10 Process Costing

CHAPTER

Process Costing • This method is used ascertain cost of a product at each process or stage
of manufacture.
• It is applied in case of industries where products are manufactured in
stages, i.e. output of one process becomes the input of the subsequent
process.
• Costs are computed by preparing a process account for each process
separately.
Normal Wastage • It is the loss of material which is inherent in the nature of work and is
unavoidable.
• Such wastage can be estimated in advance on the basis of past experience
or technical specifications.
• The cost of normal wastage is absorbed by good production units of the
process and the cost per unit of good production is increased accordingly.
• It can be of three varieties:
 Normal loss in nature of weight loss
 Normal loss having some realizable value
 Normal loss requiring disposal cost to be incurred
• Normal cost per unit

=
– (if any)
–
Abnormal Wastage • It is a loss which is over and above the normal loss.
• It is avoidable in nature and is not inherent in the manufacturing
operations.
• It may occur due to carelessness of workers, bad plant, design, etc.
• The units of abnormal wastage are valued at normal cost per unit and
debited to the separate account which is known as abnormal wastage
account.
• If the abnormal loss fetches some value, the same is credited to abnormal
wastage account.
• The balance of abnormal loss account is transferred to Costing P&L
Account.
Abnormal Gain • These are the units of goods produced over and above the normal output.
• These are valued at normal cost per unit and credited to the abnormal
gain account.
• The loss of scrap of normal loss due to being converted into abnormal
gain units of such products is debited to abnormal gain account.
• The balance of abnormal gain account is transferred to Costing P&L
Account.
Operation Costing • It is refinement of process costing and is concerned with the determination
of cost of each operation.
• It is used in those industries where a process consist of distinct operations.
• It offers better control and facilitates, the computation of unit operation
cost at the end of each operation.

Equivalent Units • It represents the incomplete production units expressed in terms of

equivalent completed units.
• It is calculated as follows:
 Compute the number of physical units of closing work in progress
 Estimate the percentage of completion of work in progress for
various elements of cost viz. materials, labour and overheads
 Compute equivalent completed units = Physical units × Percentage
of completion
nter Pro ess Profit • In some process the output of one process is transferred to the next not
at cost but at market value or cost plus a percentage of profit and the
difference between cost and the transfer price is known as inter-process
profits.
• Advantages
 Comparison between the cost and market price at the stage of
completion is facilitated.
 Each process is made to stand by itself as to the profitability.
• Disadvantages
 The use of inter-process profits involve complications.
 The system shows profits which are not realized because of stock not
sold out.

276 Cost and Management Accounting PW

 PRACTICAL QUESTIONS
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. [SM]

Process 1 (`) Process 2 (`) Process 3 (`)

Material 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.
Ans. `2,76,000; `6,48,000; `7,68,000.

2. A product passes from 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 of raw material issued to Process-I were 5,000 units. Scrap has realisable
value of `2 per unit. You are required to show Process-I account, value of normal loss and units
transferred to Process-II. [SM]

3. A product passes from 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 of raw material issued to Process-I were 5,000 units. Scrap has realisable
value of `2 per unit. You are required to show Process-I account, value of normal loss, value of
abnormal loss/gain and units transferred to Process-II. [SM]
4. A product passes from 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 of raw material issued to Process-I were 5,000 units. Scrap has realisable
value of `2 per unit. You are required to show Process-I account, value of normal loss, value of
abnormal loss/gain and units transferred to Process-II. [SM]
5. A product passes through three processes, A, B and C. The normal wastage of each process is as
follows:
Process A – 3 per cent
Process B – 5 per cent
Process C – 8 per cent
Wastage of process A was sold at 25 paise per unit, that of process B at 50 paise per unit and that
of Process C at `1 per unit. 10,000 units were issued to Process A in the beginning of October at
a cost of `1 per unit. The other expenses were as follows:

Process Costing 277

 Process A Process B Process C
` ` `
Sundry Materials 1,000 1,500 500
Labour 5,000 8,000 6,500
Direct expenses 1,050 1,188 2,009

Actual output was:

Process A 9,500 units
Process B 9,100 units
Process C 8,100 units
Prepare the Process Accounts, assuming that there was no opening or closing stocks. Also give
the Abnormal Wastage and Abnormal Effective Accounts.
Ans. `1.75; `3; `4.25.

6. A product passes through three processes – A, B and C. The details of expenses incurred on the
three processes during the year were as under:

Process A B C
Units issued/introduced cost per unit `100 10,000
` ` `
Sundry Materials 10,000 15,000 5,000
Labour 30,000 80,000 65,000
Direct Expenses 6,000 18,150 27,200
Selling price per unit of output 120 165 250

Management expenses during the year were `80,000 and selling expenses were `50,000. These
are not allocable to the processes.
Actual output of the three processes was:
A – 9,300 units, B – 5,400 units and C – 2,100 units. Two thirds of the output of Process A and
one – half of the output of Process B was passed on to the next process and the balance was sold.
The entire output of Process C was sold.
The normal loss of the three process, calculated on the input of every process was: Process
A – 5%, Process B – 15% and Process C – 20%. The loss of Process A was sold at `2 per unit, that
of B at `5 per unit and of Process C at `10 per unit.
Prepare the three processes accounts and the Profit and Loss Account.
Ans. Loss `32,450.
7. The input to a purifying process was 16,000 kgs of basic material purchased @ `1.20 per kg.
Process wages amounted to `720 and overhead was applied @ 240% of the labour cost. Indirect
materials of negligible weight were introduced into the process at cost of `336. The actual output

278 Cost and Management Accounting PW

 from the process weighed 15,000 kgs. The normal yield of the process is 92%. Any difference
in weight between the input of basic material and output of purified material (product) is sold
@ `0.50 per kg. The process is prepared under a license which provides for the royalty @ `0.15
per kg of the purified material produced. Prepare:
(a) Purifying process account
(b) Normal wastage account
(c) Abnormal wastage/yield account
(d) Royalty payable account
Ans. `1.60.

8. The following data are available pertaining to a product after passing through two processes
A and B:
Output transferred to process C from Process B 9,120 units for `49,263
Expenses incurred in Process C:
Sundry Materials `1,480
Direct labour `6,500
Direct Expenses `1,605
The wastage of process C is sold at `1.00 per unit. The overhead charges were 168% of direct
labour. The final product was sold at `10.00 per unit fetching a profit of 20% on sales. Find the
percentage of wastage in process C and prepare Process C Account.
Ans. 5%.

9. An article passes through three successive operations from the raw material to the finished product
stage. The following data are available from the production records of a particular month:

Operation No. Input No. of Pcs. Input No. of Pcs. Rejected No. of Pcs. Output
1 60,000 20,000 40,000
2 66,000 6,000 60,000
3 48,000 8,000 40,000
(i) Determine the input required in the first operation in number of pieces in order to obtain
finished output of 100 pieces after the last operation.
(ii) Calculate the cost of raw material required to produce one piece of finished product, given
that weight of the finished piece is 0.10 kg and the price of raw material is `20 per kg.
Ans. (i) 198 units; (ii) `3.96.

10. The following information is extracted from the cost accounts of a factory producing a commodity
in the manufacture of which three processes are involved. Prepare process accounts showing the
cost of the output and the cost per unit at each stage of manufacture. You may presume that there
is no WIP.

