PROCESS COSTING

ILLUSTRATION 1

From the following data, PREPARE process accounts indicating the cost of each
process and the total cost. The total units that pass through each process were
240 for the period.

Particulars Process I (₹) Process II (₹) Process III (₹)

Materials 1,50,000 50,000 20,000
Labour 80,000 2,00,000 60,000
Other expenses 26,000 72,000 25,000
Indirect expenses amounting to ₹ 85,000 may be apportioned on the basis of
wages. There was no opening or closing stock.

SOLUTION:

PROCESS I A/c
PARTICULARS P.U. (₹) Amt (₹) PARTICULARS P.U. (₹) Amt (₹)
To Material 625 1,50,000 By Process II A/c 1,150 2,76,000
To Labour 334 80,000
To Other Exp. 108 26,000
To Indirect Exp 83 20,000

1,150 2,76,000 1,150 2,76,000

PROCESS II A/c
PARTICULARS P.U. (₹) Amt (₹) PARTICULARS P.U. (₹) Amt (₹)
To Process I A/c 1,150 2,76,000 By Process III A/c 2,700 6,48,000
To Material 208 50,000
To Labour 833 2,00,000
To Other Exp. 300 72,000
To Indirect Exp 209 50,000

2,700 6,48,000 2,700 6,48,000

PROCESS III A/c

PARTICULARS P.U. (₹) Amt (₹) PARTICULARS P.U. (₹) Amt (₹)
To Process II A/c 2,700 6,48,000 By Finished Goods A/c 3,200 7,68,000
To Material 83 20,000
To Labour 250 60,000
To Other Exp. 104 25,000
To Indirect Exp 63 15,000

3,200 7,68,000 3,200 7,68,000

ILLUSTRATION 2

A product passes through Process- I and Process- II. Materials issued to Process-
I amounted to ₹ 40,000, Wages ₹ 30,000 and manufacturing overheads were ₹
27,000. Normal loss anticipated was 5% of input. 4,750 units of output were
produced and transferred-out from Process-I. There were no opening stocks.
Input raw material issued to Process I were 5,000 units. Scrap has no realisable
value.

You are required to PREPARE Process- I account, value of normal loss and units
transferred to Process-II.

SOLUTION:

PROCESS I A/c
PARTICULARS UNIT Amt (₹) PARTICULARS UNIT Amt (₹)
To Materials 5,000 40,000 By Normal Loss 250 -
To Labour - 30,000
To Overheads - 27,000 By Process II A/c 4,750 97,000

5,000 97,000 5,000 97,000

Value of Goods transferred to Process II (per unit)

𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡 − 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑁𝑜𝑟𝑚𝑎𝑙 𝐿𝑜𝑠𝑠 97,000 − 0
= = = 20.42
𝑇𝑜𝑡𝑎𝑙 𝐼𝑛𝑝𝑢𝑡 − 𝑁𝑜𝑟𝑚𝑎𝑙 𝐿𝑜𝑠𝑠 𝑈𝑛𝑖𝑡 5,000 − 250
ILLUSTRATION 3

A product passes through Process- I and Process- II. Materials issued to Process-
I amounted to ₹ 40,000, Wages ₹ 30,000 and manufacturing overheads were ₹
27,000. Normal loss anticipated was 5% of input. 4,750 units of output were
produced and transferred-out from Process-I. There were no opening stocks.

Input raw material issued to Process I were 5,000 units. Scrap has realisable
value of ₹ 2 per unit.

You are required to PREPARE Process- I account, value of normal loss and units
Transferred to Process-II.

