Process & Operation Costing

10
Process & Operation Costing
Question 1 Distinguish between job (November,1996, 4 marks) Answer The main points of distinction between job costing and process costing are as below: 1. Job Costing Process Costing Job costing is a specific order Process costing is a method of costing costing used to ascertain the cost of a product at each stage of manufacture Cost here is determined on job Costs are accumulated for basis each process separately for a given period of time. Each job needs special Finished product of one treatment and no two jobs are process becomes the raw alike material for the next process. The cost of each job is The unit cost here is the compiled separately by adding average cost of the process for materials, labour and a given period. Its correct overhead costs computation requires the measurement of production at various stages of manufacture. Costs are computed when job Costs are computed for each is completed process at the end of each period. As each job is distinct or is of As the process operations are different nature, more detailed standardised accumulation of supervision and control are costs and supervision and costing and process costing.
2.
3.
4.
5.
6.
10.2
Cost Accounting
necessary
control easier.
are
comparatively
Question 2 Write a short note on unit costing method for ascertaining product cost (November, 1995, 6 marks)
10.3
Answer It is a form of process or operation costing. It is suitable where only one product or a few grades of the same product involving a single process or operation is produced. Under this system the expenditure is not analysed in as much detail as is necessary for job costing because the whole of the expenditure is normally incurred for only one type of product but where, however, articles produced vary in grades and sizes, it is necessary to analyse the appropriate charges for ascertaining the cost of articles. On dividing the total expenditure by the number of units produced, the cost per unit is ascertained. This system of costing is suitable for breweries, cement works etc. In all these cases, unit cost of articles produced requires to be ascertained. The cost sheets are prepared periodically and usually contain information on the under mentioned points: (i) Cost of materials consumed with details. (ii) (iii) (iv) Cost of labour with details. Work indirect expenses with details. Office and administrative expenses in lumpsum.
(v) Abnormal losses and gains are separated and not mixed with costs. Question 3 "The value of scrap generated in a process should be credited to the process account." Do you agree with this statement? Give reasons. (November, 1995, 2 marks) Answer This statement is not correct The value of scrap (as normal loss) received from its sale is credited to the process account. But the value of scrap received from its sale under abnormal conditions should be credited to Abnormal Loss Account. Question 4 Explain normal wastage, abnormal wastage and abnormal gain and state, how they should be dealt within process Cost Accounts. (November, 1998, 6 marks)
10.4
Cost Accounting
Answer Normal wastage: It is defined as the loss of material which is inherent in the nature of work. Such wastage can be estimated in advance on the basis of past experience or technical specifications. If the wastage is within the specified limit, it is considered as normal. Suppose a company states that the normal wastage in Process A will be 5% of input. In such a case wastage upto 5% of input will be considered as normal wastage of the process. When the wastage fetches no value, 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. If the normal wastage realises some value, the value is credited to the process account to arrive at normal cost of normal output. Abnormal wastage: It is defined as the wastage which is not inherent to manufacturing operations. This type of wastage may occur to the carelessness of workers, a bad plant, design etc. Such a wastage cannot be estimated in advance. The units representing abnormal wastage are valued like good, units produced and debited to the separate account which is known as abnormal wastage account. If the abnormal wastage fetches some value, the same is credited to abnormal wastage account. The balance of abnormal wastage account i.e. difference between value of units representing abnormal wastage minus realisation value is transferred to Costing profit and loss account for .the year. Abnormal gain: It is defined as unexpected gain in production under normal conditions. In other words, if the actual process waste is less than the estimated normal waste, the difference is considered as abnormal gain. Suppose, a Company states that 10% of its input will be normal loss of process A. If input of this company is 100 units then its normal output should be 90 units. If actual output is 95 units, then, 5 units will represent its abnormal gain! These units which represents abnormal gain are valued like normal output of the process. The concerned process account is debited with the quantity and value of abnormal gain. The abnormal gain account is credited with the figure of abnormal gain amount. Abnormal gain being the result of actual wastage, or loss being less than the normal. The scrap realisation shown against normal wastage gets reduced by the scrap value of abnormal gain. Consequently; there is an apparent loss by way of reduction in the scrap realisation attributable to abnormal effectives. This loss is set off against abnormal effectives by debiting, the account. The- balance; of this account becomes abnormal gain and is transferred to; costing profit and loss account.
10.5
Question 5 Write short note on Abnormal gain in Process Costing 1995,4 marks) Answer Abnormal Gain in Process Costing: process loss (which is inherent in a estimated normal loss, the difference gain. Abnormal gain is accounted for in process loss. If in a process the actual process) is less than the is considered as abnormal the same way as abnormal (May,
The concerned process account is debited with the abnormal gain units and value, and the abnormal gain account is credited. The abnormal gain account is debited with the figure of reduced normal loss (in units) and value. The balance of the abnormal gain account is transferred to the costing profit and loss account. Question 6 Compare Process Costing with Job Costing marks) (November, 1998, 4
10.6
Cost Accounting
Answer Job costing and process costing are the two methods of cost accounting. Job costing is applied where production is carried out under specific orders, depending upon customers requirement. Here each job is considered as a cost unit and to some extent the cost centre also. Process costing is applied in cases where the identity of individual orders is lost in the general flow of production. Industries to which process costing is applied produce uniform products without reference to the specific requirements of customers. The main points of comparison between job costing and process costing are as follows: (i) Job costing is applicable to goods produced/ manufactured to customers specifications. However, process costing is applicable to production consisting of succession of continuous operations or processes. (ii) Costs are accumulated by a job or work order irrespective of its time of completion under job costing. When a job is finished all costs associated with it are charged to it in full. Whereas under process costing costs are accumulated by processes for a particular period regardless of the number of units produced. (iii) Each job will be .different from the other under job costing whereas in the case of process costing units of product are homogenous and indistinguishable, because goods are produced on a mass scale. Job is normally a single unit, the whole unit is taken as one for costing purposes. Even if job consists of number of parts, cost of job is calculated only after all the parts, are complete. As such there is no question of work-in-progress merely because some parts are not yet completed. In the case of process costing, the unit of production may remain incomplete at various stages of production. It is therefore necessary to compute at the end of the period not only the cost of the finished units but of work in progress also.
(iv)
(v) Job costing does not involve transfer of costs from one job to another. Where as in the case of process costing transfer of output from one process to another involves the transfer of its costs as well. (vi) Job costs are ascertained only after the completion of job and not at the end of a particular period. Whereas in the case of
10.7
process costing costs are ascertained at the end of the accounting period and not when the process is complete, since production is a continuous flow constituting itself into cycle. (vii) Since each job may be different from other therefore they will not involve the use of identical material and labour, costs of jobs cannot be ascertained by averaging. In the case of process costing since units of production are uniform and are at the same stage of production therefore, costs are computed by averaging the total cost of each stage of production. (viii) Control becomes difficult in the case of job costing because each job is different from the other. Whereas control over production and costs is easier in the case of process costing since production is a standardised one. Question 7 A company within the food industry mixes powdered ingredients in two different processes to produce one product. The output of Process I becomes the input of Process 2 and the output of Process 2 is transferred to the packing department. From the information given below, you are required to open accounts for Process 1, Process 2, abnormal loss and packing department and to record the transactions for the week ended 11th May,1985. Process 1 Input: Material A Material B Mixing Labour Normal Loss kilogram Output Process 2 Input Material C Material D Flavouring Essence 6,600 kilograms at Rs. 1.25 per kilogram 4,200 kilograms at Re. 0.75 per kilogram Rs. 330 6,000 kilograms at 50 paise per kilogram 4,000 kilograms at Rupee 1 per kilogram 430 hours at Rs.2 per hour 5% of weight input, disposed off at 16 paise per 9,200 kilograms.
No work in process at the beginning or end of the week.
10.8
Cost Accounting
Mixing Labour Normal Waste Output
370 hours at Rs. 2 per hour 5% of weight input with no disposal value 18,000 kilograms.
No work in process at the beginning of the week but 1,000 kilograms in process at the end of the week and estimated to be only 50% complete so far as labour and overhead were concerned. Overhead of Rs. 3,200 incurred by the two processes to be absorbed on the basis of mixing labour hours.
10.9
Answer Process 1 Account Kg. To Material A To Material B 6,00 0 4,00 0 Per kg. Kg. Rs. Rs. 0.50 3,00 By Normal 500 0 Loss 1.00 4,00 By Abnormal 300 0 Loss (See Note 2) 860 To Transfer to Process 2 _____ 10,0 00 1,72 0 9,58 0 9,20 0 _____ 10,0 00 Per kg. Rs. Ps. 0.16 80 1.00 300
To Mixing Labour (430 hours @ Rs.2.00 per hour) To Overhead
1.00
9,20 0 ____ _ 9,58 0
Process 2 Account Kg. To Process 1 9,20 0 To Material C 6,60 0 To Material D 4,20 0 To Flavouring Essence To Mixing Labour (370 hours @ 2.00 per hour) To Overhead Per Kg. Rs. Rs. 1.00 9,20 0 1.25 8,25 0 0.75 3,15 0 300 Kg. By Normal Waste To Work inprocess (See Note 3) 18,0 00 1.22 21,6 90 1,00 0 1,00 0 Per kg. Rs. Rs.