Process Costing 279

 Process 1 Process 2 Process 3
(`) (`) (`)
Direct wages 2,500 5,000 6,500
Machine Expenses 1,400 1,200 1,200
Factory Overheads 1,100 1,550 900
Raw materials consume 8,000 — —
Units Units Units
Production (Gross) 2,750 — —
Wastage 150 210 200
Opening stock of raw materials — 250 500
Closing stock of raw materials — 440 100

Ans. `5; `9; `13.33.

11. The product of a company passes through three different processes – A, B and C. It is ascertained
from past experience that wastage in each process is incurred as under:
Process A : 2%
Process B : 5%
Process C : 10%
The percentage of wastage in each case is computed on the basis of number of units entering the
process concerned.
The wastage of each process has a scrap value. The wastage of process A and B is sold at `1 per
unit and that of process C at `4 per unit. The company gives you the following information for
the month of July:
2,000 units of crude material were introduced in process A at a cost of `8 per unit. Besides this
the following were other expenses:
Process A ` Process B ` Process C `
Material consumed 8,000 3,000 2,000
Direct Labour 12,000 8,000 6,000
Work Expenses 2,000 1,000 3,000
Units Units Units
Output 1,950 1,925 1,590
Stock : July 1 200 300 500
July 31 150 400
Stock valuation on July 1 per unit 19 27 36.5
Stocks on 31st July are to be valued at cost as shown by months’ production accounts. Prepare
the Process Accounts.
Ans. `19.36734; `26.61105; `35.90134.

280 Cost and Management Accounting PW

12. A product passes through two processes A and B. From the following particulars relating to process
A, find out equivalent production and prepare the relevant accounts.
Units introduced in process A – 2,000 valued at `5,800
Amount spent as labour and production overhead: `3,340 and `1,670 respectively
Direct materials introduced during the process – `1,440
1,400 completed units were produced in process A and transferred to process B. Incomplete units
460. Units scrapped 140 and sold at `1 per unit. The normal process loss was estimated at 5%
on input. It was estimated that incomplete units had reached a stage in production as follows:
Materials (including units introduced) 75% completed
Labour 50% completed
Overhead 50% completed

13. With the help of the following information, prepare Process Account, giving full working notes:

[Nov 2011]
Opening stock of work in progress: 1,000 units at `10,000
Degree of completion: Material 100%, Labour 50%, Overhead 40%
Introduced during the process: 10,000 units at `37,800
Wages: `17,840
Overheads: `8,840
Scrap 1,500 units
Degree of Completion: Materials 100%, Labour 80%, Overheads 60%
Closing work in progress: 1,000 units
Degree of completion: Materials 100%, Labour 60%, Overheads 50%
Normal loss 10% of total input
Scrap value `2 per unit

14. A Company manufacturing chemical solution that passes through a number of processes uses
FIFO method to value Work-in-Process and Finished Goods. At the end of month of September, a
fire occurred in the factory and some papers containing records of the process’ operations for the
month were destroyed. The Company desires to prepare process accounts for the month during
which the fire occurred. Some information could be gathered as to operating activities as under:
 Opening Work-in-process at the beginning of the month of 1,100 litres - 40% complete for
labour and 60% complete for Overheads. Opening Work-in-Process was valued at `48,260.
 Closing Work-in-Process at the end of the month was 220 litres, 40% complete for Labour and
30% complete for Overheads.
 Normal loss is 10% of input and total losses during the month were 2,200 litres partly due to
firm, damage. Assume degree of completion of abnormal losses is 100 .

Process Costing 281

  Output sent to Finished Goods Warehouse was 5,900 litres
 Losses have a scrap value of `20 per litre.
 All Raw Materials are added at the commencement of the process.
 The Cost per equivalent Unit (litre) is `53 for the month consisting:

`
Raw Material 35
Labour 8
Overheads 10
Total 53

You are required to:

(i) Calculate the quantity (in litres) of Raw Material input during the month.
(ii) Calculate the quantity (in litres) of Normal Loss and Abnormal loss/Gain experienced in the
month.
(iii) Calculate the values of Raw Materials, Labour and Overheads added to the process during
the month.
(iv) Prepare the Process Account for the month.

15. From the following data related to Process X, prepare process X account:
(a) Opening work in progress: 800 units valued as under:
Material = `3,200
Labour = `960
Overhead = `320
(b) Input of material = 9200 units
(c) Current cost: Material = `36,800
Labour = `16,740
Overhead = `7,930
(d) Normal loss = 8% of total input
(e) Scrap realized `40 per 10 units
(f) Closing work in progress = 900 units
(g) Transfer to next process = 7,900 units
(h) Degree of completion:

Closing Stock Scrap

Material 100% 100%
Labour 70% 80%
Overhead 30% 20%

282 Cost and Management Accounting PW

16. The following data relate to Process Q:
(i) Opening work in process 4,000 units
Degree of completion:
Materials 100% `24,000
Labour 60% `14,400
Overheads 60% `7,200
(ii) Received during the month of April from Process P: 40,000 units for `1,71,000
(iii) Expenses incurred in Process Q during the month:
Material `79,000
Labour `1,38,230
Overheads `69,120
(iv) Closing work in process 3,000 units
Degree of completion: Material 100%; Labour & Overheads 50%
(v) Units scrapped 4,000 units
Degree of completion: Material 100%; Labour & Overheads 80%
(vi) Normal Loss: 5% of current input
(vii) Spoiled goods realized `1.50 each on sale
(viii) Completed units are transferred to warehouse
You are required to prepare:
(a) Equivalent units statement
(b) Statement of cost per equivalent unit and total costs
(c) Process Q Account
(d) Any other account necessary

17. A company produces a component, which passes through two processes. During the month of
April, 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 cost incurred
were as follows: [SM]
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.

Process Costing 283

 No further process material costs occur after introduction at the first process until the end of the
second process, when protective packing is applied to the completed components. The process
and packing costs incurred at the end of the Process II were:
Packing Material `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.

18. SK Ltd. produces a product which passes through two processes before it is completed and
transferred to finished stock. The following data relate to the month of December: [SM]

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 in opening stock — 1,500 8,250

Output of process I is transferred to Process II at 25% profit on the transfer price. Output of Process
II is transferred to finished stock at 20% profit on the transfer price. Stocks in process are valued
at prime cost. Finished stock is valued at the price at which it is received from Process II. Sales
during the period are `1,40,000. Prepare process accounts and finished stock account showing
the profit element at each stage.

PRACTICE QUESTIONS
19. A product passes through three process. 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. [SM]

Process – I (`) Process – II (`) Process – III (`)

Materials issued 40,000 20,000 10,000
Labour 6,000 4,000 1,000
Manufacturing overhead 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:

284 Cost and Management Accounting PW

 Process Output Normal loss
Process – I 9,750 units 2%
Process – II 9,400 units 5%
Process – III 8,000 units 10%
No stocks of material or of work-in-process was left at the end. Calculate the cost of the finished
articles.
Ans. `5.7142; `9.6862; `13.8358.

20. SK Ltd. 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 and Process II and Finished Stock A/c. [SM, Nov 2019]

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 `,129,250
Direct expenses 60% of direct wages 65% of direct wages
Manufacturing overheads 20% of direct wages 15% of direct 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.
Ans. `96.7947; `140.0496; Profit = `1,38,182.

