960
Abnormal Gain/ (Abnormal loss) 360
5. A Company produces a component, which passes through two processes, During the month of
April, 202X, materials for 40,000 components were put into Process-I of which 30,000 were
completed and transferred to Process-II, those 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: -
Particulars (₹)
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 materials 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;

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Particulars (₹)
Packing Materials 4,000
Direct Wages 3,500
Factory Overheads 4,500

Required: -
a) Prepare Statement of Equivalent Production, Cost per unit and Process-I A/c.
b) Prepare Statement of Equivalent Production, Cost per unit and Process-II A/c.
(ICAI SM, May 2006, Modified RTP May 2021,Modified RTP May 2022)
Sol. a) Statement showing the equivalent production:
Material Labour overhead
Input Particulars output % Unit % unit % unit
40,000 Input
Finished goods 30,000 100 30,000 100 30,000 100 30,000
Closing Work
in progress 10,000 100 10,000 50 5,000 50 5,000
40,000 40,000 40,000 35,000 35,000

Calculation of cost per unit:

Total material cost = ₹15,000
Material cost per unit = (Material cost – Scrap value of normal loss) ÷ equivalent units
Material cost per unit = (15,000 - 0) ÷ 40,000; = ₹ 0.375 per unit
Direct wages = ₹ 18,000
Labour cost per unit = 18,000 ÷ 35,000 = 0.5142 per unit
Factory overhead = 12,000
Factory overhead cost per unit = ₹ 12,000 ÷ 35,000 = ₹ 0.34285 per unit

Valuation of closing stock:

- Material = 10,000 units × ₹0.375 per unit = ₹3750
- Labour = 5,000 units × ₹0.5142 per unit = 2571.42857
- Overhead = 5,000 units × ₹ 0.34285 per unit = 1714.2857
Total cost = ₹ 3750 + ₹ 2571 + ₹ 1714 = ₹8,035 or 8,040
Total cost per unit = ₹ 0.375 + ₹ 0.5142 + ₹ 0.3428 = ₹ 1.232 per unit

Dr. Process Account I Cr.

Particulars units Amount (₹) Particulars units Amount (₹)
To Material 40,000 15,000 Process II 30,000 36,960
To wages 18,000 Closing WIP 10,000 8,040
To Overhead 12,000
40,000 45,000 40,000 45,000

b) Statement showing the equivalent production:

Input Particulars output Material Labour Overhead
% unit % unit % Unit
30,000 Input
Finished goods 28,000 100 28,000 100 28,000 100 28,000
Normal loss 200 - - - - - -
Closing Work in progress 1,800 100 1,800 25 450 25 450
30,000 30,000 29,800 28,450 28,450

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Calculation of cost per unit:
Material cost = ₹ 36,960 ÷ 29800 = ₹ 1.24026 per unit
Labour cost per unit = ₹ 3,500 ÷ 28,450 = ₹ 0.1230 per unit
Overhead cost per unit = ₹ 4,500 ÷ 28,450 = 0.15817 per unit
Total cost = ₹ 1.24026 + ₹ 0.1230 + ₹ 0.15817 = ₹ 1.52143 per unit

Total cost of finished goods = 28,000 x ₹ 1.52143 + 4,000 = ₹ 46,600

Dr. Process Account II Cr.

Particulars units Amount (₹) Particulars units Amount (₹)
To Process I 30,000 36,960 By Normal Loss 200 -
To packing 4,000 By Finished 28,000 46,600
material goods
To wages 3,500 Closing WIP 1,800 2,360
To Overhead 4,500
30,000 48,960 30,000 48,960

Calculation of closing stock:

Material = 1800 units × ₹ 1.24026 per unit = ₹ 2232.468
Labour = 450 units × 0.1230 per unit = ₹ 55.35
Overhead = 450 units × 0.15817 per unit = ₹ 71.1765
Total cost = ₹ 2232 + ₹ 55.35 + ₹ 71.1765 = ₹ 2358 or ₹ 2360
6. Opening work-in-process: - 1,000 units (60% complete): Cost ₹ 1,10,000. Units introduced
during the period 10,000 units; Cost ₹ 19,30,000. Transferred to next process- 9,000 units.

Closing work-in-process: - 800 units (75% complete). Normal loss is estimated at 10% of
total input including units in process at the beginning. Scraps realise ₹ 10 per unit. Scraps are
100% complete.

Using FIFO method and Weightage average method, Compute equivalent production and cost
per equivalent unit, Also, evaluate the output.
(ICAI SM, Nov. 2018, Modified RTP Nov. 2019)
Sol. Statement of Equivalent Production Units (Under FIFO Method);
Input Particulars Output Equivalent Production
% Unit
1,000 Opening work in progress 1,000 40 400
10,000 Input - - -
Finished output 8,000 100 8,000
Normal Loss 1,100 - -
Abnormal loss/gain 100 100 100
Closing Work in progress 800 75 600
11,000 11,000 9,100

Computation of Abnormal loss:

Abnormal loss = Opening stock + Input – Transferred to next process- Normal loss – Closing
stock
Abnormal loss = 1,000 + 10,000 – 9,000 – 1,100 – 800
Abnormal loss = 100 units

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Computation of Cost per equivalent production unit: -
Particulars (₹)
✓ Cost of the Process (for the period) 19,30,000
✓ Less: Scrap value of normal loss (₹ 10 × 1,100 units) 11,000
✓ Total Process Cost 19,19,000

₹ 19,19,000
− Cost per equivalent unit = 9,100 units = ₹ 210.88
Statement of Evaluation
Particulars Equivalent Cost per Amount
Units (EU) EU (₹) (₹)
1) Opening W-I-P Completed during the period 400 210.88 84,352
✓ Add: Cost of W-I-P at beginning ---- ---- 1,10,000
✓ Complete cost of 1,000 units of opening W-I- 1,000 194.35 1,94,352
P
2) Completely processed units 8,000 210.88 16,87,040
3) Abnormal Loss 100 210.88 21,088
4) Closing W-I-P 600 210.88 1,26,528

*(The difference in total amount may arise due to rounding off error.)
Statement of Equivalent Units (Under Weighted Average Method)
Input Particulars Output Equivalent
Production
% Unit
1,000 Opening work in progress 1,000 100 1,000
10,000 Input - - -
Finished output 8,000 100 8,000
Normal Loss 1,100 - -
Abnormal loss/gain 100 100 100
Closing Work in progress 800 75 600
11,000 11,000 9,700
Computation of Cost per equivalent production Unit: -
Particulars (₹)
✓ Cost of Opening W-I-P 1,10,000
✓ Cost of the Process (for the period) 19,30,000
✓ Less: Scrap value of normal loss (₹ 1 × 1,100 units) 11,000
Total process cost 20,29,000

₹ 20,29,000
Cost per equivalent unit = 9,700 units = ₹ 209.18
Statement of Evaluation;
Particulars Equivalent Cost per EU Amount
Units (EU) (₹) (₹)
1) Units Completed and transferred to 9,000 209.18 18,82,620
next process
2) Abnormal Loss 100 209.18 20,918
3) Closing W-I-P 600 209.18 1,25,508
(The difference in total amount may arise due to rounding off error.)

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7. Pharma Limited produces product ‘Glucondin’ which passes through two processes before it is
completed and transferred to finished stock. The following data relates to March, 202X;
Particulars Process-I Process-II (₹) Finished
(₹) Stock (₹)
Opening Stock 1,50,000 1,80,000 4,50,000
Direct Materials 3,00,000 3,15,000 ----
Direct Wages 2,24,000 2,25,000 ----
Factory overheads 2,10,000 90,000 ----
Closing Stock Inter process profit 74,000 90,000 2,25,000
included in
Opening Stock NIL 30,000 1,65,000

Output of process-I is transferred to process-II at 25 percent profit on the transferred price,

whereas output of process-II is transferred to finished stock at 20 percent on transfer price.
Stock in processes are valued at prime cost. Finished stock is valued at the price at which it is
received from process-II. Sales for the month is ₹ 28,00,000.