1,16 0
740 To Packing Deptt.
1,48 0
10.10 Cost Accounting
(See Note 1)
_____ 20,0 00
_____ 23,1 20
_____ 20,0 00
_____ 23,1 20
Abnormal Loss Account Kg. To Process A/c 300 Per Kg. Rs. Rs. 1.00 300 By Sale A/c ___ By Balance to P/L A/c 300 Kg. 300 Per kg. Rs. Rs. 0.16 48 252 300
Process & Operation Costing 10.11
Packing Department Account Kg. To Process 2 A/c 18,0 00 Per Kg. Rs. Rs. 1.22 21,9 By Balance 60 21,9 60 Kg. Per kg. Rs. Rs. 21.9 60 21,9 60
Notes: 1. Total overhead expenses : Rs. 3,200 Total labour hours in Process 1 and 2 = 800 Overhead absorption rate = Rs. 3,200/800 hours = Rs. 4 per labour hour Overhead under Process 1 = 430 Rs. 4 = Rs. 1,720 Overhead under Process 2 = 370 Rs. 4 = Rs. 1,480 2. Cost of 9,500 Kg. of output is = (Rs. 9,580 Rs. 80) i.e., Rs. 9,500 Hence cost per kg. of output is Re. 1.00 3. Output Units Completed WIP (100% Material 50% Labour and Overhead) Normal Waste 18,000 1,000 Equivalent Units Statement of Output Equivalent Units Material Labour Overhead 18,000 18,000 18,000 1,000 500 550
1,000 20,000
_____ 19,000
_____ 18,500
_____ 18,500
Cost Statement for the week ending 11th May 1985 Material (Process 1) Material C Material D Flavouring Essence Rs. 9,200 8,250 3,150 300
Total Material Cost Total Mixing Labour Cost Total Overhead Cost
20,900 740 1,480
Cost per Equivalent Unit Material = Rs. 20,900 / 19,000 = Rs. 1.10 Labour = Rs. 740 / 18,500 = 0.04 P Overhead = Rs. 1,480 / 18,500 = 0.08 P W.I.P. Material = 1,000 1,100 Labour = 500 Overhead =500 Question 8 In a manufacturing unit, raw material passes through four processes I, II, III & IV and the output of each process is the input of the subsequent process. The loss in the four processes I, II, III & IV are respectively 25%, 20%, 20% and 16-2/3% of the input. If the end product at the end of the process IV is 40,000 kg, what is the quantity of raw material required to be fed at the beginning of Process I and the cost of the same at Rs. 4 per kg.? Find out also the effect of increase or decrease in the material cost of the end product for variation of every rupee in the cost of the raw material. Answer Statement of Production (based on 100 kg. of input) Process No. I II III IV Input Kg. 100 75 60 48 Loss Percentage 25 20 20 162/3 Loss Kg. 25 15 12 8 Output Kg. 75 60 48 40 Rs. 1.10 0.04 P= Rs. 0.08 P= Rs. Rs.1,160 = Rs. 20 40
Quantity of Raw Material required for 40,000 kg. of output
As is apparent from the above table, 40 kg of output requires 100 kg. of raw material to be fed at the beginning of Process I. Therefore 1 kg of output require 2.5 kg. of raw material to be fed at the beginning of the process I. Hence 40,000 kg. of output will require 1,00,000 kg. of raw material at the beginning of the Process I.
Cost of Raw Material required:1,00,000 kg. Rs. 5 = Rs. 5,00,000 Effect of increase or decrease in the material cost: For every increase or decrease of Re.1, in the cost of raw material, the corresponding increase or decrease in the material cost of 1 kg. of the end product is Rs. 2.50. Therefore the material cost of the end product / finished product goes up or down by Rs. 2.50 per kg. as the cost of raw material goes up or down by Re.1/- per kg. Question 9 A company is manufacturing building bricks and fire bricks. Both the products require two processes: Brick-forming Heat treating Time requirements for the two bricks are: Building Bricks 3 Hrs. 2 Hrs. Fire Bricks 2 Hrs. 5 Hrs.
Forming per 100 Bricks Heat treatment per 100 Bricks
Total costs of the two departments in one month were Forming Heat treatment Rs. 21,200 Rs. 48,800
Production during the month was: Building bricks Fire Bricks 1,30,000 Nos. 70,000 Nos.
Prepare a statement of manufacturing costs for the two varieties of bricks. Answer
Computation of Total Cost: It can be calculated in the case of brick forming and heat treating by using the rte per hour as calculated in the statement or by using the following: Cost of brick forming Building and Fire bricks can be determined by dividing the total cost of forming i.e., Rs. 21,200 in the ratio 39:14. Cost of forming Building bricks : Cost of forming Fire bricks : Rs21 . ,200 39 = Rs. 15,600 53
Rs21 . ,200 14 = Rs. 5,600 53
Cost of giving heat treatment to Building and Fire Bricks are determined by dividing the total cost of heat treatment i.e., Rs. 48,800 in the ratio 26:35 Cost of heat treatment to Building Bricks 20,800 Cost of heat treatment to Fire Bricks : Rs48800 . , 35 = Rs. 28,000 61 Rs 48800 .. , 26 = Rs. 61
Manufacturing Cost Statement (for two varieties of bricks)

Process es Building Bricks Tota l time (Hrs .) Time per 100 Nos. (Hrs. )` Rat e per Hr. Total Cost (for 1,30,0 00 Nos.) Cost per 100 Nos. Tim e per 100 Nos. (Hrs .) Tota l time (Hrs .) Rat e per Hr. Fire Bricks Total Cost (for 1,30,0 00 Nos.) Cost per 100 Nos.
Rs. Brick forming 3 3,90 0 4.0 0
Rs. 15,60 0
Rs. 12.0 0 2 1,40 0
Rs. 4.0 0
Rs. 5,600
Rs. 8.00
442
Heat treating Total
2,60 0 6,50 0
8.0 0
20,80 0 36,40 0
16.0 0 28.0 0
3,50 0 4,90 0
8.0 0
28,00 0 33,60 0
40.0 0 48.0 0
Working Notes: Computation of rate per hour Brick forming : = Rs21 . ,200 = Rs. 4.00 5,300 Rs48800 . , = Rs. 8.00 6,100
(Total cost / Total hours) Heat treating: Question 10 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. of Pcs. No. of Pcs. No. of Pcs. No. Input Rejected 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 to be introduced 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 the following information. Weight of the finished piece is 0.10 kg. and the price of raw material is Rs. 20 per kg. Answer Statement of Production (for a month) Operations No. 1 Input Total No. 60,000 Total No. 20,000 Rejections % Rejection to output 50% Output Total No. 40,000 =
2. 3.
66,000 48,000
6,000 8,000
10% 20% No. of Pcs. 100 20 120 12 132 66 198
60,000 40,000
Input required for final output of 100 units: Output of process 3 Loss in process, 20% Input to process 3 or output of process 2 Loss in process 2, 10% Input to process 2 or output of process 1 Loss in process 1, 50% Input in process 1
(iii) To produce 100 pieces of final output 198 pieces of initial input is used. The weight of one piece of finished output is 0.10 kg. Thus the weight of input to produce one piece of output is 0.198 kg. The rate being Rs.20, the cost of materials for producing 1 piece is Rs.3.96 i.e., 198 0.10 100
Question 11 A Ltd. produces product 'AXE' which passes through two processes before it is completed and transferred to finished stock. The following data relate to October 1981. Process Particulars Opening stock Direct materials Direct wages Factory overheads Closing stock Inter-process profit Included in opening stock I Rs. 7,500 15,000 11,200 10,500 3,700 II Rs. 9,000 15,750 11,250 4,500 4,500 1,500 Finished stock Rs. 22,500
11,250 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 the process II. Sales during the period are Rs. 1,40,000. Required: Process cost accounts and finished goods account showing the profit element at each stage. Answer Process I Account Total Rs. Opening stock Direct materials Direct Wages 7,50 0 15,0 00 11,2 00 33,7 Cost Rs. 7,50 0 15,0 00 11,2 00 33,7 Profi t Rs. Transfe r to process II Account Tota l Rs. 54,0 00 Cost Rs. 40,5 00 Profi t Rs. 13,5 00
00 Less: Stock Closing 3,70 0 30,0 00 10,5 00 40,5 00 13,5 00 _____ 54,0 00
00 3,70 0 30,0 00 10,5 00 40,5 00 _____ 40,5 00 13,5 00 _____ 13,5 00 _____ 54,0 00 _____ 40,5 00 _____ 13,5 00
Prime cost Overheads Process cost Profit 331/3% of total cost (See working note 1)
Process II Account Total Rs. Opening stock Transferred from Process I Direct materials Direct wages 9,000 Cost Rs. 7,50 0 40,5 00 15,7 50 11,2 50 75,0 00 3,75 0 71,2 50 Profit Rs. Total Rs. Cost Rs. Profit Rs.