21. SK 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 are as follows:

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

Process Costing 285

 Additional Information:
(a) 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.
(b) Indirect expenses for the year was `4,48,080.
(c) It is assumed that Process-A and Process-B are not responsibility centre.
Required:
(i) Prepare Process-A and Process-B Account.
(ii) Prepare Profit & Loss Account showing the net profit or net loss for the year.
Ans. (a) `27; `48; (b) loss `25,000.

22. The product of a manufacturing concern passes through two processes A and B and then to finished
stock. It is ascertained that in each process normally 5% of the total weight is lost and 10% is
scrap which from processes A and B realizes `80 per tonne and `200 per tonne respectively. The
following are the figures relating to both the processes:

Process A Process B
Material in tonnes 1,000 70
Cost of Materials in rupees per tonne 125 200
Wages in rupees 28,000 10,000
Manufacturing expenses in rupees 8,000 5,250
Output in tonnes 830 780
Prepare Process Cost Accounts showing cost per tonne of each process. There was no stock or
work-in-progress in any process.
Ans. `180; `210.

23. 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: [RTP Nov 2020]

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.
286 Cost and Management Accounting PW
 You are required to PREPARE accounts for:
(i) Process-I, II and III
(ii) By-product process.
Ans. `50.9022; `10.3089; `180.1396.

24. A Manufacturing unit manufactures a product ‘XYZ’ which passes through three distinct Processes
– X, Y and Z. The following data is given: [July 2021]

Process X Process Y Process Z

Material consumed (in `) 2,600 2,250 2,000
Direct wages (in `) 4,000 3,500 3,000
The total production overhead of `15,750 was recovered @ 150% of direct wages.
 15,000 units at `2 each were introduced to process ‘X’.
 The output of each process passes to the next process and finally, 12,000 units were transferred
to Finished Stock Account from Process ‘Z’.
 No stock of materials or work in progress was left at the end.
The following additional information is given:
Process % of wastage to normal input Value of Scrap per unit (`)
X 6% 1.10
Y ? 2.00
Z 5% 1.00

You are required to:

(i) Find out the percentage of wastage in process ‘Y’, given that the output of process ‘Y’ is
transferred to Process ‘Z’ at `4 per unit.
(ii) Prepare Process accounts for the three processes X, Y and Z.
Ans. (i) 13.44%; (ii) `2.95106; `4; `4.97715.

25. Following details have been provided by M/s AR Enterprises: [Nov 2018]
(i) Opening works-in-progress - 3,000 units (70% complete)
(ii) Units introduced during the year - 17,000 units
(iii) Cost of the process (for the period) - `33,12,720
(iv) Transferred to next process - 15,000 units
(v) Closing works-in-progress - 2,200 units (80% complete)
(vi) Normal loss is estimated at 12% of total input (including units in process in the beginning).
Scraps realize `50 per unit. Scraps are 100% complete.
Using FIFO method, compute:
(i) Equivalent production
(ii) Cost per equivalent unit
Process Costing 287
26. 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. [SM]
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, compute equivalent production and cost per equivalent unit. Also evaluate
the output.

27. SK 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
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.
Costs pertaining to the month of May are as follows:
Beginning inventory costs are material `27,670, direct labour `30,120 and factory overheads
`12,720.
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.

28. A company who manufactures cricket bat buys wood as its direct material. The forming department
processes 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:
Direct material `33,000
Conversion cost `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.
288 Cost and Management Accounting PW
29. A product is manufactured in two sequential processes, namely Process-1 and Process-2. The
following information relates to Process-1. At the beginning of June 2019, there were 1,000
WIP goods (60% completed in terms of conversion cost) in the inventory, which are valued at
`2,86,020 (Material cost `2,55,000 and Conversion cost `31,020). Other information relating to
Process-1 for the month of June 2019 is as follows: [RTP Nov 2019]
Cost of materials introduced – 40,000 units (`) 96,80,000
Conversion cost added (`) 18,42,000
Transferred to Process – 2 (units) 35,000
Closing WIP (Units) (60% completed in terms of conversion cost) 1,500
100% of materials are introduced to Process-1 at the beginning. Normal loss is estimated at 10%
of input materials (excluding opening WIP). Loss is 60% completed in terms of Conversion cost.
Required:
(a) Prepare a statement of equivalent units using the weighted average cost method
(b) Calculate the value of output transferred to Process-2 and closing WIP.

30. ABC Ltd. produces an item which is completed in three processes – X, Y and Z. The following
information is furnished for process X for the month of March, 2018: [May 2018]
Opening work-in-progress (5,000 units):
Materials `35,000
Labour `13,000
Overheads `25,000
Units introduced into process X (55,000 units):
Materials `20,20,000
Labour `8,00,000
Overheads `13,30,000
Units scrapped: 5,000 units
Degree of completion:
Materials 100%
Labour & Overheads 60%
Closing work-in-progress (5,000 units):
Degree of completion:
Materials 100%
Labour & Overheads 60%
Units finished and transferred to Process Y: 50,000 units
Normal loss: 5% of total input (including opening works-in-progress) Scrapped units fetch `20
per unit.
Presuming that average method of inventory is used, prepare:
(i) Statement of Equivalent production
(ii) Statement of Cost for each element
(iii) Statement of distribution of cost
(iv) Abnormal loss account
Process Costing 289
31. Following information is available regarding Process-I for the month of February:
Production Record:
Units in process as on 1st February 4,000
(All materials used, 25% complete for labour and overhead)
New units introduced 16,000
Units completed 14,000
Units in process as on 28th February 6,000
(all materials used, 33-1/3% complete for labour and overheads)
Cost Records:
Work-in-process as on 1st February (`)
Materials 6,000
Labour 1,000
Overheads 1,000
8,000
Cost during the month:
Materials 25,600
Labour 15,000
Overheads 15,000
55,600
Presuming that average method of inventory is used, prepare:
(a) Statement of equivalent production
(b) Statement showing cost for each element
(c) Statement of apportionment of cost
(d) Process cost account for Process-I

32. Following details are related to the work done in Process-I by SK Company during the month of
March:
Opening work-process (2,000 units) (`)
Material 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
290 Cost and Management Accounting PW
 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.