You are required to prepare Process-I A/c, Process-II A/c, and Finished Stock A/c showing the
profit element at each stage.
(May 2010, Modified May 2017, Modified ICAI SM)
Sol Dr. Process I A/c Cr.

Particulars Units (₹) Particulars Units (₹)

To Opening stock - 1,50,000 By Process II Account - 10,80,000
To Material 3,00,000 By Closing stock - 74,000
To Direct labour 2,24,000
To Factory overheads 2,10,000
To profit on transfer 2,70,000
0 11,54,000 0 11,54,000

Dr. Process II A/c Cr.

Particulars Units (₹) Particulars Units (₹)
To Opening stock 1,80,000 By Process II - 22,50,000
Account
To Process I Account - 10,80,000 By Closing stock 90,000
To Material 3,15,000
To Direct labour 2,25,000
To Factory overheads 90,000
To profit on transfer 4,50,000
0 23,40,000 0 23,40,000

Dr. Finished Goods A/c Cr.

Particulars Units (₹) Particulars Units (₹)
To opening stock - 4,50,000 By Sales - 28,00,000
To Process II Account 22,50,000 By Closing Stock 2,25,000
To Costing P&L account 3,25,000
0 30,25,000 0 30,25,000

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Dr. Costing P&L A/c Cr.
Particulars Units (₹) Particulars Units (₹)
To Stock reserve on By process I Account 2,70,000
closing stock
Process II 15,000 By Process II Account 4,50,000
Finished Goods 75,000 By Finished stock 3,25,000
account
To Profit 11,50,000 By Stock reserve on
opening stock
Process II 30,000
Finished Stock 1,65,000
0 12,40,000 0 12,40,000

Working Note:
1) Calculation of profit earned under each process:
Process I = 1,50,000 + 3,00,000 + 2,24,000 + 2,10,000 – 74,000 = 8,10,000
Profit = (8,10,000 x 1/3) = 2,70,000
Process II = 1,80,000 + 10,80,000 + 3,15,000 + 2,25,000 + 90,000 – 90,000 = ₹ 18,00,000
Profit = 18,00,000 ÷ 4 = ₹ 4,50,000

2) Calculation of stock reserve on closing at various levels:

Own cost of process II = 5,40,000 (Calculated on Prime cost given in the question)
Cost of process I = 10,80,000
Ratio between Process cost I and Own cost = 10,80,000 : 5,40,000
Ratio = 2:1

Closing stock at process II = 90,000;

Part of process I cost in closing stock of process II = 90,000 × 2/3 = ₹ 60,000
Profit earned at the process I level = ₹ 60,000 × 25% = ₹ 15,000

Calculation of stock reserve in the finished stock level:

Closing stock of finished stock = ₹ 2,25,000 (all is come from process II on which it earns
20% profit)
Profit = ₹ 2,25,000 × 20% = ₹ 45,000
Cost of such stock for process II = ₹ 2,25,000 - ₹ 45,000 = ₹ 1,80,000
Proportion of process I = 1,80,000 × 2/3 = ₹ 1,20,000
Profit earned by process I = 1,20,000 × 25% = 30,000
Total profit = ₹ 45,000 + ₹ 30,000 = ₹ 75,000
8. Alpha Ltd. Is engaged in the production of a product A which passes through 3 different process
– Process P, Process Q and Process R. The following data relating to cost and output is obtained
from the books of accounts for the month of April 202X:
Particulars Process P Process Q Process R
Direct Material 38,000 42,500 42,880
Direct Labour 30,000 40,000 50,000

Production overheads of ₹ 90,000 were recovered as percentage of direct labour.

10,000 kg. of raw material @ ₹ 5 per kg. was issued to Process P, There was no stock of materials
or work in process. The entire output of each process passes directly to the next process and
finally to ware house. There is normal wastage, in processing, of 10%. The scrap value of

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wastage is ₹ 1 per kg. The output of each process transferred to next process and finally to
warehouse are as under;
Process P = 9,000 kg
Process Q = 8,200 kg
Process R = 7,300 kg
The company fixes selling price of the end product in such a way so as to yield a profit of 25%
on selling price.
Prepare Process P, Q and R accounts, also Calculate selling price per unit of end product.
(May 2018, Modified Nov. 2002, Modified MTP May 2022)
Sol. Dr. Process-P A/c Cr.
Particulars Units (₹) Particulars Units (₹)
(Kg.) (Kg.)
To Raw Material 10,000 50,000 By Normal loss (10% 1,000 1,000
(₹ 5 × 10,000 kg) of 10,000) × ₹ 1
To Direct Material ---- 38,000 By Process-Q A/c (₹ 9,000 1,39,500
15.50 × 9,000 kgs)
To Direct Labour ---- 30,000
To Production OH 22,500
(90,000 × 3/12)
10,000 1,40,500 10,000 1,40,500

Cost Per unit of completed units;

Total Cost−Realisable Value from normal loss
− =
Input units−Normal loss units
₹ 1,40,500−₹ 1,000
− = 10000 kgs−1000 kgs
₹ 1,39,500
− =
9000 kg
− = ₹ 15.50 per unit
Dr. Process -Q A/c Cr.
Particulars Units (₹) Particulars Units (₹)
(Kg.) (Kg.)
To Process-Q A/c 9,000 1,39,500 By Normal loss (10% of 900 900
9,000 kg × ₹ 1)
To Direct Material ---- 42,500 By Process – R A/c (₹ 31 8,200 2,54,200
× 8,200 kg.)
To Direct Labour ---- 40,000
To Production OH ---- 30,000
(90,000 × 4/12)
To Abnormal Gain (₹ 100 3,100
31 × 100 kgs)
9,100 2,55,100 9,100 2,55,100

Cost Per unit of Completed units and abnormal in;

Total Cost−Realisable Value from normal loss
− = Input units−Normal loss units
₹ 2,52,000−₹ 900
− =
9000 kgs−900 kgs
₹ 2,51,100
− =
8100 kgs
− = ₹ 31

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Dr. Process – R A/c Cr.
Particulars Units (₹) Particulars Units (₹)
(Kg.) (Kg.)
To Process Q A/c 8,200 2,54,200 By Normal loss 820 820
(10% of 8,200 kg) ×
₹1
To Direct Material ---- 42,880 By Finished Goods 7,300 3,79,600
(₹ 52 × 7,300 kg)
To Direct Labour ---- 50,000 By Abnormal loss 80 4,160
(₹ 52 × 80 kg)
To Production OH ---- 37,500
(9,000 × 5/12)
8,200 3,84,580 8,200 3,84,580

Cost per unit of Completed units and abnormal loss;

Total Cost−Realisable Value from N.L ₹ 3,84,580−₹820

− = =
Input units−Normal loss units 8200 kgs−820 kgs
− = ₹ 52

Calculation of Selling Price;

✓ Cost of Product = ₹ 3,79,600
✓ (52 × 7,300 kg)
✓ + Profit = ₹ 1,26,533.33
✓ Sales = 5,06,133.33
✓ ÷ No. of kg = 7,300 kg
✓ Selling Price p.u. = ₹ 69.33

9. From the following information for the month ending October, 202X, prepare Process Cost-
accounts for Process-III. Use First-in-First-out (FIFO) method to value equivalent production.
Direct materials added in Process – III 2,000 units at ₹ 25,750
(Opening WIP)
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 materials added in Process III ₹ 1,97,600
Direct wages ₹ 97,600
Production Overheads ₹ 48,800

Degree of Completion;
Particulars 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.
(Nov. 2005, Modified Nov 2003, RTP)