SOLUTION:

PROCESS I A/c
PARTICULARS UNIT Amt (₹) PARTICULARS UNIT Amt (₹)
To Materials 5,000 40,000 By Normal Loss 250 500
To Labour - 30,000
To Overheads - 27,000 By Process II A/c 4,750 96,500

5,000 97,000 5,000 97,000

Value of Goods transferred to Process II (per unit)

𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡 − 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑁𝑜𝑟𝑚𝑎𝑙 𝐿𝑜𝑠𝑠 97,000 − 500
= = = 20.32
𝑇𝑜𝑡𝑎𝑙 𝐼𝑛𝑝𝑢𝑡 − 𝑁𝑜𝑟𝑚𝑎𝑙 𝐿𝑜𝑠𝑠 𝑈𝑛𝑖𝑡 5,000 − 250
ILLUSTRATION 4

A product passes through Process- I and Process- II. Materials issued to Process-
I amounted to ₹ 40,000, Wages ₹ 30,000 and manufacturing overheads were ₹
27,000. Normal loss anticipated was 5% of input. 4,550 units of output were
produced and transferred-out from Process-I. There were no opening stocks.

Input raw material issued to Process I were 5,000 units. Scrap has realisable
value of ₹ 2 per unit.

You are required to PREPARE Process- I account, value of normal loss, abnormal
loss and units transferred to Process-II.

SOLUTION:

PROCESS I A/c
PARTICULARS UNIT Amt (₹) PARTICULARS UNIT Amt (₹)
To Materials 5,000 40,000 By Normal Loss 250 500
To Labour - 30,000 By Abnormal Loss 200 4,063
To Overheads - 27,000 By Process II A/c 4,550 92,437

5,000 97,000 5,000 97,000

ABNORMAL LOSS A/c

PARTICULARS UNIT Amt (₹) PARTICULARS UNIT Amt (₹)
To Process I A/c 200 4,063 By Bank A/c 200 400

By Costing P&L A/c 3,663

4,063 4,063

Value of Goods transferred to Process II (per unit)

𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡 − 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑁𝑜𝑟𝑚𝑎𝑙 𝐿𝑜𝑠𝑠 97,000 − 500
= = = 20.32
𝑇𝑜𝑡𝑎𝑙 𝐼𝑛𝑝𝑢𝑡 − 𝑁𝑜𝑟𝑚𝑎𝑙 𝐿𝑜𝑠𝑠 𝑈𝑛𝑖𝑡 5,000 − 250
 ILLUSTRATION 5

A product passes through Process- I and Process- II. Materials issued to Process-
I amounted to ₹ 40,000, Wages ₹ 30,000 and manufacturing overheads were ₹
27,000. Normal loss anticipated was 5% of input. 4,850 units of output were
produced and transferred-out from Process-I. There were no opening
stocks.

Input raw material issued to Process I were 5,000 units. Scrap has realisable
value of ₹ 2 per unit.

You are required to PREPARE Process- I account, value of normal loss, abnormal
loss / gain and units transferred to Process-II.

SOLUTION:

PROCESS I A/c
PARTICULARS UNIT Amt (₹) PARTICULARS UNIT Amt (₹)
To Materials 5,000 40,000 By Normal Loss 250 500
To Labour - 30,000
To Overheads - 27,000 By Process II A/c 4,850 98,532
To Abnormal Gain A/c 100 2,032

5,100 99,032 5,100 99,032

ABNORMAL GAIN A/c

PARTICULARS UNIT Amt (₹) PARTICULARS UNIT Amt (₹)
To Normal Loss A/c 100 200 By Process I A/c 100 2,032

To Costing P&L A/c 1,832

2,032 2,032
 ILLUSTRATION 6

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 10,000 10,000 15,000
overhead
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.