33. ‘Healthy Sweets’ is engaged in the manufacturing of jaggery. Its process involves 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:
(`)
Opening work-in-process (4,500 litre)
Sugarcane 50,000
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
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)
Process Costing 291
 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

34. Following details are related to the work done in Process-I by ABC Ltd. during the month of May
2019: [Nov 2020]

(`)
Opening work-in-process (3,000 units)
Materials 1,80,500
Labour 32,400
Overheads 90,000
Material introduced in Process-I (42,000 units) 36,04,000
Labour 4,50,000
Overheads 15,18,000
Units scrapped : 4,800 units
Degree of completion:
Materials : 100%
Labour & Overheads : 70%
Closing work-in-progress : 4,200 units
Degree of completion:
Materials : 100%
Labour & Overheads : 50%
Units finished and transferred to Process-II: 36,000 units
Normal loss:
4% of total input including opening work-in-process
Scrapped units fetch `62.50 per piece
Prepare:
(i) Statement of equivalent production
(ii) Statement of cost per equivalent unit
(iii) Process-I A/c
(iv) Normal loss account and
(v) Abnormal loss account

292 Cost and Management Accounting PW

35. STG Limited is a manufacturer of chemical ‘GK’, which is required for industrial use. The complete
production operation requires two processes. The raw material first passes through Process I,
where chemical ‘G’ is produced. Following data is furnished for the month of April, 2022:

Particulars (in kgs)

Opening work-in-progress quantity 9,500
(Material 100% and conversion 50% complete)
Material input quantity 1,05,000
Work completed quantity 83,000
Closing work-in-progress quantity 16,500
(Material 100% and conversion 60% complete)
You are further provided that:
Particulars (in `)
Opening work-in-progress cost
Material cost 29,500
Processing cost 14,750
Material input cost 3,34,500
Processing cost 2,53,100
Normal process loss may be estimated at be 10% of material input. It has no realizable value. Any
loss over and above normal loss is considered to be 100% complete in material and processing.

The company transfers 60,000 kgs of output (Chemical G) from Process I to Process II for producing
Chemical ‘GK’. Further materials are added in Process II which yield 1.20 kg. of chemical ‘GK’ for
every kg of chemical ‘G’ introduced. The chemicals transferred to Process II for further processing
are then sold as chemical ‘GK’ for `10 per kg. Any quantity of output completed in Process I, are
sold as chemical ‘G’ @ `9 per kg.

The monthly costs incurred in Process II (other than the cost of chemical ‘G’) are:
Input 60,000 kg of chemical ‘G’
Material Cost `85,000
Processing costs `50,000
You are required:
(i) Prepare statement of Equivalent production and determine the cost per kg of chemical ‘G’ in
Process I using the weighted average cost method.
(ii) Prepare a statement showing cost of Chemical ‘G’ transferred to Process II, cost of abnormal
loss and cost of closing work-in-progress.
(iii) STG is considering the option to sell 60,000 kg of chemical ‘G’ of Process I without processing
it further in Process-II. Will it be beneficial for the company over the current pattern of
processing 60,000 kg in process-II?
(Note: You are not required to prepare Process Account)

Process Costing 293

36. Aditya Agro Ltd. mixes powdered ingredients in two different processes to produce one product.
The output of Process-I becomes the input of Process-II and the output of Process-II is transferred
to the Packaging department. [MTP Nay 2019]
From the information given below, you are required to prepare accounts for Process-I, Process-II
and Abnormal loss / gain to record the transactions for the month of February 2019.
Process-I
Input
Material A 6,000 kilograms at `50 per kilogram
Material B 4,000 kilograms at `100 per kilogram
Labour 430 hours at `50 per hour
Normal Loss 5% of inputs. Scrap are disposed off at `16 per kilogram
Output 9,200 kilograms

There is no work-in-progress at the beginning or end of the month.

Process-II
Input
Material C 6,600 kilograms at `125 per kilogram
Material D 4,200 kilograms at `75 per kilogram
Flavoring Essence `3,300
Labour 370 hours at `50 per hour
Normal Loss 5% of inputs with no disposal value
Output 18,000 kilograms

There is no work-in-process at the beginning of the month but 1,000 kilograms in process at the
end of the month and estimated to be only 50% complete so far as labour and overhead were
concerned.
Overheads of `92,000 incurred to be absorbed on the basis of labour hours.

37. 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. [ May 2019]

Particulars Process A Process B Finished Stock

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 4,00

294 Cost and Management Accounting PW

 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.

SOLUTION OF PRACTICE QUESTIONS

19.
Process - I Account

Particulars Units Amount Particulars Units Amount

To Material 10,000 40,000 By Normal Loss A/c 200 -
To Labour - 6,000 (10,000 × 2%)
To Manufacturing OHs - 10,000 By Abnormal loss A/c 50 286
(50 × 5.7142)
By Process II A/c 9,750 55,714
(9,750 × 5.7142)
10,000 56,000 10,000 56,000

56,000 0 56,000
Normal cost per unit = = = `5.742
10,000 200 9,800
Process - II Account
Particulars Units Amount Particulars Units Amount
To Process I A/c 9,750 55,714 By Normal Loss A/c 488 -
To Material - 20,000 (9,750× 5%)
To Labour - 4,000 By Process III A/c 9,400 91,051
To Direct Manufacturing OHs - 10,000 (9,400 × 9.6862)
To Abnormal gain A/c 138 1,337
(138 × 9.6862)
9,888 91,051 9,888 91,051

89,714 0
Normal cost per unit = = `9.6862
9,750 488
Process Costing 295
 Process - III Account
Particulars Units Amount Particulars Units Amount
To Process II A/c 9,400 91,051 By Normal Loss A/c 940 -
To Material - 10,000 (9,400 × 10%)
To Labour - 1,000 By Abnormal loss A/c 460 6,364
To Manufacturing OHs - 15,000 (460 × 13.8358)
By Finished Goods A/c 8,000 1,10,687
(8,000 × 13.8358)
9,400 1,17,051 9,400 1,17,051

1,17,051 0
Normal cost per unit = = `13.8358
9,400 940

20.
Process - I Account

Qty. Amount Qty. Amount

To Raw material 7,500 4,50,000 By Normal Loss 375 4.688
To Direct wages 1,35,750 (5%×7,500 `12.5)
To Direct expenses 81,450 By Abnormal Loss 75 7,259
(60% of direct wages) (75 × 96.7947)
To Manufacturing OHs 27,150 By Process II A/c 7,050 6,82,403
(20% of direct wages) (7,050 × 96.7947)
7,500 6,94,350 7,500 6,94,350

Planned output – Process I = 7,500 – 375 = 7,125 units

Actual output = 7,050 units
Abnormal loss = (7,125 units – 7,050 units) 75 units.

6,94,350 4,688
Cost per unit = = `96.7947
7,125
Process - II Account
Qty. Amount Qty. Amount
To Process I 7,050 6,82,403 By Normal loss (10%) 705 26,438
To Direct wages 1,29,250 (7,050 × 10% × 37.5)
To Direct Expenses 84,013 By Finished Stock A/c 6,525 9,13,824
(65% of direct wages) (6,525 × 140.096
To Manufacturing OHs 19,387
To Abnormal gain 180 25,209
(180 × 140.096) 7,230 9,40,262 7,230 9,40,262

296 Cost and Management Accounting PW

 Planned output of Process II = 7,050 – 705 = 6,345 units

9,15,053 26,438
Cost per unit = = `140.096
6,345
Abnormal gain = Actual output – Planned output = 6,525 – 6,345 = 180 units

Finished Stock Account

Qty. Amount Qty. Amount

To Process II 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

Income Statement
Amount Amount
To Cost of Sales 8,40,298 By Abnormal Gain 18,459
(6,000 × 140.096) [180 × (140.0496 – 37.5)]
To Abnormal loss 6,322 By Sales 9,66,343
[75 × (96.7947 – 12.50)] (8,40,298 × 115%)
To Net Profit 1,38,182
9,84,802 9,84,802

21.
Process- A Account

Particulars Units Amount (`) Particulars Units Amount (`)