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Sol. Dr. Process III Account Cr.
Particulars Units Amount (₹) Particulars units Amount
(₹)
To Opening stock 2,000 25,750 By Transfer to 48,000 7,19,750
Process IV
To Transfer from 53,000 4,11,500 By Closing stock 5,000 61,500
process II
To material 1,97,600 By Normal loss 2,500 7,500
introduced
To wages 97,600
To Overheads 48,800
To Abnormal gain 500 7,500
55,500 788,750 55,500 7,88,750

Working Note:
1) Calculation of normal loss and abnormal gain
Normal loss is 5% of production
Closing stock = Opening stock + Purchase - Production
5,000 = 2,000 + 53,000 – Production
Production = 50,000;
Normal loss = 50,000 units x 5% = 2500 units
Actual loss = 2,000 units; Abnormal gain = 2,500 – 2,000 = 500 units

2) Statement showing the equivalent production:

Input Particulars Output Material A Material B Labour &
overhead
% Unit % unit % unit
2,000 Opening work in 2,000 0 - 20 400 40 800
progress
53,000 Input
Finished output 46,000 100 46,000 100 46,000 100 46,000
Normal Loss 2,500 - - - - - -
Less: Abnormal 500 100 500 100 500 100 500
gain
Closing Work in 5,000 100 5,000 70 3,500 50 2,500
progress
55000 55,000 50,500 49,400 48,800

Computation of cost per unit:

Material A Cost
Total Cost−Scrap value of Normal loss
Material cost per unit =
Input − Normal loss
Material cost per unit = {(₹ 4,11,500 – 2,500 x ₹ 3 per unit) ÷ 50,500 units} = ₹ 8 per unit

Material B cost
Material cost per unit = ₹1,97,600 ÷ 49,400 units = ₹4 per unit

Labour Cost
Labour cost per unit = ₹97,600 ÷ 48,800 units = ₹2 per unit

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Overhead Cost
Labour cost per unit = ₹48,800 ÷ 48,800 units = ₹ 1 per unit

3) Valuation of Output

Opening Work in progress

Already incurred = ₹ 25,750

Balance in current period

- Material B = 400 units × ₹4 per unit = ₹ 1,600

- Labour = 800 units × ₹ 2 per unit = ₹ 1,600
- Overhead = 800 units × ₹ 1 per unit = ₹ 800 ₹ 4,000
= 29,750

Inputs of current period

- Material A = 46,000 units × ₹ 8 = ₹ 3,68,000

- Material B = 46,000 units × ₹ 4 = ₹ 1,84,000
- Labour = 46,000 units × ₹ 2 = ₹ 92,000
- Overhead = 46,000 units × ₹ 1 = ₹ 46,000 ₹ 6,90,000
₹ 7,19,750

4) Calculation of closing stock per unit:

Material A = 5,000 units × ₹ 8 per unit = ₹ 40,000

Material B = 3,500 units × ₹ 4 per unit = ₹ 14,000
Labour = 2,500 units × ₹ 2 per unit = ₹ 5,000
Overhead = 2500 units × ₹ 1 per unit = ₹ 2,500
Total closing stock = ₹ 40,000 + ₹ 14,000 + ₹ 5000 + ₹ 2,500 = ₹ 61,500

5) Calculation of abnormal gain:

Material A = 500 units × ₹ 8 per unit = ₹ 4,000
10. RST Limited processes Product Z through two distinct processes−Process- I and Process-II. On
Completion, it is transferred to finished stock., From the following information for the year
202X-X1, Prepare Process-I, Process-II, and Finished Stock A/c;
Particulars Process-I Process-II
Raw Materials used 7,500 Units ----
Raw Materials Cost per unit ₹ 60 ----
Transfer to next process/finished Stock 7,050 Units 6,525 Units
Normal loss (on inputs) 5% 10%
Direct wages ₹ 1,35,750 ₹ 1,29,250
Direct Expenses 60% of Direct 65% of Direct
wages wages
Manufacturing Overheads 20% of Direct 15% of Direct
wages wages
Realisable value of scrap per unit ₹ 12.50 ₹ 37.50

6,000 units of finished goods were sold at a profit of 15% on cost. Assume that there was no
opening or closing stock of work-in-process.
(ICAI SM, Modified Nov. 2019, Modified Nov. 2022)

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Sol. Dr. Process-I A/c Cr.
Particulars Units (₹) Particulars Units (₹)
To Raw Material 7,500 4,50,000 By Normal loss (5% of 375 4,688
used (₹ 60 × 7,500 7,500 units) × ₹ 12.5
units)
To Direct wages ---- 1,35,750 By Process-II A/c (₹ 7,050 6,82,403
96.7947 × 7,050
units)
To Direct expenses ---- 81,450 By Abnormal loss 75 7,259
(₹96.7947 × 75 units)
To Manufacturing 27,150
Overhead
7,500 6,94,350 7,500 6,94,350

Cost per unit of completed units and abnormal loss;

Total Cost−Realisable Value from normal loss
− =
Input units−Normal loss units
₹ 6,94,350−₹ 4,688 ₹ 6,89,662
− = = = ₹ 96.7947
7,500 units−375 units 7,125 units

Dr. Process-II A/c Cr.

Particulars Units (₹) Particulars Units (₹)
To Process-I A/c 7,050 6,82,403 By Normal loss (10% of 705 26,438
7,050 units) × ₹ 37.5
To Direct Wages ---- 1,29,250 By Finished Stock A/c (₹ 6,525 9,13,824
140.0496 × 6,525 units)
To Direct expenses ---- 84,013
To Manufacturing ---- 19,387
Overhead
To Abnormal gain 180 25,209
(₹ 140.0496 × 180
units)
7,230 9,40,262 7,230 9,40,262

Cost per unit of completed units and abnormal loss;

Total Cost−Realisable Value From Normal Loss
− Input Units−Normal Loss Units
₹ 9,15,053−₹26,438 ₹8,88,615
− = 7,050 units−705 units = 6,345 Units = ₹ 140.0496

Dr. Finished Goods Stock A/c Cr.

Particulars Units (₹) Particulars Units (₹)
To Process II A/c 6,525 9,13,824 By Cost of Sales 6,000 8,40,298
(₹ 140.0496 × 6,000
units)
By Balance c/d 525 73,526
6,525 9,13,824 6,525 9,13,824

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Income Statement
Particulars (₹) Particulars (₹)
To Cost of Sales 8,40,298 By Abnormal gain (180 units × 18,459
(₹ 140.0496 × 6,000 units) (₹ 140.0496 −
₹ 37.50)}
To Abnormal loss 6,322 By Sales (₹ 8,40,298 × 115%) 9,66,343
(75 units × (₹ 96, 7947−₹
12.50)}
To Net Profit 1,38,182
9,84,802 9,84,802

11. Hill manufacturing Ltd. Uses process costing to manufacture water density sensors for hydro
sector. The following information pertains to operations for the month of May.
Particulars Units
Beginning WIP, May 1 16,000
Started in Production during May 1,00,000
Completed Production during May 92,000
Ending work-in-progress, May 31 24,000
i) The beginning work-in-progress was 60% complete for materials and 20% complete for
conversion costs. The ending inventory was 90% complete for material and 40% complete
for conversion costs.
ii) Costs pertaining to the month of May are as follows;
Beginning inventory costs are material ₹ 27,670. Direct labour ₹ 30,120 and factory
overhead ₹ 12,720.
iii) Cost incurred during May are material used, ₹ 4,79,000, direct labour ₹ 1,82,880, factory
overheads ₹ 3,91,160.
Calculate: -
a) Using the FIFO method, the equivalent units of production for material.
b) Cost per equivalent unit for conversion cost.
(ICAI SM, Modified MTP May 2022)
Sol. a) Calculation of Equivalent Units of Production: -
Input Particulars Output Material Conversion
cost
% unit % unit
16,000 Opening work in progress 16,000 40 6,400 80 12,800
1,00,000 Input - - - - -
Finished output 76,000 100 76,000 100 76,000
Normal Loss - - - - -
Abnormal loss/gain - - - - -
Closing Work in progress 24,000 90 21,600 40 9,600
1,16,000 1,16,000 1,04,000 98,400

b) Calculation of Cost per equivalent unit for conversion costs;