SOLUTION:

PROCESS I A/c
PARTICULARS UNIT Amt (₹) PARTICULARS UNIT Amt (₹)
To Materials 10,000 40,000 By Normal Loss A/c 200 -
To Labour - 6,000
To Manufacturing O/H - 10,000 By Abnormal Loss A/c 50 286
By Process II A/c 9,750 55,714

10,000 56,000 10,000 56,000

PROCESS II A/c
PARTICULARS UNIT Amt (₹) PARTICULARS UNIT Amt (₹)
To Process I A/c 9,750 55,714 By Normal Loss A/c 488 -
To Materials - 20,000
To Labour - 4,000
To Manufacturing O/H - 10,000 By Process II A/c 9,400 91,051
To Abnormal Gain A/c 138 1,337
9,888 91,051 9,888 91,051

PROCESS III A/c

PARTICULARS UNIT Amt (₹) PARTICULARS UNIT Amt (₹)
To Process II A/c 9,400 91,051 By Normal Loss A/c 940 -
To Materials A/c - 10,000 By Abnormal Loss A/c 460 6,364
To Labour A/c - 1,000
To Manufacturing O/H - 15,000 By Finished Goods A/c 8,000 1,10,687

1,17,051 1,17,051
ILLUSTRATION 7

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 current year, PREPARE Process- I,
Process- II and Finished Stock A/c also compute Profit:

Particulars Process- I Process- II

Raw materials used 7,500 units --
Raw materials cost per ₹60 --
unit
Transfer to next process 7,050 units 6,525 units
/ finished stock
Normal loss (on inputs) 5% 10%
Direct wages ₹1,35,750 ₹1,29,250
Direct Expenses 60% of Direct wages 65% of Direct wages
Manufacturing 20% of Direct wages 15% of Direct wages
overheads
Realisable value of scrap ₹12.50 ₹37.50
per unit
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.
 SOLUTION:

PROCESS I A/c
PARTICULARS UNIT Amt (₹) PARTICULARS UNIT Amt (₹)
To Materials 7,500 4,50,000 By Normal Loss 375 4,688
To Direct Wages - 1,35,750 By Abnormal Loss 75 7,260
To Direct Exp (60% of DW) - 81,450
To Mfg O/H (20% of DW) - 27,150 By Process II A/c 7,050 6,82,402

7,500 6,94,350 7,500 6,94,350

PROCESS II A/c
PARTICULARS UNIT Amt (₹) PARTICULARS UNIT Amt (₹)
To Process I A/c 7,050 6,82,402 By Normal Loss 705 26,438
To Direct Wages - 1,29,250
To Direct Exp (65% of DW) - 84,013
To Mfg O/H (15% of DW) 19,388 By Finished Stock A/c 6,525 9,13,824
To Abnormal Gain A/c 180 25,209
7,230 9,40,262 7,230 9,40,262

Finished Stock A/c

PARTICULARS UNIT Amt (₹) PARTICULARS UNIT Amt (₹)
To Process II A/c 6,525 9,13,824
By Cost of Sales A/c 6,000 8,40,298

By Balance c/d 525 73,526

6,525 9,13,824 6,525 9,13,824

Costing Profit and Loss A/c

PARTICULARS Amt (₹) Amt (₹) PARTICULARS Amt (₹) Amt (₹)
To Abnormal Loss A/c 6,322 By Abnormal Gain A/c 18,459
To Cost of Sales 8,40,298 By Sales 9,66,343

To Net Profit 1,38,182

9,84,802 9,84,802

WORKING NOTE:

Abnormal Loss A/c

PARTICULARS UNIT Amt (₹) PARTICULARS UNIT Amt (₹)
To Process I A/c 75 7,260 By Bank A/c 75 938

By Costing P&L A/c 6,322

75 7,260 75 7,260
 Abnormal Gain A/c
PARTICULARS UNIT Amt (₹) PARTICULARS UNIT Amt (₹)
To Normal Loss A/c 180 6,750 By Process II A/c 180 25,209

To Costing P&L A/c - 18,459

180 25,209 180 25,209

ILLUSTRATION 8

A Ltd. produces product ‘AXE’ which passes through two processes before it is
completed and transferred to finished stock. The following data relate for the
month of October 2023:

Particulars Process - I Process - II Finished Stock

(₹) (₹) (₹)
Opening stock 7,500 9,000 22,500
Direct materials 15,000 15,750 --
Direct wages 11,200 11,250 --
Factory overheads 10,500 4,500 --
Closing stock 3,700 4,500 11,250
Inter-process profit included -- 1,500 8,250
in opening stock
Output of Process- I is transferred to Process- II at 25% profit on the transfer
price.