By Normal Wastage
To Input 40,000 3,60,000 (2,000 units × `15) 2,000 30,000

By Abnormal loss A/c

To Material — 2,42,000 (1,000 units × `27) 1,000 27,000

By Process B A/c
To Direct Wages — 2,58,000 29,600 7,99,200
(29,600 units × `27)

To Manufacturing By Profit and oss A c

— 1,96,000 (7,400 units × `27) 7,400 1,99,800
Exp.
40,000 10,56,000 40,000 10,56,000

10,56,000 30,000
Cost per unit = = `27
40,000 2,000

Process Costing 297

 Process- B Account
Particulars Units Amount (`) Particulars Units Amount (`)
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 oss A c 27,000 12,96,000
(27,000 units × `48)
To Direct Wages — 1,90,000
To Manufacturing Exp. — 1,23,720
To Abnormal Gain A/c 360 17,280
(360 units × `48)
29,960 13,55,200 29,960 13,55,200

13,37,920 59,200
Cost per unit = ` 48
29, 600 - 2,960

(i) Profit oss o nt

Particulars Amount (`) Particulars Amount (`)
To Process A A/c 1,99,800 By Sales:
To Process B A/c 12,96,00 - Process A (7,400 units × `37) 2,73,800
To Abnormal loss A/c 12,000 - Process B (27,000 units × `61) 16,47,00
To Indirect Exp. 4,48,080 By Abnormal gain 10,080
By Net loss 25,000
19,55,880 19,55,880

Working notes:
Normal wastage (Loss) account
Particulars Units Amount (`) Particulars Units Amount (`)
To Process A A/c 2,000 30,000 By Abnormal Gain A/c 360 7,200
(360units × `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

Abnormal loss account

Particulars Units Amount (`) Particulars Units Amount (`)

To Process A A/c 1,000 27,000 By Bank A/c (1,000 units × 1,000 15,000
`15)
By Profit & Loss A/c — 12,000
1,000 27,000 1,000 27,000

298 Cost and Management Accounting PW

 Abnormal Gain Account

Particulars Units Amount (`) Particulars Units Amount (`)

o Normal oss A c (3 0 360 7,200 By Process B A/c 360 17,280
units × `20)
To Profit & Loss A/c 10,080
360 17,280 360 17,280
22.
Process - A Account

Particulars Units Amount Particulars Units Amount

To Material 1,000 1,25,000 By Normal loss A/c 50 -
To Wages - 28,000 (Weight loss) (1,000 × 5%)
To Manufacturing - 8,000 By Normal loss A/c 100 8,000
expenses
(1,000 × 10% × 80)
By Abnormal loss A/c 20 3,600
(20 × 180)
By Process B A/c 830 1,49,400
(830 × 180)
1,000 1,61,000 1,000 1,61,000

1,61,000 8,000 1,53,000

Normal cost per unit = = = `180
1,000 50 100 850

Process - B Account

Particulars Units Amount Particulars Units Amount

To Process A A/c 830 1,49,400 By Normal loss A/c 45 -
To Material 70 14,000 (Weight loss) (900 × 5%)
To Wages - 10,000 By Normal loss A/c 90 18,000
To Manufacturing - 5,250 (900 × 10% × 200)
expenses
To Abnormal Gain A/c 15 3,150 By Finished Goods A/c 780 1,63,800
(15 × 210) (780 × 210)

915 1,81,800 915 1,81,800

1,78,650 18,000 1,60,650

Normal cost per unit = = = `210
830 70 45 90 765

Process Costing 299

23.
(i) Process - I Account

Particulars Units Amount(`) Particulars Units Amount(`)

By Normal loss
To Material 7,000 1,40,000 350 3,500
(7,000 × 5% × `10)
By Abnormal loss A/c
To Other Material -- 62,000 50 2,545
(50 × `50.9022)
By Process II A/c
To Direct Wages -- 42,000 6,600 3,35,955
(6,600 × `50.9022)
To Direct Exp. -- 14,000
To Prod. OHs
-- 84,000
(200% × `42,000)
7,000 3,42,000 7,000 3,42,000

3,42,000 3,500 3,38,500

Cost per unit = = = `50.9022
7,000 350 6,650
Process - II Account
Particulars Units Amount(`) Particulars Units Amount(`)
By Normal loss
To Process-I A/c 6,600 3,35,955 660 6,600
(6,600 × 10% × `10)
By Abnormal loss A/c
To Other Material -- 1,36,000 740 80,149
(740 × `108.3089)
By Process III A/c
To Direct Wages -- 54,000 5,200 5,63,206
(5,200 × `108.3089)
To Direct Exp. -- 16,000
To Prod. OHs
-- 1,08,000
(200% × `54,000)
6,600 6,49,955 6,600 6,49,955

6,49,955 6,600 6,43,355

Cost per unit = = = `108.3089
6,600 660 5,940
Process - III Account

Particulars Units Amount(`) Particulars Units Amount(`)

By Normal loss
To Process-II A/c 5,200 5,63,206 (5,200 × 5% × `10) 260 2,600

By Product X A/c
To Other Material -- 84,200 4,800 8,64,870
(4,800 × `180.1396)
By Product Z A/c
To Direct Wages -- 48,000 [600 × (135-85-15)] 600 21,000

300 Cost and Management Accounting PW

 Particulars Units Amount(`) Particulars Units Amount(`)
To Direct Exp. -- 14,000
To Prod. OHs
-- 96,000
(200% × `48,000)
To Ab. Gain
(460 ×
`180.1396)
5,660 8,88,270 5,660 8,88,270

8,05,406 2,600 21,000 7,81,806

Cost per unit = = = `180.1396
5,200 260 600 4,340
(ii) By-Product Process Account

Particulars Units Amount(`) Particulars Units Amount(`)

To Process-III A/c 600 21,000 By Product Z A/c 600 81,000
To Processing cost -- 51,000
To Selling exp. -- 9,000
600 81,000 600 81,000

24.
i et norma oss nits in ro ess
Total Cost-Scrap value of normal loss
Normal cost per unit of Process Y =
Total units-Normal loss unit
52,610 2 y
4=
14,100 y
56,400 – 4y = 52,610 – 2y
2y = 3,790
y = 1,895
1,895
Thus, Normal loss % of process Y = × 100 = 13.44%
14,100
(ii) Process X Account
Particulars Units Amount Particulars Units Amount
To Units Introduced 15,000 30,000 By Normal loss A/c 900 990
To Material consumed - 2,600 (15,000 × 6% × 1.10)
To Labour - 4,000 By Process Y A/c 14,100 41,610
To Overheads - 6,000
(4,000 × 150%) 15,000 42,600 15,000 42,600

42,600 990 41,610

Normal cost per unit = = = `2.95106
15,000 900 14,100
Process Costing 301
 Process Y Account
Particulars Units Amount Particulars Units Amount
To Process X A/c 14,100 41,610 By Normal loss A/c 1,895 3,790
To Material consumed - 2,250 (Part (i))
To Labour - 3,500 By Process Z A/c 12,205 48,820
To Overheads - 5,250
(3,500 × 150%) 14,100 52,610 14,100 52,610

Process Z Account
Particulars Units Amount Particulars Units Amount
To Process Y A/c 12,205 48,820 By Normal loss A/c 610 610
To Material consumed - 2,000 (12,205 × 5% × 1)
To Labour - 3,000 By Finished Stock A/c 12,000 59,725
To Overheads - 4,500 (12,000 × 4.97715)
(3,000 × 150%)
To Abnormal Gain A/c 405 2,015
(405 × 4.97715) 12,610 60,335 12,610 60,335