Particulars Amount (₹)
✓ Direct Labour 1,82,880
✓ Factory Overheads 3,91,160
5,74,040
✓ Equivalents Units 98,400
✓ Cost per equivalent Unit (₹) 5.83

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12. M Ltd. produces a product-X, which passes through three processes, I, II and III. In Process-III
a by-product arises, which after further processing at a cost of ₹85 per unit, product Z is
produced. The information related for the month of August 2020 is as follows:
Process I Process II Process III
Normal loss 5% 10% 5%
Materials introduced (7,000 units) 1,40,000 - -
Other materials added 62,000 1,36,000 84,200
Direct wages 42,000 54,000 48,000
Direct expenses 14,000 16,000 14,000

Production overhead for the month is ₹2,88,000, which is absorbed as a percentage of direct
wages.
The scrapes are sold at ₹10 per unit
Product-Z can be sold at ₹135 per unit with a selling cost of ₹15 per unit No. of units
produced:
Process-I- 6,600; Process-II- 5,200, Process-III- 4,800 and Product-Z- 600 There is not stock at
the beginning and end of the month.
You are required to PREPARE accounts for:
i) Process-I, II and III
ii) By-product process.
(RTP Nov. 2020, MTP July 2021)
Sol. i) Process-I A/c
Particulars Units Amt. (₹) Particulars Units Amt. (₹)
To Materials 7,000 1,40,000 By Normal loss 350 3,500
(5% of 7,000× 10)
To Other materials - 62,000 By Process-II 6,600 3,35,955
To Direct wages - 42,000 By Abnormal loss* 50 2,545
To Direct expenses - 14,000
To Production OH - 84,000
(**200% of ₹42,000)
7,000 3,42,000 7,000 3,42,000

∗ ₹ (3,42,000 − 3,500)
(7,000 − 350)units
= ₹ 50.9022
₹ (2,88,000)
∗∗ X 100 = 200%
₹ (42,000 + 54,000 + 48,000)
Process-II A/c
Particulars Units Amt. (₹) Particulars Units Amt. (₹)
To Process-I A/c 6,600 3,35,955 By Normal loss 660 6,600
(10% of 6,600×10)
To Other materials - 1,36,000 By Process-III** 5,200 5,63,206
To Direct wages - 54,000 By Abnormal 740 80,149
loss**
To Direct expenses - 16,000
To Production OH - 1,08,000
(200% of ₹54,000)
6,600 6,49,955 6,600 6,49,955

∗∗ ₹ (6,49,955 − 6,600)
(6,600 − 660) units
= ₹108.3089

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Process-III A/c
Particulars Units Amt. (₹) Particulars Units Amt. (₹)
To Process-II A/c 5,200 5,63,206 By Normal loss 260 2,600
(5% of 5,200×10)
To Other - 84,200 By Product-X*** 4,800 8,64,670
materials
To Direct wages - 48,000
To Direct - 14,000 By Product-Z# 600 21,000
expenses (₹35×600)
To Production OH - 96,000
(200% of ₹48,000)
To Abnormal gain*** 460 82,864
5,660 8,88,270 5,660 8,88,270

₹ (8,05,406 − 2,600 − 21,000)

*** = ₹180.1396
(5,200 − 260 − 600) units
# Realisable value = ₹135 – (85+15) = ₹35

ii) By-Product Process A/c

Particulars Units Amt. (₹) Particulars Units Amt. (₹)
To Process-III A/c 600 21,000 By Product-Z 600 81,000
To Processing cost - 51,000
To Selling expenses - 9,000
600 81,000 600 81,000
13. Star Ltd. manufactures chemical solutions for the food processing industry. The manufacturing
takes place in a number of processes and the company uses FIFO method to value work-in-
process and finished goods. At the end of the last month, a fire occurred in the factory and
destroyed some of papers containing records of the process operations for the month.
Star Ltd. needs your help to prepare the process accounts for the month during which the fire
occurred. You have been able to gather some information about the month’s operating
activities but some of the information could not be retrieved due to the damage. The following
information was salvaged:

✓ Opening work-in-process at the beginning of the month was 1,600 litres, 70% complete for
labour and 60% complete for overheads. Opening work-in-process was valued at ₹
1,06,560.
✓ Closing work-in-process at the end of the month was 320 litres, 30% complete for labour
and 20% complete for overheads.
✓ Normal loss is 10% of input and total losses during the month were 1,200 litres partly due
to the fire damage.
✓ Output sent to finished goods warehouse was 8,400 litres.
✓ Losses have a scrap value of ₹15 per litre.
✓ All raw materials are added at the commencement of the process.
✓ The cost per equivalent unit (litre) is ₹78 for the month made up as follows:

(₹)
Raw material 46
Labour 14
Overhead 18
78

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Required:
i) CALCULATE the quantity (in litres) of raw material inputs during the month.
ii) CALCULATE the quantity (in litres) of normal loss expected from the process and the
quantity (in litres) of abnormal loss / gain experienced in the month.
iii) CALCULATE the values of raw material, labour and overheads added to the process during
the month.
iv) PREPARE the process account for the month.
(RTP May 2020, Modified MTP dec 2021)
Sol. i) Calculation of Raw Material inputs during the month:
Quantities Entering Process Litres Quantities Leaving Process Litres
Opening WIP 1,600 Transfer to Finished Goods 8,400
Raw material input (balancing 8,320 Process Losses 1,200
figure)
Closing WIP 320
9,920 9,920

ii) Calculation of Normal Loss and Abnormal Loss/Gain

Litres
Total process losses for month 1,200
Normal Loss (10% input) 832
Abnormal Loss (balancing figure) 368

iii) Calculation of values of Raw Material, Labour and Overheads added to the process:
Material Labour Overheads
Cost per equivalent unit ₹46.00 ₹14.00 ₹18.00
Equivalent units (litre) (refer the working 7,488 7,744 7,872
note)
Cost of equivalent units ₹3,44,448 ₹1,08,416 ₹1,41,696
Add: Scrap value of normal loss (832 units × ₹12,480 -- --
₹15)
Total value added ₹3,56,928 ₹1,08,416 ₹1,41,696

Workings:
Statement of Equivalent Units (litre):
Equivalent Production
Input Details Units Output details Units Material Labour Overheads
Units (%) Units (%) Units (%)
Opening WIP 1,600 Units
completed:
Units introduced 8,320 - Opening 1,600 -- -- 480 30 640 40
WIP
- Fresh 6,800 6,800 100 6,800 100 6,800 100
inputs
Normal loss 832 -- -- -- -- -- --
Abnormal loss 368 368 100 368 100 368 100
Closing WIP 320 320 100 96 30 64 20
9,920 9,920 7,488 7,744 7,872

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iv) Process Account for the month
Litres Amount Litres Amount
(₹) (₹)
To Opening WIP 1,600 1,06,560 By Finished goods 8,400 6,55,200
[8400 × ₹ 78]
To Raw Materials 8,320 3,56,928 By Normal loss 832 12,480
[832 × ₹ 15]
To Wages -- 1,08,416 By Abnormal loss 368 28,704
[368 x ₹ 78]
To Overheads -- 1,41,696 By Closing WIP 320 17,216
[(320 × ₹ 46) + (320 × .30
× ₹ 14) + (320 × .20 × ₹
18)]
9,920 7,13,600 9,920 7,13,600
14. A product passes through Process-I and Process-II.
Particulars pertaining to the Process-I are:
Materials issued to Process-I amounted to ₹80,000, Wages ₹60,000 and manufacturing
overheads were ₹52,500. Normal Loss anticipated was 5% of input. 9,650 units of output were
produced and transferred out from Process-I to Process II. Input raw materials issued to
Process I was 10,000 units.
There were no opening stocks.
Scrap has realisable value of ₹5 per unit.
You are required to prepare:
i) Process-I Account
ii) Abnormal Gain/Loss Account
(Dec. 2021, Modified MTP May 2019)
Ans. i) Process – I Account