1,50 Transfer to 0 Finishe d Stock A/c 112,5 00 75,7 50 36,7 50
54,00 0 15,75 0 11,25 0 90,00 0
15,0 00 750 14,2 50
Less: Closing Stock Prime cost
4,500 85,50 0
Overheads Process cost Profit 25% on total cost
4,500 90,00 0 22,50 0
4,50 0 75,7 50
22,5 00 _____ _ 36,7 50 ______ 1,12,5 00 _____ _ 75,7 50 _____ _ 36,7 50
(See working _____ note 1) _ 1,12,5 00
_____ _ 75,7 50
Finished Stock Account Total Rs. Opening stock Transferred from Process II 1,12,5 00 1,35,0 00 Less: Stock Closing 11,25 0 75,7 50 90,0 00 7,50 0 36,7 50 45,0 00 3,75 0 22,50 0 Cost Rs. 14,2 50 Profi t Rs. 8,25 Sales 0 Total Rs. 1,40,0 00 Cost Rs. 82,5 00 Profi t Rs. 57,5 00
Finished Stock at cost Profit 1,23,7 50 16,25 0 1,40,0 00 Working Notes Let the transfer price, be 100 then profit is 25; i.e. cost price is 75 82,5 00 82,5 00 41,2 50 12,2 50 57,5 00 ______ 1,40,0 00 _____ 82,5 00 _____ 57,5 00
1. If cost is Rs. 75 then profit is Rs. 25 25 If cost is Rs. 40,500 then profit is 40,500 = Rs. 13,500 75 2. If cost is Rs. 80 then profit is Rs. 20 If cost is Rs. 90,000 then profit is 20 90,000 = Rs. 22,500 80 Rs. 15,000 15000 , Rs. 4,500 = Rs. 90000 ,
3. Out of Rs. 90,000 total cost, the profit is If the cost is Rs. 4,500, the profit is 750 Question 12
The following data pertains to Process I for March 1987 of Beta Limited : Opening Work in Progress Degree of completion
1 Materials 100% ; Labour and Overheads 33 3 %
1,500 units at
Rs. 15,000
Input of Materials Direct Labour Overheads Closing Work in Progress and Labour and Overheads 30%
18,500 Units at Rs. 52,000 Rs. 14,000 Rs. 28,000 5,000 units
Degree of Completion Materials 90%
Normal Process Loss is 10% of total Input (opening work in progress units + units put in) Scrap value Rs. 2.00 per unit Units transferred to the next process 15,000 units. Your are required to : (a) Compute equivalent units of production. (b) Compute cost per equivalent unit for each cost element i.e., materials, labour and overheads. (c) Compute the cost of finished output and closing work in progress.
(d) Prepare the process and other Accounts. Assume: (I) the Company. FIFO Method is used by
(ii) The cost of opening work in progress is fully transferred to the next process. Answer (a) Production
INPUT
Statement of Equivalent Units of

OUTPUT EQUIVALENT Material % 100 Units 13,50 0 PRODUCTION Labour & Overhead % 66 2 3 100 Units 1,000 13,50 0
Particul ars Op. WIP Introduc ed
Unit s 1,50 0 18,5 00
Particulars Work on Op. WIP Introduced and completed in the period Transferred to next process Normal Loss Closing WIP
Units 1,500 13,500
15,000 2,000 5,000 22,000 90 4,500 18,00 0 100 2,000 _____ 16,00 0 100 30 1,500 16,00 0 2,000 _____ 14,00 0
_____ 20,0 00
Less: Abnormal Gain
2,000 _____ 22,000
(b) Statement of Cost per Equivalent Unit for Each Cost Element Cost Equivalent Units Cost per Equivalent Unit Rs.
Rs. Material 52,000
Rs.
Less: Value Labour
Scrap
4,000
48,000 14,000 28,000
16,000 14,000 14,000
3 1 2
Overheads
(c) Statement of Cost of Finished Output and Closing Work in Progress Particulars Element s Equivale nt Units Materia l Labour Overhe ad Materia l NIL 1,000 1,000 13,500 Cost per Units Rs. 1 2 3 Cost of Equivale nt Units Rs. 1,000 2,000 40,500 3,000 Total Rs. 15,000
Opening WIP (1,500 units) Opening WIP Opening WIP Opening WIP Units introduced and completed during the period " "
Labour Overhe ad
13,500 13,500
1 2
13,500 27,000
81,000
Total Cost of 15,000 Units of finished output 99,000 Closing WIP (5,000 units) Materia l Labour Overhe ad 4,500 1,500 1,500 3 1 2 13,500 1,500 3,000 18,000
Total cost of closing WIP (5,000 units) (d) Unit s 1,50 Rs. 15,000
Process Account I Units By Normal Loss 2,000 Rs. 4,000
To Opening WIP
To
Units introduced (Direct Material) To Direct Labour To Overhead To Abnormal Gain (See working note)
0 18,5 00
52,000
By Transfer to next process By Closing WIP
15,00 99,000 0
2,00 0 _____ 22,0 00
14,000 28,000 12,000 _______ 1,21,0 00
5,000 18,000
_____ 22,00 0
______ _ 1,21,0 00
Abnormal Gain Account Unit s 2,00 0 Rs. 4,000 8,000 12,000 Working Note Total cost of Abnormal Gain: (2,000 Units) @ Rs. 6/- p.u. Question 13 The following data are available in respect of Process 1 for February 1990 : (1) Opening stock of work in process : 800 units at a total cost of Rs. 4,000. (2) Degree of completion of opening work in process: Material Labour Overheads 100% 60% 60% = Rs. 12,000 By Process I Units 2,000 Rs. 12,00 0
_____
To Process A/c I To Profit & Loss A/c
12,00 0
(3) Input of materials at a total cost of Rs. 36,800 for 9,200 units. (4) Direct wages incurred Rs. 16,740 (5) Production overhead Rs. 8,370. (6) Units scrapped 1,200 units. The stage of completion of these units was: Materials Labour Overheads 100% 80% 80%
(7) Closing work in process; 900 units. The stage of completion of these units was: Material Labour 100% 70%
Overheads
70%
(8) 7,900 units were completed and transferred to the next process. (9) Normal loss is 8% of the total input (opening stock plus units put in) (10) Scrap value is Rs. 4 per unit. You are required to : (a) Compute equivalent production, (b) Calculate the cost per equivalent unit for each element. (c) Calculate the cost of abnormal loss (or gain), closing work in process and the units transferred to the next process using the FIFO method, (d) Show the Process Account for February 1990 Answer (a) Input (Unit s) Statement of Equivalent Production (FIFO Method) Output Unit Material % Unit Co s mpl etio n 100 100 100 7,10 0 900 400 8,40 0 Labour % Units Com pleti on 40 100 70 80 320 7,100 630 320 8,370 Overheads % Unit Com s pleti on 40 100 70 80 320 7,10 0 630 320 8,37 0
800 Opening stock of WIP 9,20 Finished 0 Closing WIP Normal Loss Abnormal Loss
800 7,10 0 900 800 400
(b) Elements
Statement of Cost per equivalent units Cost Equivalent production (Units) Cost per equivalent Unit Rs.
Material Cost
Rs. 36,80
Rs.
Less: Scrap realisation 800 units @ Rs. 4/- p.u. Labour cost Overhead Cost Total Cost (c)
0 3,200
33,600
8,400
4/-
16,740 8,370
8,370 8,370
2/1/-
Cost of Abnormal Loss 400 Units Rs. Material cost of 400 equivalent units @ Rs. 4/- p.u. 1,600 Labour cost of 320 equivalent units @ Rs. 2/- p.u. 640 Overhead cost of 320 equivalent units @ Rs. 1/- p.u. 320 2,560 Cost of closing WIP 900 Units Material cost of 900 equivalent units @ Rs. 4/- p.u. 3,600 Labour cost of 630 equivalent units @ Rs.2/- p.u. 1,260 Overhead cost of 630 equivalent @ Rs. 1/- p.u. 630 5,490 Cost of 7,900 units transferred to next process (i) Cost of opening WIP Stock b/f 800 units (ii) Cost incurred on opening WIP stock Material cost Labour cost 320 equivalent units @ Rs. 2/- p.u. 640 960 (iii) Cost of 7,100 completed units 7,100 units @ Rs.7/- p.u. Total cost [(i) + (ii) + (iii))] 49,700 54,660 4,000
Overhead cost 320 equivalent units @ Rs. 1/- p.u.320
(d)
Process Account for February, 1990 Unit s 800 Rs. 4,000 By Cost of Finished Units 7,900 Rs. 54,66 0
To Opening WIP Stock
goods To Materials To Labour To Overhead _____ 10,0 00 Question 14 A company manufactures a product which involves two consecutive processes, viz. Pressing and Polishing. For the month of October, 1991, the following information is available: Opening Stock Input of units in process Units completed Units under process Materials Cost Conversion Cost Pressing 1,200 1,000 200 Rs., 96,000 Rs. 3,36,000 Polishing 1,000 500 500 Rs. 8,000 Rs. 54,000 9,20 0 36,800 16,740 8,370 _____ 65,910 By Closing WIP By Abnormal Loss By Normal Loss 900 400 800 10,00 0 5,490 2,560 320 0 65.,91 0
For incomplete units in process, charge materials cost at 100 percent and conversion cost at 60 percent in the Pressing Process and 50 percent in Polishing Process. Prepare a statement of cost and calculate the selling price per unit which will result in 25 percent profit on sale price. Answer Statement of Cost (i) Pressing process: Elements of cost Equivalent Production Units Rs. (Refer to Working Note 1) 96,000 1,200 3,36,000 1,120 Cost Cost per unit (Rs.) 80 300 380
Material cost Conversion cost Total
Cost of 1,000 completed units @ Rs. 380/- p.u.= Rs. 3,80,000
Cost of 200 units under Work-in-Process: Material cost 16,000 Conversion cost 36,000 Total (ii) Polishing Process Element of cost Cost Rs. Cost of units introduced 3,80,000 Material cost 8,000 Conversion cost (Rs.) (Rs.) 3,88,00 0 54,000 1,000 750 = 388 72 460 Total Cost of 500 completed units @ Rs. 460 p.u. 2,30,000 Material cost 1,94,000 Conversion cost 18,000 Total Rs. Equivalent Production Units (Refer to Note 1) Working Cost per unit (Rs.) = = 200 Rs. 80 = Rs.
120 Rs. 300 = Rs.
= Rs. 52,000
= 500 Rs. 388 = Rs. = 250 Rs. 72 = Rs.