58,320 610 57,710

Normal cost per unit = = = `4.97715
12,205 610 11,595

25.
Statement of Equivalent Production

Material
Input Output
% Units
Op. WIP 3,000 Op. WIP 3,000 30 900

Input 17,000 Introduced & Complete 12,000 100 12,000

Transferred 15,000
Normal Loss 2,400 - -
(20,000×12%)
Abnormal Loss 400 100 400
(Bal. fig.)
Closing WIP 2,200 80 1,760
20,000 20,000 15,060

302 Cost and Management Accounting PW

 Statement of cost per equivalent production unit:
Cost of the Process `33,12,720
Less: Scrap value of normal loss (`50 × 2,400) (`1,20,000)
Total Process Cost `31,92,720
Total equivalent units 15,060
Cost per equivalent production unit `212

26.
Statement of Equivalent Production

Material
Input Output
% Units
Op. WIP 1,000 Op. WIP 1,000 40 400
Input 10,000 Introduced & Complete 8,000 100 8,000
Transferred 9,000
Normal Loss 1,100 - -
(11,000×10%)
Abnormal Loss 100 100 100
(Bal. fig.)
Closing WIP 800 75 600
11,000 11,000 9,100
Statement of cost per equivalent production unit:
Cost of the Process `19,30,000
Less: Scrap value of normal loss (`10 × 1,100) (`11,000)
Total Process Cost `19,19,000
Total equivalent units 9,100
Cost per equivalent production unit `210.88
Statement of Evaluation

Particulars Equivalent Cost per EU (`) Amount (`)

Units
Opening WIP completed during the period 400 210.88 84,352
Add: WIP at beginning - - 1,10,000
Completed cost of 1,000 units of Op. WIP 1,000 194.35 1,94,352
Completely processed units 8,000 210.88 16,87,040
Abnormal loss 100 210.88 21,088
Closing WIP 600 210.88 1,26,528

Process Costing 303

27.
(i) Statement of Equivalent Production

Material Conversion cost

Output
Input
% Units % Units

Op. WIP 16,000 Op. WIP 16,000 40 6,400 80 12,800

Introduced &
Input 1,00,000 Complete 76,000 100 76,000 100 76,000
Transferred 92,000
Closing WIP 24,000 90 21,600 40 9,.600
1,16,000 1,16,000 1,04,000 98,400
(ii) Statement of cost per equivalent unit for conversion costs
Direct labour `1,82,880
Factory overheads `3,91,160
Total `5,74,040
Equivalent units 98,400
Cost per equivalent unit `5.83

28.
(i) Statement of Equivalent Production

Material Conversion cost

Input Output
% Units % Units

Introduced &
Input 10,000 Complete 8,000 100 8,000 100 8,000
Closing WIP 2,000 100 2,000 25 500

10,000 10,000 10,000 8,500

(ii) 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
(iii) Cost of closing WIP = (2,000 × 3.30) + (500 × 2.00) = `7,600
Cost of finished product = (8,000 × 3.30) + (8,000 × 2.00) = `42,400
304 Cost and Management Accounting PW
29.
(a) Statement of Equivalent Production

Output Material Conversion cost

Input
% Units % Units
Op. WIP 1,000 Op. WIP 1,000 100 1,000 100 1,000
Introduced &
Input 40,000 Complete 34,000 100 34,000 100 34,000
Transferred 35,000
Normal Loss 4,000 - - - -
(10%×40,000)
Abnormal Loss 500 100 500 60 300
Closing WIP 1,500 100 1,500 60 900
41,000 41,000 37,000 36,200
(b) Calculation of value of output transferred to Process-2 and Closing WIP
Value of units completed and transferred
 Material (35,000 × 268.51) = 93,97,850
 Conversion cost (35,000 × 51.74) = 18,10,900
1,12,08,750
Value of closing WIP

 Material (1,500 × 268.51) = 4,02,765
 Conversion cost (900 × 51.74) = 45,566
4,49,331
Working Note:
Calculation of cost of each element
Particulars Material Conversion Cost
Cost incurred during the month 96,80,000 18,42,000
Cost of Opening WIP 2,55,000 31,020
Total Cost (A) 99,35,000 18,73,020
Equivalent Units (B) 37,000 36,200
Cost per equivalent unit (A ÷ B) 268.51 51.74

Process Costing 305

30.
Statement of Equivalent Production

Material a o r Overheads
Input Output
% Units
% Units % Units
Op.
WIP 5,000 Op. WIP 5,000 100 5,000 100 5,000 100 5,000
Introduced &
Input 55,000 Complete 45,000 100 45,000 100 45,000 100 45,000
Transferred 50,000
Normal Loss 3,000 - - - - - -
(60,000×5%)
Abnormal
Loss 2,000 100 2,000 60 1,200 60 1,200
(Bal. Fig.)
Closing WIP 5,000 100 5,000 60 3,000 60 3,000
60,000 60,000 57,000 54,200 54,200

Statement of Cost per Equivalent Unit

Particulars Material a o r Overheads

Cost 20,20,000 8,00,000 13,30,000
Add: Cost of Opening WIP 35,000 13,000 25,000
Less: Normal Scrap (3,000 × 20) (60,000) - -
Total 19,95,000 8,13,000 13,55,000
Equivalent Units 57,000 54,200 54,200
Cost per equivalent unit 35 15 25
Statement of distribution of cost

Element of Cost per

Particulars Cost Equivalent units unit Cost Total Cost
Opening WIP Material 5,000 35 1,75,000
Labour 5,000 15 75,000
Overheads 5,000 25 1,25,000 3,75,000
Introduced Material 45,000 35 15,75,000
& Complete Labour 45,000 15 6,75,000
Overheads 45,000 25 11,25,000 33,75,000

306 Cost and Management Accounting PW

 Element of Cost per
Particulars Cost Equivalent units unit Cost Total Cost
Abnormal Loss Material 2,000 35 70,000
Labour 1,200 15 18,000
Overheads 1,200 25 30,000 1,18,000
Closing WIP Material 5,000 35 1,75,000
Labour 3,000 15 45,000
Overheads 3,000 25 75,000 2,95,000
norma oss o nt

Particulars Units Amount Particulars Units Amount

To Process – X A/c 2,000 1,18,000 By Cash A/c (2,000 × 20) 2,000 40,000
By Costing P&L A/c (bal. fig) - 78,000
2,000 1,18,000 2,000 1,18,000

31.
(i) Statement of Equivalent Production

Material a o r Overheads
Input Output
% Units
% Units % Units
Op.
WIP 4,000 Op. WIP 4,000 100 4,000 100 4,000 100 4,000
Introduced &
Input 16,000 Complete 10,000 100 10,000 100 10,000 100 10,000
Transferred 14,000
Closing WIP 6,000 100 6,000 33-1/3 2,000 33-1/3 2,000
20,000 20,000 20,000 16,000 16,000