Particulars Units (₹) Particulars Units (₹)

To Materials 10,000 80,000 By Normal loss (5% 500 2,500
of 10,000)
To Wages - 60,000 By Process-II A/c 9,650 1,93,000
(₹20*×9,650 units)
To Manufacturing OH 52,500
To Abnormal Gain A/c 150 3,000
(₹20*×150 units)
10,150 1,95,500 10,150 1,95,500

(80,000+60,000+52,500)−2500
* 10,000−500
=₹20
ii) Abnormal Gain – Account
Particulars Units (₹) Particulars Units (₹)
To Normal loss 150 750 By Process-I A/c 150 3,000
A/c
To Costing P&L - 2,250
A/c
150 3,000 150 3,000
15. SM Pvt. Ltd. manufactures their products in three consecutive processes. The details are as
below:
Process A Process B Process C
Transferred to next Process 60% 50%
Transferred to warehouse for sale 40% 50% 100%

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In each process, there is a weight loss of 2% and scrap of 8% of input of each process. The
realizable value of scrap of each process is as below:
Process A @ ₹2 per ton Process B @ ₹4 per ton Process C @ ₹6 per ton.
The following particulars relate to April, 2022:
Process A Process B Process C
Materials used (in Tons) 1,000 260 140
Rate per ton ₹ 20 ₹ 15 ₹ 10
Direct Wages ₹ 4,000 ₹ 3,000 ₹ 2,000
Direct Expenses ₹ 3,160 ₹ 2,356 ₹ 1,340

PREPARE Process Accounts- A, B and C & calculate cost per ton at each process.
(RTP Nov 2022, Modified MTP May 2023–I & II)
Ans. Process A Account
Particulars Tones Amount (₹) Particulars Tones Amount (₹)
To Materials 1,000 20,000 By Weight Loss 20 ---
To Wages 4,000 By Scrap 80 160
To Direct Expenses 3,160 By Process B 540 16,200
By Warehouse 360 10,800
Total 1,000 27,160 Total 1,000 27,160

27,160 – 160
Cost per Tonne = 1,000 – 20 – 80
27,000
=
900
= ₹ 30 per ton

Process B Account
Particulars Tones Amount (₹) Particulars Tones Amount (₹)
To Process A 540 16,200 By Weight Loss 16 ---
To Materials 260 3,900 By Scrap 64 256
To Wages 3,000 By Process C 360 12,600
To Direct Expenses 2,356 By Warehouse 360 12,600
Total 800 25,456 Total 800 25,456

25,456−256
Cost per Tonne = 800−16−64
25,200
=
720
= ₹35 per ton
Process C Account
Particulars Tones Amount Particulars Tones Amount
(₹) (₹)
To Process B 360 12,600 By Weight Loss 10 ---
To Materials 140 1,400 By Scrap 40 240
To Wages 2,000 By Warehouse 450 17,100
To Direct Expenses 1,340
Total 500 17,340 Total 500 17,340

17,340 – 240
Cost per Tonne = 500 – 10 – 40
17,100
=
450
= ₹ 38 per ton

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16. The following information is given in respect of Process No. 3 for the month of January, 202X.
Opening stock----2,000 units made-up of;
Particulars (₹)
Direct Material – I 12,350
Direct Materials – II 13,200
Direct Labour 17,500
Overheads 11,000

Transferred from Process No. 2: 20,000 units @₹6.00 per unit.

Transferred to Process No. 4: 17,000 units.
Expenditure incurred in Process No. 3;
Particulars (₹)
Direct Materials 30,000
Direct Labour 60,000
Overheads 60,000

i) Scrap: 1,000 units ---- Direct Materials 100%, Direct Labour 60%, Overheads 40%.
ii) Normal Loss 10% of production.
iii) Scrapped units realised ₹ 4 per unit.
iv) Closing Stock: 4,000 units----Degree of completion: Direct Materials 80%, Direct Labour
60% and overheads 40%.

Prepare Process No. 3 Account using average price method. Along with necessary supporting
statements.
(May 2001)
Sol. Dr. Process 3 A/c Cr.
Particulars Units (₹) Particulars Units (₹)
To Opening WIP 2,000 54,050 By Normal 1,800 7,200
loss
To Process 2 20,000 1,20,000 By Finished 17,000 2,81,822
goods units
To Direct Materials 30,000 By Closing 4,000 48,290
II balance
To Direct Labour 60,000
To Overhead 60,000
To Abnormal Gain 800 13,262
22,800 3,37,312 22,800 3,37,312

Working Notes: -
Statement of Equivalent Production
(Average Cost Method)
Input Particulars Output Material I Material II Wages Overheads
% unit % units % Unit % unit
2,000 Opening 2,000 100 2,000 100 2,000 100 2,000 100 2,000
work in
progress
20,000 Input - - - - - - -
Finished 15,000 100 15,000 100 15,000 100 15,000 100 15,000
output
Normal Loss 1,800 - - - - - - - -

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Abnormal (800) 100 (800) 100 (800) 100 (800) 100 (800)
loss/gain
Closing Work 4,000 100 4,000 80 3200 60 2,400 40 1,600
in progress
22,000 22,000 20,200 19,400 18,600 17,800

Statement of Cost
Particulars Cost Equivalent Rate/Equivalent
(₹) Units (unit) (₹)
Material I;
✓ Opening balance 2,000 units 12,350
✓ Cost of 20,000 units @ ₹ 6/- per unit 1,20,000
✓ Less: Scrap realized (1,800 units × ₹ (7,200)
4)
1,25,150 20,200 6.1955
Material II;
✓ Opening stock 13,200
✓ In process II 30,000
43,200 19,400 2.2268
Labour;
✓ Opening labour 17,500
✓ In Process II 60,000
77,500 18,600 4.1667
Overhead;
Opening stock 11,000
In process II 60,000
71,000 17,800 3.9898
Total cost per unit 16.5788

Statement of Evaluation;
Particulars (₹)
✓ Cost of 17,000 finished goods units (17,000 units × ₹ 2,81,839.60 or 2,81,839 (say)
16.5788)
✓ Cost of 800 abnormal units (800 units × ₹ 16.5788) 13,263.04 or 13,263 (say)
✓ Cost of 4,000 closing work-in-progress units 48,289.92 or 48,290 (say)

Particulars (₹)
✓ Material I 4,000 units × ₹ 6.1955 24,782.00
✓ Material II 3,200 units × ₹ 2.2268 7,125.76
✓ Labour 2,400 units × ₹ 4.1667 10,000.08
✓ Overhead 16,00 units × ₹ 3.988 6,382.08
48,289.92
Working Notes: -
*Normal loss given is 10% of production. Here production therefore means those units which
come upto the state of inspection. In that case, opening stock plus receipts minus closing stock
of WIP will represents units of production (2,000 units + 20,000 units – 4,000 units). In such
case, the units of production come to 18,000 units and hence 1,800 units as normal loss unit.
17. A Chemical Company carries on production operation in two processes. The material first pass
through Process I, where Product ‘A’ is produced.
Following data are given for the month just ended;

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Particulars Kgs.
Material input quantity 2,00,000 kgs
Opening work-in-progress quantity (Material 100% and conversion 40,000 kgs
50% complete)
Work complete quantity 1,60,000 kgs
Closing work-in-progress quantity (Material 100% and conversion 30,000 kgs
two-third complete)

Particulars (₹)
Material input cost 75,000
Processing cost 1,02,000
Opening work-in-progress cost;
Material cost 20,000
Processing cost 12,000

Normal process loss in quantity may be assumed to be 20% of material input. It has no
realizable value.