= Rs. 2,12,000
Selling price per unit Cost per unit Profit @ 25% on sale price
1 Or 33 3 % on cost
Rs. 460.00 Rs. 153.33
Selling price (p.u.) Working Note 1. process: Inpu t (Unit s)
Rs. 613.33
Statement of equivalent production of pressing Output Units Equivalent units
1,20 0
Completed Work process in
1,000 200 1,200
Material Qty. % (Units) 1,000 100 200 1,200 100
Conversion Qty. % (Units) 1,000 100 120 1,120 60
1,20 0 2. process Inpu t (Unit s)
Statement of equivalent production of polishing Output Units Equivalent units
1,00 0
Completed Work process in
500 500 1,000
Material Qty. % (units) 500 100 500 1,000 100
Conversion Qty. % (units) 500 100 250 750 50
1,00 0 Question 15
A product passes through three processes A, B and C. The details of expenses incurred on the three processes during the year 1992 were as under: Process Units issued / introduced cost per unit Rs. 100 Sundry Materials Labour Direct Expenses Selling price per unit of output A 10,000 Rs. 10,000 30,000 6,000 120 B C
Rs. 15,000 80,000 18,150 165
Rs. 5,000 65,000 27,200 250
Management expenses during the year were Rs. 80,000 and selling expenses were Rs. 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 third 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 processes, calculated on the input of every process was: Process A-5%; B-15% and C-20% The Loss of Process A was sold at Rs. 2 per unit, that of B at Rs. 5 per unit and of Process C at Rs. 10 per unit. Prepare the Three Processes Accounts and the Profit and Loss Account. Answer Process A Account Dr. Particulars To Units brought in (Rs.10010, 000) To Sundry Unit s 10,0 00 Rs. 10,00,0 00 Particulars By Normal Loss (5% of 10,000 units @ Rs. 2/- p.u.) Units 500 Cr. Rs. 1,000
10,000
Materials To Labour To Direct expenses
30,000 6,000
By
Abnormal loss (Working note 1) Process B A/c (Output to be transferred Rs. 110 6,200) (Working Note 1) By Profit & Loss A/c (Rs. 100 3,100 units) (Working Note 1)
200
22,000
6,200
6,82,0 00
3,100
3,41,0 00
_____ 10,0 00 Dr. Particulars To Process A A/c To Sundry Materials To Labour To Direct expenses To Abnormal gain (Working Note 2)
_______ 10,46,0 00
_____ _______ 10,00 0 10,46, 000 Cr. Rs. 4,650
Process B Account Unit s 6,20 0 Rs. 6,82,0 00 15,000 80,000 18,150 Particulars By Normal Loss (15% of 6,200 Units = 930 units @ Rs. 5/- p.u.) Units 930
130
19,500
By Process C A/c (Output to be transferred) Rs. 150 2,700 (Working Note 2) By Profit & Loss A/c
2,700
4,05,0 00
2,700
4,05,0
____ 6,33 0 Dr. Particulars To Process B A/c To Sundry Materials To Labour To Direct expenses
_______ 8,14,6 50
(Rs. 150 2,700)
____ 6,330
00 _______ 8,14,6 50 Cr. Rs. 5,400
Process C Account Unit s 2,70 0 Rs. 4,05,0 00 5,000 65,000 27,200 Particulars By Normal Loss (20% of 2,700 units = 540 units @ Rs. 10/- p.u.) Units 540
_____ 2,70 0 Dr. Particulars To Process A A/c To Process B A/c To Process C A/c To Management Expenses
_______ 5,02,2 00
By Abnormal Loss (Working Note 3) By Profit & Loss A/c (Rs.230 2,100 units) (Working Note 3)
60
13,800
2,100
4,83,0 00
____ 2,700 _______ 5,02,2 00 Cr. Rs. 3,72,0 00
Profit & Loss Account Unit s 3,10 0 2,70 0 2,10 0 Rs. 3,41,00 0 4,05,00 0 4,83,00 0 Particulars By Sale (Process A's Output @ Rs. 120/p.m.) By Sale (Process B's Units 3,100
2,700
4,45,5 00
80,000
To
Selling Expenses To Abnormal Loss A/c
50,000 34,800
Output @ Rs. 165/p.u.) By Sale
2,100
5,25,0 00
(Working Note 4)
____ 7,90 0 Working Notes
_______ _ 13,93,8 00
(Process C's Output @ Rs. 250/- p.u.) By Abnormal gain A/c (Working Note 5) By Net Loss
18,850
____ 7,900
32,4 50 13,93, 800
1. (i) Per unit cost of normal production under process A: = = Normal t of normal cos output Normal production output Rs1046000 Rs1000 . , , ., = Rs. 110 9500 , units = Normal production Actual
(ii) Value of Abnormal loss under process A: Abnormal loss units production
= 9,500 9,300 = 200 units Value of Abnormal Loss = = Per unit cost of normal production Abnormal loss units Rs. 110 200 Rs. 22,000. (Rs7,95 Rs4,659 Rs7,90500 . ,150 . ) . , = = Rs150 . 5,270 5,270
2. (i) Per unit cost of normal production under process B: =
(ii) Value of Abnormal gain under process B: Abnormal gain units = Normal loss Actual loss = 930 800 = 130 units = = Per unit cost of normal production Abnormal gain units Rs. 150 130 units = Rs. 19,500. (Rs502200 Rs5400 Rs496800 ., , ., ) ., , = = Rs230 . 2160 , units 2160 , units
3. (i) Per unit cost of normal production under process C: =
(ii) Value of Abnormal loss under process C: Abnormal loss units = Normal production Actual production = 2,160 units 2,100 units = 60 units = Rs. 230 60 units = Rs. 13,800 4. Dr. Uni ts Cost p.u. Rs. 110 Amo unt Rs. 22,0 00 Particulars Uni ts Cos t p.u. Rs. 2 Abnormal Loss Account Cr. Amo unt Rs. 400
To Process A A/c
200
To Process C A/c
60
230
13,8 00
___ _ 260 5. Dr. Uni ts
_____ 35,8 00
By Sale proceeds of Process A Loss By Sale proceeds of Process C loss By Profit & Loss A/c
200
60
10
600
__ _ 260
34,8 00 35,8 00 Cr. Amo unt
Abnormal Gain Account Co st p.u . Rs. 5 Amo unt Particulars Uni ts Cos t p.u. Rs. 150
To
Normal 130 loss shortfall To Profit & Loss A/c
Rs. 650
By Process B
130
Rs. 19,5 00 _____ 19,5 00
18,8 50 19,5 00
Question 16
Following data are available for a product for the month of July, 1993. Opening work-in-progress Cost Incurred during the month: Direct materials Labour Factory overheads Units of production: Received in Process Completed and transferred Closing work-in-progress Normal loss in process Materials Labour Overheads There has been no abnormal loss in Process II Prepare process accounts after working out the missing figures and with detailed workings. Answer Statement of equivalent production units (Process I) TABLE 1 Particulars Units Introdu ced Units Out Equivalent Production Material Labour and Overhead % Units % Units Comple Comple tion tion 100 36,00 0 100 36,00 0 50% 50% Process I NIL Rs. 60,000 12,000 24,000 40,000 36,000 2,000 2,000 Process II NIL Rs. 16,000 20,000 36,000 32,000 ? 1,500 100%
Production remaining in Process has to be valued as follows:
Units in Units completed and transferred to Process-II
40,000 36,00 0
Normal loss Closing workin-progress Total
2,000 2,000 40,000 40,00 0
100
2,000 38,00 0
50
1,000 37,00 0
Computation of cost per equivalent unit for each cost element TABLE 2 Total Cost Rs. Direct materials Labour Factory overheads Total Unit s 40,0 00 60,000 12,000 24,000 Process 1 Account Rs. 60,000 By Normal Loss Units 2,000 Rs. NIL 38,000 37,000 37,000 Equivalent Units Cost per Equivalent Unit Rs. 1.5780 0.3243 0.6487 2.5519
To Units introduced (Direct materials) To Labour
12,000
To Factory overheads _____ 40,0 00
24,000 _____ 96,000
By Process III transferred (Refer to Working Note1) By Work inprocess (Refer to Working Note 2)
36,00 0
91,869
2,000 _____ 40,00 0
4,131 _____ 96,000
Statement of equivalent production units (Process II) TABLE 3 Particulars Equivalent Production
Units Introduc ed
Units Out
Material Units
Units transferred from process-I Normal loss Closing work-inprocess
% Completi on 36,000 32,000 100
32,0 00
Labour and Overheads % Units Completi on 100 32,00 0
1,500 2,500
100
2,50 0 34,5 00
50
1,250
36,000 36,000
33,25 0
Computation of cost per equivalent unit for each cost element TABLE 4 Total Cost Rs. Cost of 36,000 units transferred from Process I Labour Factory overheads Total 91,869 Equivalen t Units 34,500 Cost per Equivalent Units Rs. 2.6629
16,000 20,000
33,250 33,250
0.4812 0.6015 3.7456
Process-II Account Unit s 36,0 00 Rs. 91,869 By Normal Loss By Finished stock transferred Units 1,500 32,00 0 Rs. 1,19,8 59
To
Units introduced (Transferred from Process-I)
To Labour
16,000
To Factory overheads _____ 36,0 00 Working Notes:
20,000 _____ 1,27,86 0
(Refer to Working Note 3) By Work-inprocess (Refer to Working Note 4)
2,500 _____ 36,00 0
8,010 _____ 1,27,8 69
1. Cost of 36,000 completed units in Process I: = = = 36,000 Cost per unit (Refer to Table 2) 36,000 Rs. 2.5519 = Rs. 91,869. Cost of 2,000 equivalent units of material + Cost of 1,000 equivalent units of labour and overheads (Refer to Tables 1 and 2). 2,000 Rs. 1.5789 + 1,000 Rs.0.3243 + 1,000 Rs. 0.6487 Rs. 4,131 32,000 Cost per unit (Refer to Table 3) 32,000 Rs. 3.7456 = Rs. 1,19,589 Cost of 2,500 equivalent units of material + Cost of 1,250 equivalent units of labour and overhead (Refer to Tables 3 and 4) 2,500 Rs. 2.6629 + 1,250 Rs. 0.4812 + 1,250 Rs. 0.6015 Rs. 6657.25 + Rs. 601.50 + Rs. 751.88 Rs. 8,010.63.