(ii) Statement of Cost per Equivalent Unit

Particulars Material a o r Overheads

Current Cost 25,600 15,000 15,000
Add: Cost of Opening WIP 6,000 1,000 1,000
Total 31,600 16,000 16,000
Equivalent Units 20,000 16,000 16,000
Cost per equivalent unit 1.58 1 1

Process Costing 307

 Statement of apportionment of cost
Element of Equivalent Cost per
Particulars Cost units unit Cost Total Cost
Opening WIP Material 4,000 1.58 6,320
Labour 4,000 1 4,000
Overheads 4,000 1 4,000 14,320
Introduced & Comp. Material 10,000 1.58 15,800
Labour 10,000 1 10,000
Overheads 10,000 1 10,000 35,800
Closing WIP Material 6,000 1.58 9,480
Labour 2,000 1 2,000
Overheads 2,000 1 2,000 13,480

(iii) Process - I Account

Particulars Units Amount Particulars Units Amount

To Opening WIP 4,000 8,000 By Process -II A/c 14,000 50,120
To Material 16,000 25,600 By Closing WIP 6,000 13,480
To Labour - 15,000
To Overheads - 15,000
20,000 63,600 45,000 58,74,900

32.
(i) Statement of Equivalent Production

Material a o r Overheads
Input Output
% Units % Units % Units

Op.
WIP 2,000 Op. WIP 2,000 100 2,000 100 2,000 100 2,000
Introduced &
Input 38,000 Complete 33,000 100 33,000 100 33,000 100 33,000
Transferred 35,000
Normal Loss 2,000 - - - - - -
(40,000×5%)
Abnormal
Loss 1,000 100 1,000 80 800 80 800
(Bal. fig.)
Closing WIP 2,000 100 2,000 80 1,600 80 1,600
40,000 40,000 38,000 37,400 37,400

308 Cost and Management Accounting PW

 (ii) Statement of Cost
Details Cost at the Cost added Total cost Equivalent Cost
beginning of Units per
process unit
Material 80,000 14,80,000 15,60,000
Less: Value of Nr. (20×2,000=40,000) 38,000 40
loss 15,20,000
15,000 3,59,000 3,74,000 37,400 10
Labour 45,000 10,77,000 11,22,000 37,400 30
Overheads 80

(iii) Statement of distribution of cost:

(a) Completed and transferred to process ‘B’ = 35,000 units @ `80 = 28,00,000
(b) Abnormal loss: 1,000 units:
Material 1,000 units @ 40 = `40,000
Labour and Overheads 800 units @ 40 = `32,000
= `72,000
(c) Closing WIP: 2,000 units
Materials 2,000 units @ 40 = `80,000
Labour and Overheads 1,600 units @ 40 = `64,000
`1,44,000
(iv) Process ‘A’ Account

Particulars Units Amount Particulars Units Amount

To Opening WIP 2,000 1,40,000* By Normal Loss 2,000 40,000
Put & processed 38,000 14,80,000 By Abnormal Loss 1,000 72,000
Direct labour 3,59,000 By Process ‘B’ A/c 35,000 28,00,000
Overheads 10,77,000 By Closing WIP 2,000 1,44,000
40,000 30,56,000 40,000 30,56,000
* Materials + Labour + Overheads = `(80,000 + 15,000 + 45,000) = `1,40,000
orma oss o nt
To process ‘A’ A/c 2,000 40,000 By Bank A/c (Sale of scrap) 2,000 40,000
2,000 40,000 2,000 40,000

norma oss o nt
To process ‘A’ A/c 1,000 72,000 By Bank A/c (Sale of scrap) 1,000 20,000
By Costing Profit and Loss A/c 52,000
1,000 72,000 1,000 72,000

Process Costing 309

33.
(i) Statement of Equivalent Production

Material a o r Overheads
Input Output
% Units % Units % Units

Op. Complete and

WIP 4,500 Transfer 39,500 100 39,500 100 39,500 100 39,500
Input 1,00,000 Normal Loss 55,000 - - - - - -
(1,00,000×55%)
Abnormal Loss 1,000 100 1,000 80 800 80 800
Closing WIP 9,000 100 9,000 80 7,200 80 7,200
1,04,500 1,04,500 49,500 47,500 47,500
*100kg sugarcane extracts only 45 litre of juice, thus, normal loss = 100 – 45 = 55%

(ii) Statement of Cost per Equivalent Unit

Particulars Material a o r Overheads
Current Cost 5,00,000 2,00,000 6,00,000
Add: Cost of Opening WIP 50,000 15,000 45,000
Total 5,50,000 2,15,000 6,45,000
Equivalent Units 49,500 47,500 47,500
Cost per equivalent unit 11.111 4.526 13.579

Statement of apportionment of cost

Element of Equivalent Cost per

Particulars Cost Total Cost
Cost units unit
Complete and
transfer Material 39,500 11.111 4,38,845
Labour 39,500 4.526 1,78,777
Overheads 39,500 13.579 5,36,370 11,54,032
Abnormal Loss Material 1,000 11.111 11,000
Labour 800 4.526 3,621
Overheads 800 13.579 10,863 25,595
Closing WIP Material 9,000 11.111 99,999
Labour 7,200 4.526 32,587
Overheads 7,200 13.579 97,769 2,30,355

310 Cost and Management Accounting PW

 (iii) Process - I Account

Particulars Units Amount Particulars Units Amount

To Opening WIP 4,500 1,10,000 By Normal loss A/c 55,000 -
To Sugarcane 1,00,000 5,00,000 By Abnormal loss A/c 1,000 25,613
To Direct Labour - 2,00,000 By Process - II A/c 39,500 11,54,032
To Overheads - 6,00,000 By Closing WIP 9,000 2,30,355
1,04,500 14,10,000 1,04,500 14,10,000
norma oss `25,613
`18 are added due to approximation difference in total value

34.
(i) Statement of Equivalent Production
Material a o r Overheads
Input Output
% Units
% Units % Units
Op.
WIP 3,000 Op. WIP 3,000 100 3,000 100 3,000 100 3,000
Introduced &
Input 42,000 Complete 33,000 100 33,000 100 33,000 100 33,000
Transferred 36,000
Normal Loss 1,800 - - - - - -
(45,000×4%)
Abnormal
Loss 3,000 100 3,000 70 2,100 70 2,100
(4,800 -
1,800)
Closing WIP 4,200 100 4,200 50 2,100 50 2,100
45,000 45,000 43,200 40,200 40,200
(ii) Statement of Cost per Equivalent Unit

Particulars Material a o r Overheads

Current Cost 36,04,000 4,50,000 15,18,000
Add: Cost of Opening WIP 1,80,500 32,400 90,000
Less: Normal Scrap (1,800 ×
62.50) (1,12,500) - -
Total 36,72,000 4,82,400 16,08,000
Equivalent Units 43,200 40,200 40,200
Cost per equivalent unit 85 12 40
Process Costing 311
 Statement of apportionment of cost

Element of Equivalent Cost per

Particulars Cost units unit Cost Total Cost
Opening WIP Material 3,000 85 2,55,000
Labour 3,000 12 36,000
Overheads 3,000 40 1,20,000 4,11,000
Introduced & Comp. Material 33,000 85 28,05,000
Labour 33,000 12 3,96,000
Overheads 33,000 40 13,20,000 45,21,000
Abnormal Loss Material 3,000 85 2,55,000
Labour 2,100 12 25,200
Overheads 2,100 40 84,000 3,64,200
Closing WIP Material 4,200 85 3,57,000
Labour 2,100 12 25,200
Overheads 2,100 40 84,000 4,66,200