Output of Process- II is transferred to finished stock at 20% profit on the

transfer price. Stock in processes is valued at prime cost. Finished stock is
valued at the price at which it is received from process II. Sales during the
period are ₹ 1,40,000.

PREPARE Process cost accounts and finished goods account showing the
profit element at each stage.
 SOLUTION:

PROCESS I A/c

PARTICULARS COST PROFIT TOTAL PARTICULARS COST PROFIT TOTAL

To Op. Stock 7,500 - 7,500 By Process II A/c 40,500 13,500 54,000
To Materials 15,000 - 15,000
To Wages 11,200 - 11,200
PRIME COST 33,700 - 33,700
To Factory O/H 10,500 - 10,500 By Closing Stock 3,700 - 3,700
To Profit - 13,500 13,500

44,200 13,500 57,700 44,200 13,500 57,700

PROCESS II A/c

PARTICULARS COST PROFIT TOTAL PARTICULARS COST PROFIT TOTAL

To Op. Stock 7,500 1,500 9,000 By Finished Stock 75,750 36,750 1,12,500
To Process I A/c 40,500 13,500 54,000
To Materials 15,750 - 15,750
To Wages 11,250 - 11,250
PRIME COST 75,000 15,000 90,000
To Factory O/H 4,500 - 4,500 By Closing Stock 3,750 750 4,500
To Profit (WN2) - 22,500 22,500 (WN1)

79,500 37,500 1,17,000 79,500 37,500 1,17,000

FINISHED STOCK A/c

PARTICULARS COST PROFIT TOTAL PARTICULARS COST PROFIT TOTAL

To Op. Stock 14,250 8,250 22,500 By Costing P&L 82,425 57,575 1,40,000
To Process II A/c 75,750 36,750 1,12,500

To Profit - 16,250 16,250 By Closing Stock 7,575 3,675 11,250

(WN3)

90,000 61,250 1,51,250 90,000 61,250 1,51,250

WORKING NOTE:

1. Calculation of Cost of Closing Stock of Process II

𝟕𝟓, 𝟎𝟎𝟎
𝑪𝒐𝒔𝒕 𝒐𝒇 𝑪𝒍𝒐𝒔𝒊𝒏𝒈 𝑺𝒕𝒐𝒄𝒌 = × 𝟒, 𝟓𝟎𝟎 = 𝟑, 𝟕𝟓𝟎
𝟗𝟎, 𝟎𝟎𝟎

2. Profit on Transfer from Process II to Finished Stock

𝑻𝒐𝒕𝒂𝒍 𝑪𝒐𝒔𝒕 − 𝑪𝒍𝒈 𝑺𝒕𝒐𝒄𝒌 𝟗𝟒, 𝟓𝟎𝟎 − 𝟒, 𝟓𝟎𝟎
𝑻𝒓𝒂𝒏𝒔𝒇𝒆𝒓 𝑷𝒓𝒊𝒄𝒆 = = = 𝟏, 𝟏𝟐, 𝟓𝟎𝟎
𝟖𝟎% 𝟖𝟎%

Profit on Transfer = 1,12,500 × 20% = 22,500

3. Calculation of Cost of Closing Stock of Finished Goods
𝟕𝟓, 𝟕𝟓𝟎
𝑪𝒐𝒔𝒕 𝒐𝒇 𝑭𝒊𝒏𝒊𝒔𝒉𝒆𝒅 𝑮𝒐𝒐𝒅𝒔 = × 𝟏𝟏, 𝟐𝟓𝟎 = 𝟕, 𝟓𝟕𝟓
𝟏, 𝟏𝟐, 𝟓𝟎𝟎