2. Cost of 2,000 units under work-in-process in Process-I:
= = = = =
3. Cost of 32,000 units of finished stock in Process-II:
4. Cost of 2,500 units under work-in-process in Process-II:
= = =
Question 17 In a manufacturing company, a product passes through 5 operations. The output of the 5th operation becomes the finished product. The input, rejection, output and labour and overheads of each operation for a period are as under:
Operation 1 2 3 4 5
Input (units) 21,600 20,250 18,900 23,400 17,280
Rejection (units) 5,400 1,350 1,350 1,800 2,880
Output (units) 16,200 18,900 17,550 21,600 14,400
Labour and Overhead (Rs.) 1,94,400 1,41,750 2,45,700 1,40,400 86,400
You are required to: (i) Determine the input required in each operation for one unit of final output. (ii) Calculate the labour and overhead cost at each operation for one unit of final output and the total labour and overhead cost of all operations for one unit of final output. (November,1996,8 marks) Answer (i) Statement of Input required in each operation for one unit of final output: (Refer to Working Note) Operation 5 Output (Units) 1 Rejection of output in % 20 Input required 1.20 1 4 1.20 8.33 1.20 3 1.30 7.69 1.30 2 1.40 7.14 1.40 1 1.50 33.33 120 100
1.30 108 .33 100 1.40 107 .69 100 1.50 107 .14 100 2.00
1.50
133 .33 100
Working Note: Input required for final output Operatio n Input (units) Rejection (units) 1 2 3 4 5 (ii) Operatio n Input (Units) 21,600 20,250 18,900 23,400 17,280 5,400 1,350 1,350 1,800 2,880 16,200 18,900 17,550 21,600 14,400 Output (units) Rejection as % of output 33.33 7.14 7,69 8.33 20.00 Input required for final output 2.00 1.50 1.40 1.30 1.20
Statement of labour and overhead cost at each operation for one unit of final output Labour & Overhead s) Labour & Overhead per unit of input (Rs.) (Rs.) (a) 1 2 3 4 5 (b) 21,600 20,250 18,900 23,400 17,280 (c) 1,94,400 1,41,750 2,45,700 140,400 86,400 (d) = (c)/ (b) 9 7 13 6 5 Input units required for one unit of final output (e) 2.00 1.50 1.40 1.30 1.20 Labour and Overhead cost per unit of final output (Rs.) (f) = (d)(e) 18.00 10.50 18.20 7.80 6.00 60.50
(Rs.)
Total labour and overhead cost of all operations for one unit of final output is Rs. 60.50 Question 18 From the following information for the month of October, 2003, prepare Process III cost accounts:
Opening WIP in Process III Transfer from Process II Transferred to Warehouse Closing WIP of Process III Units scrapped Direct Wages Production overheads Degree of completion: Material Labour Overheads Opening Stock 80% 60% 60%
1,800 units at Rs. 27,000 47,700 units at Rs. 5,36,625 43,200 units 4,500 units 1,800 units Rs. 1,77,840 Rs.87,840 Rs. 43,920 Closing Stock 70% 50% 50% Scrap 100% 70% 70%
Direct material added in Process III
The normal loss in the process was 5% of the production and scrap was sold @ Rs. 6.75 per unit. (November, 2003, 10 marks) Answer Statement of Equivalent Production (Process III) Input Output _____________ _______________ Details Quant Quant Quantit % Quant % Quant ity ity y units ity ity Units units units units Op WIP 1,800 Work on 1,800 360 20 720 Op. WIP Proces 47,70 Introduc 41,40 41,400 10 41,40 100 41,40 s II 0 ed & 0 0 0 0 Transfe complet r ed during the month Normal 2,250 loss (5% Equivalent production Material A Material B Labour & __________ __________ overheads %
40 100
4,500 10 3,150 70 2,250 0 49,95 45,900 44,91 44,37 0 0 0 Abnorma 450 450 10 450 100 450 l gain 0 49,50 49,50 45,450 44,46 43,92 0 0 0 0 Working note Production units: Production units = Opening transferred from process II Closing units units Statement of cost Cost Equivale nt units +
of 45,000 units) Cl. WIP
4,500
50
100
Units
= 1,800 units + 47,700 units 4,500 units = 45,000
Material A (Transfer from previous process) Less: Scrap value of normal loss (2,250 units Rs 6.75)
Rs. (a) 5,36,62 5 15,187 5,21,43 8 1,77,84 0 87,840 43, 920 8,31,03 7.50
(b)
Cost per equivalent units Rs. (a) / (b)
45,450 44,460 43,920 43,920
11.4728 4.0000 2.0000 1.0000 18.4728
Material B Labour Overheads
Statement of apportionment of process cost
Opening WIP
Material A Completed opening WIP Material units 1,800 B Wages Overhea ds Introduced completed units & 41,400
Rs. 27,000 360 units Rs.4 = Rs. 1,440 720 units Rs.2 = Rs. 1,440 720 units Re. 1 = Rs. 720 41,400 units Rs. 18.4728
3,600 7,64,7 73 ______ 7,95,3 73 51,628 12,600 4,500 2,250 70,978 8313
Total cost of 43,200 finished goods units Closing WIP Units Material 4,500 A Material B Wages Overhea ds Abnormal gain units 450
4,500 units Rs. 11.4728 3,150 units Rs.4 2,250 units Rs.2 2,250 units Re.1
450 units 18.4728
Rs.
Process III A/c Unit s 1,80 0 47,7 00 Rs. 27,000 5,36,62 5 1,77,84 0 87,840 43,920 By Closing WIP 4,500 70,978 By Normal Loss By Finished goods stock Units 2,250 43,20 0 Rs. 15,187 7,95,3 73
To Balance b/d To Process II A/c
To Direct material To Direct Wages To Production overheads
To Abnormal gain
45 0 49,9 50
8,31 3 8,81,53 8
_____ _______ 49,95 0 8,81,5 38
Question 19 The following information is given in respect of Process No.3 for the month of January 2001. Opening stock 2,000 units made up of Direct Materials I Direct Materials II Direct Labour Overheads Transferred to Process No.4: 17,000 units Expenditure incurred in Process No.3 Direct Materials Direct Labour Overheads Rs. 30,000 Rs. 60,000 Rs. 60,000 Rs. 12,350 Rs. 13,200 Rs. 17,500 Rs. 11,000
Transferred from Process No.2: 20,000 units @ Rs. 6.00 per unit
Scrap 1,000 units Direct Materials 100%, Direct Labour 60%. Overheads 40%. Normal loss 10% of production. Scrapped units realised Rs. 4 per unit. 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, alongwith necessary supporting statements. (May,2001, 10 marks)
Answer Statement of Equivalent Production (Average cost method) Particular s Total Unit Material I Material II Labour Overhead
% Units complete ly processe d Normal Loss 10% of (2,000 units + 20,000 units 4,000 units) (Refer to working note) Abnormal gain Closing stock 17,0 00
Unit % Unit % Unit % Unit s s s s 100 17,0 100 17,0 100 17,0 100 17,0 00 00 00 00
1,80 0
800 4,0 00 22,0 00
100 100
-800 4,00 0 20,2 00
100 80
-800 3,20 0 19,4 00
100 60
-800 2,40 0 18,6 00
100 40
-800 1,60 0 17,8 00
Statement of Cost Cost Rs. Material I: Opening balance 2,000 units Cost of 20,000 units @ Rs. 6/- per unit Less: Scrap realized (1,800 units Rs. 4) 12,35 0 1,20,0 00 (7,200 ) ______ 1,25,1 50 13,20 0 Equivalent Units Rate/Equivalent (Unit) (Rs.)
_____ 20,200
_____ 6,1955
Material II: Opening Stock
In Process II
30,00 0 43,20 0 17,50 0 60,00 0 77,50 0 11,00 0 60,00 0 71,00 0
_____ 19,400
_____ 2.2268
Labour Opening labour In Process II
_____ 18,600
_____ 4.1667
Overhead: Opening stock In Process II
_____ 17,800
_____ 3.9888 16.5778
Statement of Evaluation Cost of 17,000 finished goods units 2,81,822.60 or Rs.2,81,822 (say) (17,000 units Rs. 16.5778) Cost of 800 abnormal units (800 units Rs. 16.5778) Cost of 4,000 closing work-in-progress units (say) Rs. Material I 4,000 units Rs. 6.1955 Material II 3,200 units Rs. 2.2268 Labour 2,400 units Rs. 4.1667 Overhead 1,600 units Rs. 3,988 Process 3 A/c Dr. Particulars Unit s Rs. Particulars Unit s Cr. Rs. = = = = 24,782.00 7,125.76 10,000.08 6,382.08 48,289.92 or 48,290 13,262.24 or 13,262 (say)
48,289.92
To Opening WIP To Process 2
2,00 0 20,0 00
54,050 1,20,00 0
By Normal Loss By Finished goods units By Closing balance
1,80 0 17,0 00 4,00 0
7,200 2,81,8 22 48,290
To Direct Material II To Direct Labour To Overhead To Abnormal gain
30,000 60,000 60,000 13,2 62 3,37,31 2
80 0 22,8 00
_____ _______ 22,8 00 3,37,3 12
Working Note: Normal loss given is 10% of production. The word production here means those units which come upto the state of inspection. In that case, opening stock plus receipts minus closing stock of WIP will represent units of production (2,000 units + 20,000 units 4,000 units). In this case the units of production comes to 18,000 units and hence 1,800 units as normal loss units.