Any quantity of Product ‘A’ can be sold for ₹ 1.60 per kg.
Alternatively, It can be transferred to Process II for further processing and then sold as Product
‘AX’ for ₹2 per kg. Further materials are added in Process II, which yield two kgs of product ‘AX’
for every kg of Product ‘A’ of Process I.

Of the 1,60,000 kgs per month of work completed in Process I, 40,000 kgs are sold as Product
‘A’ and 1,20,000 kgs are passed through Process II for sale as Product ‘AX’. Process II has
facilities to handle upto 1,60,000 kgs of Product ‘A’ per month, if required.

The monthly costs incurred in Process II (other than the cost of Product ‘A’) are;
Particulars 1,20,000 kgs of Product ‘A’ 1,60,000 kgs of Product ‘A’
Input Input
Material Cost ₹ 1,32,000 ₹ 1,76,000
Processing Costs ₹ 1,20,000 ₹ 1,40,000

Required: -
a) Determine, using the weighted average cost method, the cost per kg of Product ‘A’ in
Process I and value of both works completed and closing work-in-progress for the month
just ended.
b) Is it processing 1,20,000 kgs of Product A’ further?
c) 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.
(Nov. 2006)
Sol. Statement showing the calculation of abnormal loss
Particulars Quantity (kg)
Input 2,00,000
Less: Finished quantity (1,60,000 - 40,000) 1,20,000
Less: Closing Work in progress 30,000
Less: Normal loss 20% of 2,00,000 40,000
Abnormal Gain/ (Abnormal loss) (10,000)

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Statement showing the evaluation of equivalent units using weighted average method:
Input Particulars Output Material Conversion
charges
% Kg % Kg
40,000 Opening work in 40,000 100 40,000 100 40,000
progress
2,00,000 Input
Finished goods 1,20,000 100 1,20,000 100 1,20,000
Normal loss 40,000 - - - -
Abnormal loss 10,000 100 10,000 100 10,000
Closing Work in 30,000 100 30,000 2/3 20,000
progress
2,40,000 2,40,000 2,00,000 1,90,000

i) Computation of cost per unit:

Material = (20,000 + 75,000 – 0) ÷ 2,00,000 kg = ₹0.475 per kg
Processing cost = (12,000 + 1,02,000) ÷ 1,90,000 kg = ₹ 0.60 per kg

Computation of value of work completed and closing work in progress:

For work completed:
Material = 1,60,000 kg × ₹0.475 per kg = ₹76,000
Conversion cost = 1,60,000 kg x ₹ 0.60 per kg = ₹ 96,000

For closing work in progress:

Material = 30,000 kg × ₹0.475 per kg = ₹14,250
Conversion charges = (30,000 × 2/3) × ₹ 0.60 per kg = ₹ 12,000

ii) Calculation of checking the feasibility of processing 1,20,000 kg of product A in future:

If we sell the product A after process –I
Sales 1,20,000 kg × ₹ 1.60 per kg = ₹ 1,92,000
Cost of production = 1,20,000 kg × ₹ 1.075 per kg = ₹ 1,29,000
Profit = ₹ 1,92,000 - ₹ 1,29,000 = ₹ 63,000

If we further process the product A

Production of Product AX with the help of product A = 1,20,000 kg × 2 = 2,40,000 kg
Sale value of AX = 2,40,000 kg × ₹ 2 per kg = ₹ 4,80,000
Further processing cost = ₹ 1,20,000 + ₹ 132,000 = 2,52,000
Processing cost incurred at process I = 1,29,000;
Total processing cost = ₹ 3,81,000
Profit = ₹ 4,80,000 – ₹ 3,81,000 = ₹ 99,000
Profit if product sold before further processing = ₹ 63,000
Profit if product sold after further processing = ₹ 99,000
Therefore, company should go for further processing.

Calculation of minimum price that would be charged if potential buyer is found:

Cost of processing remaining 40,000 kg; Expected production of AX = 40,000 x 2 kg =
80,000 kg.
Material (₹ 1,76,000 – ₹ 1,32,000) = ₹44,000
Processing cost = ₹ 1,40,000 – ₹ 1,20,000 = ₹ 20,000
Process cost incurred at process-I = 40,000 kg × ₹ 1.075 per kg = ₹ 43,000

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Total cost = ₹ 44,000 + ₹ 20,000 + ₹ 43,000 = ₹ 107,000;
Loss of profit at sale after process –I = (₹ 1.60 – ₹ 1.075) × 40,000 = ₹ 21,000
Total cost incurred for processing = ₹ 1,07,000 + ₹ 21,000 = ₹ 1,28,000
Minimum selling price = ₹ 1,28,000 ÷ 80,000 = ₹ 1.6 per kg.
18. RST Ltd. Manufactures Plastic Moulded Chair. Three models of moulded chairs, all variation of
the same design is Standard, Deluxe and Executive. The Company uses an Operation Costing
System.

RST Ltd. Has Extrusion, Form, Trim and Finished Operations. Plastic Sheets are produced by
the Extrusion Operation. During the Forming Operation, the Plastic Sheets are moulded into
Chair Seats and the legs are added. The Standard Model is sold after this operation. During the
Trim Operation, the arms are added to the Deluxe and Executive Models, and the chair edges
are smoothed. Only the Executive Model enters the Finish Operation, in which padding is added.
All of the units produced receive the same steps within each operation. In April, units of
production and Direct Materials Cost incurred are as follows;
Model Units Extrusion Form Trim Finish
Produced Materials Materials Materials Materials
Standard Model 10,500 ₹ 1,26,000 ₹ 42,000 ₹0 0
Deluxe Model 5,250 ₹ 63,000 ₹ 21,000 ₹ 15,750 0
Executive Model 3,500 ₹ 42,000 ₹ 14,000 ₹ 10,500 ₹ 21,000
Total 19,250 ₹ 2,31,000 ₹ 77,000 ₹ 26,250 ₹ 21,000

The total Conversion Costs for the month of April, are;

Operation Extrusion Form Trim Finished
Operation Operation Operation Operations
Total Conversion Costs ₹ 6,06,375 ₹ 2,97,000 ₹ 1,55,250 ₹ 94,500

Required: -
a) For each product produced by RST Ltd. During April, determine the unit Cost and the Total
Cost.
b) Now consider the following information for May. All unit costs in May are identical to the
April unit cost Calculated as above in (1). At the end of May. 1,500 units of the Deluxe Model
remain in Work-in-Progress. These units are 100% complete as to Materials and 65%
complete in the Trim Operation. Determine the cost of the Deluxe Model Work-in-Process
inventory at the end of May.
(RTP 2003)
Sol. a) Computation of Total and Unit Costs for each Model;
Model Standard Deluxe Executive
Materials;
Extrusion ₹ 12.00 ₹ 12.00 ₹ 12.00
Form ₹ 4.00 ₹ 4.00 ₹ 4.00
Trim ---- ₹ 3.00 ₹ 3.00
Finish ---- ---- ₹ 6.00
Sub-Total Material Cost (a) ₹ 16.00 ₹ 19.00 ₹ 25.00
Conversion;
Extrusion ₹ 31.50 ₹ 31.50 ₹ 31.50
Form ₹ 15.43 ₹ 15.43 ₹ 15.43
Trim ---- ₹ 17.74 ₹ 17.74
Finish ---- ---- ₹ 27.00
Sub-Total Conversion Cost (b) ₹ 46.93 ₹ 64.67 ₹ 91.67

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Total Cost per unit (c)= (a + b) ₹ 62.93 ₹ 83.67 ₹ 116.67
Output Quantity in April (d) 10,500 units 5,250 3,500 units
Total Cost (c × d) ₹ 6,60,765.00 ₹ 4,39,267.50 ₹ 4,08,345.00

b) Valuation of WIP Inventory (1,500 units of Deluxe Model);