(iii) Process - I Account

Particulars Units Amount Particulars Units Amount

To Opening WIP 3,000 3,02,900 By Normal loss A/c 1,800 1,12,500
To Material 42,000 36,04,000 By Abnormal loss A/c 3,000 3,64,200
To Labour - 4,50,000 By Process - II A/c (bal. fig) 36,000 49,32,000
To Overheads - 15,18,000 By Closing WIP 4,200 4,66,200
45,000 58,74,900 45,000 58,74,900

i orma oss o nt

Particulars Units Amount Particulars Units Amount

To Process-I A/c 1,800 1,12,500 By Bank A/c 1,800 1,12,500
1,800 1,12,500 1,800 1,12,500

norma oss o nt

Particulars Units Amount Particulars Units Amount

To Process-I A/c 3,000 3,64,200 By Bank A/c 3,000 1,87,500
(3,000 × 62.50)
By Costing P&L A/c - 1,76,700
(Bal. fig.)
3,000 3,64,200 3,000 3,64,200

312 Cost and Management Accounting PW

35.
(i) Statement of Equivalent Production
Material Overheads
Input Output
% Units % Units

Op. WIP 9,500 Op. WIP 9,500 100 9,500 100 9,500
Input 1,05,000 Introd. & Complete 73,500 100 73,500 100 73,500
Transferred 83,000 83,000 83,000
Normal Loss 10,500 - - - -
(1,05,000×10%)
Abnormal Loss 4,500 100 4,500 100 4,500
(Bal. fig)
Closing WIP 16,500 100 16,500 60 9,900
1,14,500 1,14,500 1,04,000 97,400
Statement of Cost per Equivalent Unit

Particulars Material Conversion Cost

Current Cost 3,34,500 2,53,100
Add: Cost of Opening WIP 29,500 14,750
Total 3,64,000 2,67,850
Equivalent Units 1,04,000 97,400
Cost per equivalent unit 3.50 2.75
Thus, cost per kg of Chemical G = 3.50 + 2.75 = `6.25
(ii) Statement of cost
Element of Equivalent Cost per
Particulars Cost units unit Cost Total Cost
Cost of Chemical G Material 83,000 3.50 2,90,500
transferred Conversion cost 83,000 2.75 2,28,250 5,18,750
Abnormal Loss Material 4,500 3.50 15,750
Conversion cost 4,500 2.75 12,375 28,125
Closing WIP Material 16,500 3.50 57,750
Conversion cost 9,900 2.75 27,225 84,975
(iii) Statement of Evaluation of Offer
Particulars Amount (`)
Sale as chemical GK (60,000 × 1.20 × 10) 7,20,000
Less: Sale as chemical G (60,000 × 9) 5,40,000
Incremental sales revenue 1,80,000
Less: further processing cost (85,000 + 50,000) 1,35,000
Incremental Benefit 45,000
Process Costing 313
 Since, there is incremental benefit in further processing, thus, it is recommended to continue
Chemical ‘G’ in process II and sell as chemical ‘GK’.

36.
Process 1 A/c

Particulars Kg. Amount Particulars Kg. Amount

To Material A 6,000 3,00,000 By Normal Loss 500 8,000
To Material B 4,000 4,00,000 By Abnormal loss 300 24,093
To Labour - 21,500 (300×80.3105)
To Production OHs - 49,450 By Process 2 9,200 7,38,857
92,000 × 430 (9,200×80.3105)
800
10,000 7,70,950 10,000 7,70,950

7,70,950 8,000
Normal cost per unit = = Rs. 80.3105
10,000 500
Process 2 A/c
Particulars Kg. Amount Particulars Kg. Amount
To Process 1 9,200 7,38,857 By Normal loss 1,000 —
To Material C 6,600 8,25,000 By WIP A/c 1,000 1,00,711
To Material D 4,200 3,15,000 By Packing Dept. 18,000 18,42,496
To Flavoring essence 3,300
To labour 18,500
To Overhead 42,550
20,000 19,43,207 20,000 19,43,207
92,000 × 370
800

norma oss o nt
Particulars Kg. Amount Particulars Kg. Amount
To Process 1 300 24,093 By Bank 300 4,800
By P & L A/c - 19,293
300 24,093 300 24,093

Note-1: Statement of Equivalent Production

Particulars Output Equivalent Production

Units Process-I % at C % a s %
Normal wastage 1,000 - - - -
Packing Dept. 18,000 18,000 100 18,000 100 18,000 100
Closing WIP 1,000 1,000 100 1,000 100 1,000 50
20,000 19,000 19,000 18,500

314 Cost and Management Accounting PW

 Note-2: Statement of Cost per unit

Material Total cost Equivalent units Cost per unit `

Process 1 7,38,857
Material C 8,25,000
Material D 3,15,000
Flavouring essence 3,300
18,82,157 19,000 99.0609
Labour cost 18,500 1.0000
18,500
Production overhead 18,500 2.3000
42,550
102.3609

Cost of nits transferred to Pa in e t 18,000 units × `102.3609 = `18,42,496

Cost of WIP
Element Equivalent units Cost per unit Total cost (`)
Material 1,000 99.0609 99,061
Labour 500 1.0000 500
Overhead 500 2.3000 1,150
1,00,711
37.
Process A Account

Particulars Cost Profit Total Particulars Cost Profit Total

To Opening stock 5,000 - 5,000 By Process B A/c 28,800 7,200 21,600
To Direct material 9,000 - 9,000
To Direct wages 5,000 - 5,000
19,000 - 19,000
(-) Closing stock (2,000) - (2,000)
17,000 - 17,000
To Factory OHs 4,600 - 4,600
21,600 - 21,600
To Profit - 7,200 7,200
21,600 7,200 28,800 21,600 7,200 28,800
Process B Account
Particulars Cost Profit Total Particulars Cost Profit Total
To Opening stock 4,500 1,000 5,500 By F. Stock A/c 41,550 20,125 61,675
To Process A A/c 21,600 7,200 28,800
To Direct 9,500 - 9,500
material
To Direct wages 6,000 - 6,000

Process Costing 315

 Particulars Cost Profit Total Particulars Cost Profit Total
41,600 8,200 49,800
(-) Closing stock (2,080) (410) (2,490)

39,520 7,790 47,310

To Factory OHs 2,030 - 2,030
41,550 7,790 49,340
To Profit - 12,335 12,335
41,550 20,125 61,675 41,550 20,125 61,675

8,200
Profit element in closing stock = ×2,490 = `410
49,800

Finished Stock Account

Particulars Cost Profit Total Particulars Cost Profit Total

To Opening 6,000 4,000 10,000 By Costing P&L 44,233 30,767 75,000
stock A/c
To Process B 41,550 20,125 61,675
A/c
47,550 24,125 71,675
(-) Closing stock (3,317) (1,683) (5,000)
44,233 22,442 66,675
To Profit - 8,325 8,325
(Bal. fig)
44,233 30,767 75,000 44,233 30,767 75,000

24,125
Profit element in closing stock = ×5,000 = `1,683
71,675



316 Cost and Management Accounting PW