Question 20 JKL Limited produces two products J and K together with a byproduct L from a single main process (process I). Product J is sold at the point of separation for Rs. 55 per kg. Whereas product K is sold for Rs. 77 per kg. After further processing into product K2. Byproduct L is sold without further processing for Rs. 19.25 per kg. Process I is closely monitored by a team of chemists, who planned the output per 1,000 kg of input materials to be as follows: Product J Product K Product L Toxic waste 500 kg 350 kg. 100 kg. 50 kg.
The toxic waste is disposed at a cost of Rs. 16.50 per kg. And arises at the end of processing. Process II which is used for further processing of product K into product K2, has the following cost structure: Fixed costs Variable cost Process I Opening work-in-progress Material input Direct Labour Variable overheads Fixed overheads Outputs: Product J Product K Product L Toxic waste Closing work-in-progress 19,200 kg. 14,400 kg. 4,000 kg. 2,400 kg. NIL NIL 40,000 kg costing Rs. 6,60,000 Rs.4,40,000 Rs. 1,76,000 Rs. 2,64,000 Rs. 2,64,000 per week Rs. 16.50 per kg. processed
The following actual date relate to the first week of the month:
Process II Opening work-in-progress Input of product K Output of product K2 NIL 14,400 kg. 13,200 kg.
Closing work-in-progress (50% converted and conversion costs were incurred in accordance with the planned cost structure) Required (i) Prepare Process I account for the first week of the month using the final sales value method of attribute the pre-separation costs to join products. (ii) Prepare the toxic waste account and Process II account for the first week of the month. (iii) Comment on the method used by the JKL Limited to attribute the pre-separation costs to joint products. (iv) Advise the management of JKL Limited whether or not, on purely financial grounds it should continue to process product K into product K2. (a) If product K could be sold at the point of separation for Rs. 47.30 per kg; and (b) If the 60% of the weekly fixed costs of Process II were avoided by not processing product K further. (May,2004, 10 marks) Answer (i)
Particulars Qty in Kg. Rate / Kg. Rs. 16.50
1,200 kg.
Process I account
Amoun t Rs. Particulars Qty in Kg. 4,00 0 2,00 0 Rate / Kg.R s. 19.2 5 (-) 16.5 0 Amou nt Rs.
To Material input To Direct Labour
40,00 0
6,60,0 00 4,40,0 00
By Product L sales By Normal loss
77,000 (-) 33,000
To Variable overheads To Fixed overheads
1,76,0 00 2,64,0 00
By Abnormal Loss* By Joint Product J (Refer to working note 2) By Joint product K (Refer to working note 2)
400 19,2 00 14,4 00 _____ 40,0 00
44
17,600 7,21,1 71 7,67,2 29 _______ 15,40, 000
_____ 40,00 0
_______ 15,40,0 00
Valuation of abnormal loss per kg. =
Rs1540000 Rs77000 Rs33000 . , , . , + . , 40000 . 0.85 , Kgs
(Using physical measure method) = Rs. 14,96,000 / 34,000 kgs. = Rs. 44 per kg. (ii) Particulars Qty . in Kg. Rat e/ Kg. Rs. 16. 50 Rate / Kg. Toxic Waste Account Amou nt Rs. Particula rs Qty. in Kg. Rate/ Kg. Rs. 16.50 Amoun t Rs.
To Process I 2,0 A/c 00 Particulars Qty. in Kg.
(-)33,0 By 00 Balance Process II Account Amou nt Particular s Qty. in Kg. 13,2 00 1,20 0
(-)33,0 00 Amoun t. Rs. 11,73, 924 84,912 _______ _ 12,58, 836
To Process 14,4 I 00 A/c (Product K) To Variable overhead s To Fixed overhead s
Rs. Rs. 52,5 7,57,23 By 85 6 Product K2 account 16.5 2,37,60 By 0 0 Closing WIP 2,64,00 (Refer to 0 working note 3) 12,58,8 36
Rat e/ Kg. Rs.
Working notes: 1. Calculation of joint cost of the output: = = 2. &K Products Rs. 15,40,000 Rs. 77,000 Rs. (-) 33,000 Rs. 17,600 Rs. 14,78,400 Allocation of joint cost over joint products J (By using final sales value method) Quantity (Kgs.) Sales Value Rs. Joint Cost Rs.
19,200
14,400
Total
10,56,000 (19,200 kg Rs. 55) 11,08,800 (14,400 kgs x Rs.77) 21,64,800
7,21,171
7,57,229
14,78,400
3.
Valuation of 1,200 Kgs. of Closing WIP : Material I 100% complete (1200 kgs x Rs.52.5858)63,103 Fixed & variable overheads 21,809 Total valuation of 1,200 kgs of closing WIP 84,912 Rs 501 . , ,600 x 600 units 13800 units , Rs.
(iii)
Comment on the method used by the JKL Ltd :
(To attribute the pre-separation costs to joint products) For attributing the joint costs over joint products J and K , JKLF Ltd., used the basis of final sales value. This is one of the popular method used in the industry. Other methods can also be used for the purpose. Some of these are as follows: Physical Measure Method (if both the products are equally complex). (iv) Constant Gross Margin Percentage method. Net Realization Value Method. Advise to the management of JKL Ltd.: Rs. Incremental sales revenue per kg. from further processing 29.70 Less: Incremental variable cost per kg. of further processing 16.50 Incremental contribution per kg from further processing 13.20 At an output of 14,400 kgs the incremental contribution is: 1,90,080 Less: Avoidable fixed cost (60% x Rs. 2,64,000) Net benefit (Rs.) Break-even point = 1,58,400 _____ 31,680 Avoidable costs fixed Rs 158400 .. , , = Incrementa l contributi kg onper . Rs1320 . .
= 12,000 kgs.
Hence further processing should be undertaken if output is expected to exceed 12:000 kgs. per week. Question 21 A product passes through two processes. The output of Process I becomes the input of Process II and the output of Process II is transferred to warehouse. The quantity of raw materials introduced into Process I is 20,000 kg. at Rs. 10 per kg. The cost and output data for the month under review are as under: Direct Materials Direct Labour Production overheads Normal Loss Output Loss realisation of Rs. / Unit Process I Rs. 60,000 Rs. 40,000 Rs. 39,000 8% 18,000 2.00 Process II Rs. 40,000 Rs. 30,000 Rs. 40,250 5% 17,400 3.00
The company's policy is to fix the Selling price of end product is such a way as to yield a Profit of 20% on Selling price. Required (i) Prepare the Process Accounts (ii) Determine the Selling price per unit of the end product. (November,2002, 9 marks) Answer (i) Dr. Cr. Kgs. Rat e/ Kg. Amo unt Particulars Kgs . Rat e/ Kg. Rs. 2.0 0 18. 25 Amoun t. Rs. 3,200 7,300 Process I Account
To Raw material To Direct material To Direct labour
20,0 00
Rs. Rs. 10 2,00,0 By Normal 00 loss 60,00 By 0 Abnorm al loss 40,00 (Refer 0 to working
1,60 0 400
To Production overhea ds
_____
notes 1 & 2) By 39,0 Transfer to 00 Process II 3,39,0 00 Process II Account Dr. Cr.
Kgs. Rat e/ Kg. Rs. Amou nt Rs. Particulars
18,0 00 20,0 00
18. 25
3,28,5 00 3,39,0 00
20,0 00
Kgs.
Rate / Kg. Rs.
Amoun t Rs.
To Process I Account To Direct materials
18,000 18.2 3,28,5 By Normal 5 00 loss 40,000 By Transfer to warehou se
900 17,40 0
3.00 25.50
2.700 4,43,7 00
To Direct labour To Production overheads To Abnormal gain (Refer to working notes 3 & 4) 300 25.5 0 18,300
30,000 40,250 7,65 0 446400 _____ 1830 0 ______ 44640 0
Working notes 1. Abnormal loss in Process I: Required production (20,000 kgs. 1,600 kgs.) 18,400 Actual production (in kgs.) Abnormal loss (in kgs.) 2. Value of abnormal loss in Process I: = Normal t of normal cos output Abnormal loss. Normal output 18,000 400
Rs335800 ., , 18400 . 400 kgs. = Rs. 18.25 400 kgs. = 7,300 kgs ,
3. Abnormal gain in Process II: Required production (18,000 kgs. 900 kgs.) 17,100 Actual production Abnormal gain (in kgs.) (4) Value of abnormal gain in Process I: Rs436050 ., , 17 kgs 300 Kgs. = Rs. 25.50 3,000 kgs. ,100 Rs.7,650.00 = (ii) Determination of selling price of the end product: If the cost price of end product is Rs. 80 the units S.P. is Rs. 100 If the cost price of end product is Re.1, the unit S.P. is 100 80 = 17,400 300
If the cost price is Rs. 25.50, then the S.P. of the end product is 100 2550 . 80 = Rs. 31.875
Question 22 RST Ltd. manufactures plastic moulded chairs. Three models of moulded chairs, all variation of the same design are Standard, Deluxe and Executive. The company uses an operation-costing system. RST Ltd. has extrusion, form, trim and finish 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, 2003 units of production and direct material cost incurred are as follows:
Units Produc ed
Extrusi on Materia ls (Rs.) 1,26,00 0 63,000 42,000 2,31,00 0
Form Materia ls (Rs.) 42,000 21,000 14,000 77,000
Trim Materia ls (Rs.)