Particulars Equivalent Cost per Total Cost
Units E.U. (₹)
Materials;
✓ Extrusion 1500 ₹ 12.00 18,000.00
✓ Form 1500 ₹ 4.00 6,000.00
✓ Trim 1500 ₹ 3.00 4,500.00
Conversion;
✓ Extrusion 1500 ₹ 31.50 47,250.00
✓ Form 1500 ₹ 15.43 23,145.00
✓ Trim (1,500 units × 65%) 975 ₹ 17.74 17,296.50
Cost of 1,500 units of Deluxe Model 116191.5
Chairs WIP

Working:
Computation of Cost per Equivalent Unit for each Operation;
Particulars Extrusion Form Trim Finish
✓ Equivalent Units of 19,250 19,250 8,750 3,500
Materials required to Units Units Units Units
produce three brands of
Plastic Moulded Chairs. (a)
✓ Total Material Costs (given) ₹ 2,31,000 ₹ 77,000 ₹ 26,250 ₹ 21,000
(b)
✓ Material Cost per ₹ 12.00 ₹ 4.00 ₹ 3.00 ₹ 6.00
Equivalent Unit (c)= (b ÷ a)
✓ Total Conversion Costs ₹ 6,06,375 ₹ 2,97,000 ₹ 1,55,250 ₹ 94,500
(given) (d)
✓ Conversion Cost per ₹ 31.50 ₹ 15.43 ₹ 17.74 ₹ 27.00
Equivalent Unit (d ÷ a)
19. An English willow company who manufactures cricket bat buys wood as its direct material. The
Forming department process the cricket bats and the cricket bats are then transferred to the
Finishing department where stickers are applied. The Forming department began
manufacturing 10,000 initial bats during the month of December for the first time and their
cost is as follows;
Particulars (₹)
Direct Material 33,000
Conversion costs; 17,000
Total 50,000
A total of 8,000 cricket bats were completed and transferred to the Finishing department, the
rest 2,000 were still in the Forming process at the end of the month. All of the forming
departments direct material were placed, but, on average, only 25% of the conversion costs
was applied to the ending work in progress inventory.
Calculate: -
a) Equivalent units of production for each cost.
b) The Conversion cost per Equivalent units.
c) Cost of Closing work-in-process (WIP) and finished products. (ICAI SM)

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Sol. a) Calculation of equivalent units of production;
Input Particulars Output Material Conversion
cost
% unit % unit
Nil Opening work in progress - - - - -
10,000 Input - - - - -
Finished output 8,000 100 8,000 100 8,000
Normal Loss - - - - -
Abnormal loss/gain - - - - -
Closing Work in progress 2,000 100 2,000 25 500
10,000 10,000 10,000 8,500

b) Calculation of Cost per equivalent unit;

Particulars Direct Material Conversion Costs
✓ Total Cost (₹) 33,000 17,000
✓ Equivalent units 10,000 8,500
✓ Cost per equivalent unit (₹) 3.30 2.00

c) The Cost of Closing Work-in-Process (WIP);

Costs Equivalent Units Rate (₹) Total Cost (₹)
✓ Direct Material 2,000 3.30 6,600
✓ Conversion costs 500 2.00 1,000
Total 7,600

The Cost of Finished Products;

Costs Equivalent Units Rate (₹) Total Cost (₹)
✓ Direct Materials 8,000 3.30 26,400
✓ Conversion Costs 8,000 2.00 16,000
Total 42,400
20. XP Ltd. furnishes you the following information relating to process II,
i) Opening work-in-progress—NIL
ii) Units introduced 42,000 units @ ₹ 12
iii) Expenses debited to the process : ₹
Direct material 61,530
Labour 88,820
Overheads 1,76,400
iv) Normal loss in the process = 2% of input.
v) Closing work-in-progress — 1200 units
Degree of completion = Materials 100%
Labour 50%
Overhead 40%
vi) Finished output — 39500 units
vii) Degree of completion of abnormal loss :
Material 100%
Labour 80%
Overhead 60%
viii) Units scraped as normal loss were sold at ₹ 4.50 per unit.
ix) All the units of abnormal loss were sold at ₹ 9 per unit.

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Prepare:
a) Statement of equivalent production.
b) Statement showing the cost of finished goods, abnormal loss and closing work-in-
progress.
c) Process II account and abnormal loss account.
(Nov 2009)
Ans. a) Statement of Equivalent Production
Particulars Output Units Material Units Labour Units Overhead
% % %
Finished Output 39,500 39,500 100% 39,500 100% 39,500 100%
Normal Loss 2% of 42,000 00 -- -- -- -- -- --
units
840
Abnormal Loss (42,000 – 460 460 100% 368 80% 276 60%
39,500 – 840 – 1,200)
Closing W.I.P 1,200 1,200 100% 600 50% 480 40%
42,000 41,160 40,468 40,256

b) Statement of Cost
Particulars ₹
Units Introduced 42,000 @ 12 5,04,000
Add: Material 61,530
5,65,530
Less: Value of Normal Loss 3,780
5,61,750
Cost per Unit
Material
5,61,750
= ₹13.648
41,160

Labour
88,820
= ₹2.195
40,468

Overhead
1,76,400
= ₹4.382
40,256
20.225
Abnormal Loss:
Material 460 × 13.648 6,278.08
Labour 368 × 2.195 807.76
Overhead 276 × 4.382 1,209.42
8,295.26
Closing W.I.P.
Material 1,200 × 13.648 16,377.60
Labour 600 × 2.195 1,317.00
Overhead 480 × 4.382 2,103.36
19,797.96
Finished Goods
39,500 × 20.225 ₹7,98,887.50

c) Process II Account
Particulars Units Amount Particulars Units Amount ₹
₹
To Opening WIP -- Nil By Normal Loss 840 3,780
To Input 42,000 5,04,000 By Abnormal Loss 460 8,295
To Direct Material -+- 61,530 By Finished Goods 39,500 7,98,877
To Labour -- 88,820
To Overhead -- 1,76,400 By Closing WIP 1,200 19,798
42,000 8,30,750 42,000 8,30,750

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Abnormal Loss Account
Particulars Units Amount ₹ Particulars Units Amount ₹
To Process II 460 8,295 By Cash (Sold 460 4,140
@ ₹9)
By Costing P & 4,155
L
460 8,295 460 8,295
21. ABC Limited manufactures a product ‘ZX by using the process namely RT. For the month of
May, 2007, the following data are available:
Process RT
Material introduced (units) 16,000
Transfer to next process (units) 14,400
Work in process:
At the beginning of the month (units) 4,000
(4/5 completed)
At the end of the month (units) 3,000
(2/3 completed)

Cost records:
Work in process at the beginning of the month
Material ₹30,000
Conversion cost ₹29,200
Cost during the month: materials ₹1,20,000
Conversion cost ₹1,60,800

Normal spoiled units are 10% of goods finished output transferred to next process.

Defects in these units are identified in their finished state. Material for the product is put in the
process at the beginning of the cycle of operation, whereas labour and other indirect cost flow
evenly over the year. it has no realisable value for spoiled units.