Finish Materia ls (Rs.)
Standard Model Deluxe Model Executive Model
10,500 5,250 3,500 19,250
0 15,750 10,500 26,250
0 0 21,000 21,000
The total conversion costs for the month of April, 2003 are: Extrusion Operation Total costs (i) (i) conversion Rs. 6,06,375 Form Operation Rs. 2.97,000 Trim Operation Rs. 1,55,250 Finish Operation s Rs. 94,500
Required: For each product produced by RST Ltd. during April.2003, determine the unit cost and the total cost Now consider the following information for May. All unit costs in May are identical to the . April unit costs calculated as above in (i). 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. (May,2003, 6+3=9 marks)
Answer Working notes: 1. Statement of equivalent production units of Extrusion, Form, Trim and Finish materials for Standard, Deluxe and Executive model of chairs.
Equivalent units of materials required to produce three brands of plastic moulded chairs
Extrusion materials units 19,250
Form materials units 19,250
Trim materials units 8,750
Finish materials units 3,500
2. Statement of material and conversion cost per equivalent unit: Equivalent units: (A) (Refer to working note 1) Material costs (Rs.): (B) Conversion costs of different operations performed on material (Rs.) : (C) Material cost per equivalent unit (Rs.): (B/A) Conversion cost per equivalent unit (Rs.): (C/A) (i) wise Extrusion 19,250 Form 19,250 Trim 8,750 Finish 3,500
2,31,000 6,06,375
77,000 2,97,000
26,250 1,55,250
21,000 94,500
12
31.50
15.43
17.74
27
Statement of Unit and Total cost Model(Refer to working notes 1 & 2) Standard Model cost Rs. 12.00 4.00 31.50 15.43 Deluxe Model Cost Rs. 12.00 4.00 3.00 31.50 15.43 Executive Model Rs. 12.00 4.00 3.00 6..00 31.50 15.43
Extrusion material Form material Trim material Finish material Extrusion conversion Form conversion
Trim conversion Finish conversion Total unit cost Total Cost
62.93 6,60,765 (10,500 unitsRs.62.9 3)
17.74 83.67 4,39,267.5 (5,250 units Rs.83.67)
17.74 27 116.67 4,08,345 (3,500 units Rs.116.67)
(ii)
Statement of cost of 1,500 units of the Deluxe Model of the chairs lying in Work-in-progress inventory at the end of May 2003 Equivalen t units Unit cost (Refer to working note 2) Rs. (2) 12 4 3 31.50 15.43 17.74 Total Cost
(1) Extrusion materials Form materials Trim materials Extrusion materials conversion Form materials conversion Trim materials conversation (1,500 units 65%) Total cost of 1,500 units of Delux Model of chairs lying in WIP Question 23 1,500 1,500 1,500 1,500 1,500 975
(3)=(1) (2) 18,000 6,000 4,500 47,250 23,145 17,296.50 _________ 1,16,191. 50
Process 2 receives units from Process I and after carrying out work on the units transfers them to Process 3. For the accounting period the relevant data were as follows: Opening WIP 200 units (25% complete) valued at 840 units were transferred to Process 3 Closing WIP 160 units (50% complete) Rs. 5,000 800 Units received from Process I valued at Rs. 8,600
The costs of the period were Rs. 33.160 and no units were scrapped. Required: Prepare the process Account for Process 2 using the Average Cost method of valuation. (November,1995, 6 marks) Answer Process 2 Account Unit s 200 800 Rs. 5,000 8,600 33,160 By Transfer to Process 3 (Refer to W. note No.3) By Closing WIP (Refer to W. note No.3) Units 840 Rs. 42,694
To Opening WIP To Process 1 A/c To Process Cost
160 ____ 1,000
4,066 _____ 46,700
____ 1,00 0 Working Notes 1. Units In Particul ars Units out
_____ 46,760
Computation of Equivalent Units Equivalent Production Material % Comp letion Units Labour and % Com pletio n 100 Units Overhead % Com pletio n 100 Units
1000
Comple ted units WIP
840
100
840
840
840
160 1000
50
80 920
50
80 920
50
80 920
1000
2. Average cost per completed units Rs.
Cost of 200 opening WIP units Cost of the period Total cost Equivalent units = 920 (Refer to Working Note No.1) Average cost per completed unit =
5,000 33,160 46,760
Cost of 800 units received from Process I 8,600
Rs46760 . , = Rs. 50.826 920 units Rs.
3. Cost of 840 completed units transferred to Process 342,694 (840 units Rs. 50,826) Cost of 160 WIP units which are 50% complete 4,066 (80 units Rs. 50,826)
Question 24 The input to a purifying process was 16,000 kgs. of basic material purchased @ Rs. 1.20 per kg. Process wages amounted to Rs.720 and overhead was applied @ 240% of the labour cost. Indirect materials of negligible weight were introduced into the process at a cost of Rs. 336. The actual output 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 @ Re. 0.50 per kg. The process is operated under a licence which provides for the payment of royalty @ Re.0.15 per kg. of the purified material produced. Prepare: (i) Purifying Process Account (ii) Normal Wastage Account (iii) Abnormal Wastage / Yield Account (iv) Royalty Payable Account Answer (i) Dr. Qty. kg. To Basic material 16,0 00 Ra te per kg. Rs. 1.2 0 Amou nt Rs. 19,20 00 Qty. kg. By Normal wastage 8% of 1,60,000 Kg. By Purified stock 1,28 0 Purifying Process Account Cr. Rat Amo e unt per kg. Rs. Rs. 0.5 640. 0 00 (3 marks) (3 marks) (May, 1996, 2 marks) (1 marks)
To Wages To Overheads 240% of Rs. 720 To Indirect materials
720 1,728
15,0 00
1.6 0
24,0 00
336
To Royalty payable on normal yield 14,720 kg 0.15 To Abnormal yield
2,208
28 0 16,2 80
1.6 0
448 ______ 24,64 0
_____ _ 16,2 80
_____ _ 24,6 40 Cr. Amo unt Rs. 140
(ii) Dr. Qty . kg. 1,2 80 Ra te per kg. Rs. 0.5 0
Normal Wastage Account Amo unt Rs. 640 Particulars Qty . Kg. 280 Rat e per kg. Rs. 0.5 0
To Purifying process (Normal wastage)
____ 1,2 80 (iii) Dr. Qty . kg. 280 Ra te per kg. Rs. 0.5 0
___ 640
By Purifying Process (Ab. Yield) reduction By Cash sale of wastage
1,0 00 1,2 80
0.5 0
500 640
Abnormal Yield Account Amo unt Rs. 140 Particulars Qty . kg. 280 Rat e per kg. Rs. 1.6 0 Cr. Amo unt Rs. 448
To Normal Wastage A/c
By Purifying Process A/c
To Royalty payable (on abnormal yield) To Balance (Profit & Loss A/c (iv) Dr.
0.1 5
42
___ 280
266 448
___ 280
___ 448 Cr. Amo unt Rs. 2,208
Royalty Payable Account Qty. kg. Rat e per kg. Rs. 0.1 5 Amo unt Rs. 2,250 Particulars Qty. kg. By Purifying Process A/c By Abnormal yield A/c 14,7 20 Rat e per kg. Rs. 0.1 5
To Balance
15,0 00
_____ 15,0 00
_____ 2,250
28 0 15,0 00
0.1 5
42 2,250
Question 25 The following data relate to Process Q (i) Opening work-in-process 4,000 units Degree of completion: Materials Labour Overheads 40,000 Units. Material Labour 100% 60% 60% Rs. 24,000 Rs. 14,400 Rs. 7,200 Rs. 1,71,000 Rs. 79,000 Rs. 1,38,230
(ii) Received during the month of April, 1998 from process P. (iii) Expenses incurred in Process Q during the month:
Overheads (iv) Closing work-in-process Degree of completion: Material Labour & Overheads (v) Units scrapped Degree of completion: Materials Labour & Overheads
Rs. 69,120 3,000 units 100% 50% 4,000 units 100% 80%
(vi) Normal loss: 5% of current input. (vii) (viii) Required Prepare: (i) Equivalent units statement (ii) Statement of cost per equivalent unit and total costs. (iii) Process Q Account (iv) Any other account necessary (May, 1998,12 marks) Spoiled goods realised Rs. 1.50 each on sale. Completed units are transferred to warehouse;
Answer (i) Unit s in Particula rs Equivalent units Statement (using FIFO method) Units out Equivalent Production Materials Labour Overheads % Unit % Units % Units compl s comp comp e-tion leletion tion 40 1,60 40 1,60 0 0
4,00 0
Opening work inprogress units, complete d and
4,00 0
40,0 00
transferr ed to warehou se Units complete d and transferr ed to warehou se Closing work-in progress Normal loss Abnormal loss
33,0 00
100
33,0 00
100
33,0 00
100
33,0 00
3,00 0 2,00 0 2,0 00
100
3,00 0 2,00 0 38,0 00
50
1,50 0 1,60 0 37,7 00
50
1,50 0 1,60 0 37,7 00
100
80
80
(ii) cost
Statement of Cost per equivalent unit and total Previous Process P Current process Q Material Labour and overhead s 79,000 2,07,350 3,000 Total
Costs (Rs.) Less: Recovery from the sale of 2,000 units @ Rs.1.50 p.u. of normal loss (Rs.) Equivalent units: Cost per equivalent unit (Rs.)