Required:
i) Statement of equivalent production (Average cost method);
ii) Statement of cost and distribution of cost;
iii) Process accounts. (Nov 2007)
Ans. i) Statement of Equivalent Production of Process RT
Input Output Equivalent Production
Units Units
Particulars Material % Conversion %
% units cost units
4,000 Opening WIP
16,000 Introduced 14,400 14,400 100% 14,400 100%
completed and
transfer to next
Normal Spoilage 1,440 1,440 100% 1,440 100%
Abnormal 1,160 1,160 100% 1,160 100%
Spoilage
Closing WIP 3,000 3,000 100% 2,000 66.67%
20,000 20,000 20,000 19,000

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ii) Statement showing cost of each element
Particulars Opening (₹) Cost in Total Equivalent Cost
Process (₹) (₹) unit per
units
Materials 30,000 1,20,000 1,50,000 20,000 7.50
Conversion cost 29,200 1,60,800 1,90,000 19,000 10.00
Statement of apportionment of cost
Units completed Material 14,400 7.50 1,08,000
Conversion cost 14,400 10.00 1,44,000
2,52,000
Normal spoilage 25,200
(10%)
Closing stock Material 3,000 7.50 22,500
Conversion cost 2,000 10.00 20,000
42,500
Abnormal stock Material 1,160 7.5 8,700
Conversion cost 1,160 10.00 11,600
20,300

iii) Process Account

Particulars ₹ Particulars ₹
To Opening WIP 59,200 By Profit and Loss Account (Abnormal) 20,300
To Material 1,20,000 By Transfer to next process 2,77,200
To Conversion cost 1,60,800 By Closing WIP 42,500
3,40,000 3,40,000
22. KT Ltd. Produces a product EMM which passes through two processes before it is completed
and transferred to finished stock. The following data relate to May 2019:
Particulars Process Finished
A (₹) B (₹) (₹)
Opening Stock 5,000 5,500 10,000
Direct Materials 9,000 9.500
Direct wages 5,000 6,000
Factory Overheads 4,600 2.030
Closing Stock 2,000 2.490 5,000
Inter-process profit included in opening stock 1,000 4,000

Output of Process A is transferred to Process B at 25% profit on the transfer price and output
of Process B is transferred to finished stock at 20% profit on the transfer price. Stock in process
is valued at prime cost. Finished stock is valued at the price at which It is received from Process
B. Sales during the period are ₹ 75,000.
Prepare the Process cost accounts and Finished stock account showing the profit element at
each stage.
(May 2019)
Ans. Process A A/c

Particulars Total Cost Profit Particulars Total Cost Profit

(₹) (₹) (₹) (₹) (₹) (₹)
To Opening Stock 5,000 5,000 - By Process B 28,800 21,600 7,200
A/c
To Direct Materials 9,000 9,000 -

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To Direct Wages 5,000 5,000 -
19,000 19,000 -
Less: Closing Stock (2,000) (2,000)
Prime Cost 17,000 17,000
Overheads 4,600 4,600
Process Cost 21,600 21,600
Profit (1/3 of the 7,200 - 7,200
total cost)
28,800 21,600 7,200 28,800 21,600 7,200

Process B A/c
Particulars Total Cost Profit Particulars Total Cost Profit
(₹) (₹) (₹) (₹) (₹) (₹)
To Opening Stock 5,500 4,500 1,000 By 61,675 41,550 20,125
Finished
Stock A/c
To Process A 28,800 21,600 7,200
To Direct Materials 9,500 9,500 -
To Direct Wages 6,000 6,000 -
49,800 41,600 8,200
Less: Closing
Stock* (2,490) (2,080) (410)
Prime cost 47,310 39,520 7,790
Overheads 2,030 2030 -
Process Cost 49,340 41,550 7,790
Profit (25% on 12,335 - 12,335
total cost)
61,675 41,550 20,125 61,675 41,550 20,125

41,600
* Cost of Closing Stock = ×2,490 = ₹2,080
49,800
Finished Stock Account
Particulars Total Cost Profit Particulars Total Cost Profit
(₹) (₹) (₹) (₹) (₹) (₹)
To Opening Stock 10,000 6,000 4,000 By Costing P&L 75,000 44,182 30,818
A/c
To Process A 61,675 41,550 20,125
71,675 47,550 24,125
Less: Closing (5,000) (3,368) (1,632)
Stock*
To Finished Stock 66,675 44,182 22,493
To Profit 8,325 - 8,325
75,000 44,182 30,818 75,000 44,182 30,818
₹41,550
*Cost of Closing Stock = × ₹5,000 = ₹3,368
₹61,675

Working Notes:
Let the transfer price be 100 then profit is 25; i.e. cost price is ₹75.
1) If cost is ₹75 then profit is
25
If cost is ₹21,600 then profit is 75 × 21,600 = ₹7,200
2) If cost is ₹80 then profit is ₹20
20
If cost is ₹49,340 then profit is 80 × 49,340 = ₹12,335

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23. A Product passes through three processes. The Output of each process is treated as the raw
material of the next process to which it is transferred and output of the third process is
transferred to finished stock.
Particulars Process I (₹) Process II (₹) Process III (₹)
Materials Issued 40,000 20,000 10,000
Labour 6,000 4,000 1,000
Manufacturing Overheads 10,000 10,000 15,000

10,000 units have been issued to the Process-I and after processing the output of each process
is as under;
Process Output Normal Loss
Process-I 9,750 units 2%
Process-II 9,400 units 5%
Process-III 8,000 units 10%

No stock of materials or of work-in-process was left at the end. Calculate the cost of the finished
articles.
(ICAI SM)
Sol. Process-I Account
Dr. Cr.
Particulars Units Total Particulars Units Total
(₹) (₹)
To Material 10,000 40,000 By Normal Loss A/c 200 ----
(2% of 10,000 units)
To Labour ---- 6,000 By Abnormal Loss A/c 50 286
(₹ 5.7142 × 50 units)
To Manufacturing OH ---- 10,000 By Process-II A/c 9,750 55,714
(₹ 5.7142 × 9,750
units)
10,000 56,000 10,000 56,000

Cost per unit of completed units and abnormal loss;

Total Cost ₹ 56,000
− Input−Normal Loss
= 10,000 units−200 units = ₹ 5.7142

Process-II Account
Dr. Cr.
Particulars Units Total Particulars Units Total
(₹) (₹)
To Process-I A/c 9,750 55,714 By Normal Loss A/c 488 ----
(5% of 9,750 units)
To Material ---- 20,000 By Process-III A/c 9,400 91,051
(₹ 9.6862 × 9,400
units)
To Labour ---- 4,000
To Manufacturing OH ---- 10,000
To Abnormal Gains A/c 138 1,337
(₹ 9.6862 × 138 units)
9,888 91,051 9,888 91,051

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Cost per unit of completed units and abnormal gain;
Total Cost ₹ 89,714
− = = ₹ 9.6862
Inputs−Normal Loss 9,750 units−488 units

Process-III Account
Dr. Cr.
Particulars Units Total Particulars Units Total
(₹) (₹)
To Process-II A/c 9,400 91,051 By Normal Loss A/c 940 ----
(10% of 9,400 units)
To Material ---- 10,000 By Abnormal Loss A/c 460 6,364
(₹ 13.8358 × 460
units)
To Labour ---- 1,000 By Finished Stock A/c 8,000 1,10,687
(₹ 13.8358 × 8,000
units)
To Manufacturing ---- 15,000
OH
9,400 1,17,051 9,400 1,17,051

Cost per unit of completed units and abnormal loss;

Total Cost ₹ 1,17,051
= = ₹ 13.8358
Inputs − Normal loss 9,400 units − 940 units
24. A Product passes from Process I and Process II, Materials issued to Process-I amounted to
₹40,000, Labour ₹30,000 and manufacturing overheads were ₹27,000. Normal loss was 3% of
input as estimated. But 500 more units of output of Process-I were lost due to the carelessness
of workers. Only 4,350 units of output were transferred to Process-II.
There were no opening stocks. Input raw materials issued to Process-I were 5,000 units. You
are required to show Process-I account.
(Nov. 2008)
Sol. Dr. Process I A/c Cr.
Particulars Qty. (₹) Particulars Qty. (₹)
To Material 5,000 40,000 By Normal loss (5000 × 150 ----
3%)
To Labour 30,000 By Abnormal loss (@ ₹ 500 10,000
20 p.u.)
To Manufacturing 27,000 By Transfer to Process- 4,350 87,000
overheads II A/c (@ ₹ 20 per units)
5,000 97,000 5,000 97,000

Working Notes: -
Calculate of cost per unit;
Cost of Material + Labour +Overheads
Cost per unit = Input units − Normal loss
40,000+30,000+27,000
Cost per unit = 5,000 −150
97,000
Cost per unit = 4,850
Cost per unit = ₹ 20 per unit
Note: *In the absence of any information, it is assumed that normal loss is not sold as scrap.

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