1,71,000
1,71,000
76,000 38,000 6.50
2,07,350 37.700 5.50 Rs207350 ., , 37700 ,
12.00
. , ,000 . , Rs171 + Rs 76000 38000 ,
Total cost of 37,000 completed units transferred to warehouse.
Cost of 4,000 completed opening units (Rs.) (Rs. 45,600 + Rs. 8,800) (1,600 units Rs. 5.50) Cost of 33,000 completed units (Rs.) (33,000 units Rs. 12) Total cost of 37,000 completed units (Rs.) Cost of 3,000 Closing W.I.P. Units (Rs.) (Rs. 19,500 + Rs. 8,250) { (3,000 units Rs. 6.50) + (1,500 units Rs. 5.50) } Cost of 2,000 abnormal loss unit (Rs.) (Rs. 13,000 + Rs. 8,800) (iii) Dr. Particulars To Op. W.I.P. To Units received Units 4,000 40,00 0 Rs. 45,600 1,71,0 00 79,000 1,38,2 30 69,120 5,02,9 50
54,400
3,96,000 4,50,400 27,750
21,800 Rs. 4,99,950 Process Q Account
Particulars By Normal loss By Completed units (Refer to (ii) Part) By Cl. W.I.P. (Refer to (ii) part) By Abnormal Loss (Refer to (ii) part)
Units 2,00 0 37,0 00 3,00 0 2,00 0 _____ 44,0 00
Cr. Rs. 3,000 4,50,4 00 27,75 0 21,80 0 ______ _ 5,02,9 50
To Expenses incurred Materials Labour Overheads ______ 44,00 0 (iv) loss account: Dr. Particulars To Process Q Account
Any other account necessary is abnormal Abnormal Loss Account Units 2,000 Amoun t Rs. 21,800 Particulars By Sale Units 2,00 0 Cr. Amou nt Rs. 3,000
_____ 21,800 Question 26
By Balance (To Profit & Loss A/c)
18,80 0 _____ 21,80 0
Following information is available regarding process A for the month of February, 1999: Production Record. Units in process as on 1.2.1999 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 28.2.1999 6,000 (All materials used, 33-1/3% complete for labour and overhead) Cost Records Work-in-process as on 1.2.1999 Rs. Materials 6,000 Labour 1,000 Overhead 1,000 8,000 Cost during the month Materials 25,600 Labour 15,000 Overhead 15,000 55,600 Presuming that average method of inventory is used, prepare: (i) Statement of equivalent production. (ii) Statement showing cost for each element. (iii) Statement of apportionment of cost. (iv) Process cost account for process A. Answer (i) Particulars Output Statement of equivalent production (Average cost method) Units Equivalent Production Materials Labour Overheads (May, 1999,10 marks)
Inpu t (Unit s) 20,0 00 _____ 20,0 00 Complet ed WIP 14,0 00 6,00 0 20,0 00
% compl e-tion
100 100
Equi vale nt unit s 14,0 00 6,00 0 20,0 00
% comp letion 100 331/3
Equivale nt units 14,0 00 2,00 0 16,0 00
% comp letion 100 331/3
Equivale nt units 14,0 00 2,00 0 16,0 00
(ii) Particulars
Statement showing cost for each element Materia ls 6,000 25,600 31,600 20,000 1.58 Labour 1,000 15,000 16,000 16,000 1 Overhe ad 1,000 15,000 16,000 16,000 1 3.58 Total 8,000 55,600 63,600
Cost of opening work-inprogress (Rs.) Cost incurred during the month (Rs.) Total cost (Rs.) : (A) Equivalent units : (B) Cost per equivalent unit (Rs.) : C=(A/B) (iii)
Statement of apportionment of cost Rs. Rs. 50,120
Value of output transferred: (a)
14,000 units @ Rs. 3.58
Value of closing work-in-progress: (b) Material Labour Overhead Total cost : (a+b) 6,000 units @ Rs. 1.58 2,000 units @ Re. 1 2,000 units @ Re. 1 63,600 9,480 2,000 2,000 13,480
(iv)
Process cost account for process A: Process A Cost Account Unit s Rs. 8,000 25,600 15,000 _____ 20,0 00 15,000 63,600 _____ 20,00 0 _____ 63,600 By Completed units By Closing WIP Units 14,00 0 6,000 Rs. 50,120 13,480
To Opening WIP To Materials To Labour To Overhead
4,00 0 16,0 00
Quotation 27 Explain briefly the procedure for the valuation of Work-inprocess. (November,2002, 2 marks)
Answer Valuation of Work-in process: The valuation of work-in-process can be made in the following three ways, depending upon the assumptions made regarding the flow of costs. First-in-first out (FIFO) method Last-in-first out (LIFO) method Average cost method
A brief account of the procedure followed for the valuation of work-in-process under the above three methods is as follows; FIFO method: According to this method the units first entering the process are completed first. Thus the units completed during a period would consist partly of the units which were incomplete at the beginning of the period and partly of the units introduced during the period. The cost of completed units is affected by the value of the opening inventory, which is based on the cost of the previous period. The closing inventory of work-in-process is valued at its current cost. LIFO method: According to this method units last entering the process are to be completed first. The completed units will be shown at their current cost and the closing-work in process will continue to appear at the cost of the opening inventory of work-in-progress along with current cost of work in progress if any. Average cost method: According to this method opening inventory of work-in-process and its costs are merged with the production and cost of the current period, respectively. An average cost per unit is determined by dividing the total cost by the total equivalent units, to ascertain the value of the units completed and units in process. Question 28 Explain equivalent units Answer When opening and closing stocks of work-in-process exist, unit costs cannot be computed by simply dividing the total cost by total number of units still in process. We can convert the work-in-process units into finished units called equivalent units so that the unit cost of these units can be obtained. (May, 2002, 2 marks)
Equivalent Actual number of Percentage of completed units = units in the process work completed of manufacture It consists of balance of work done on opening work-in-process, current production done fully and part of work done on closing WIP with regard to different elements of costs viz., material, labour and overhead. Question 29 From the following Information for the month ending October, 2005, prepare Process Cost accounts for Process III. Use First-in-fistout (FIFO) method to value equivalent production. Direct materials added in Process (Opening WIP) Transfer from Process II Transferred to Process IV Closing stock of Process III Units scrapped Direct material added in Process III Direct wages Production Overheads Degree of completion: Opening Stock Materials Labour 80% 60% Closing Stock 70% 50% Scrap 100% 70% III 2,000 units at Rs. 25,750 53,000 units at Rs. 4,11,500 48,000 units 5,000 units 2,000 units Rs. 1,97,600 Rs. 97,600 Rs. 48,800
Overheads 60% 50% 70% The normal loss in the process was 5% of production and scrap was sold at Rs. 3 per unit. (14 Marks) Answer Process III Period.. Process Cost Sheet (FIFO Method) Op. Stock : 2000 units
Introduced : 53000 units Statement of Equivalent Production

Input Item Op stock Proce ss II transf er Unit s 2,00 0 Item Work on op WIP Introduced & completed during the period (48,000 2000) Output Unit s 2,00 0 Equivalent production Material A Material B 400 20 Labour & OHs. 800 40
53,0 00
46,0 00 48,0 00
46,0 00
10 0
46,0 00
10 0
46,0 00
10 0
Normal Loss (2000+53 000 5000) x 5% 55,0 00 Cl WIP
2,50 0
5,00 0 55,5 00
5,00 0 51,0 00 500 50,5 00
10 0
3,50 0 49,9 00
70
2,50 0 49,3 00
50
Ab. Gain
500 55,0 00
10 0
500 49,4 00
10 0
500 48,8 00
10 0
Statement of Cost for each Element Eleme nt of cost Materia lA Transfer Process Less: from previous. value of 4,11,5 00 Cost (Rs.) Equivale nt Producti on. Cost per unit Rs.
Scrap
Normal Loss 2500 Rs. 3
7,500 4,04,0 00 50,500 49,400 48,800 48,800 8 4 2 1 15
Materia lB Wages Overhe ads
1,97,6 00 97,60 0 48,80 0 7,48,0 00 Process Cost Sheet (in Rs)
Op WIP (for completion)
Mat B Wages OHs.
400Rs. 4 = 800 Rs. = 2 800 Re. = 1
1,600 1,600 800 4,000
Introduced and completely processed during the period Closing WIP Mat A Mat B Wages OHs Abnormal Gain Process III A/c Units To bal b/d To Process II A/c 2,000 53,00 0 Amou nt
46000 Rs. 15 = Rs. 6,90,000 5,0008 = 40,000 3,5004 = 14,000 2,5002 = 2,5001 = 500 Rs. = 15 Units 2,500 5,000 2,500 61,500 7,500
Amou nt 7,500
25,75 By Normal Loss 0 4,11,5 By process IV 00 A/c (6,90,000 + 4000 + 25,750) 1,97,6 By bal C/d
48,00 0 5,000
7,19,7 50 61,50
To
Direct
Material To Direct Wages To OHs Prodn. 500 55,50 0 Question 30
00 97,60 0 48,80 0 7,500 7,88,7 50 55,50 0
To Abnormal Gain
7,88,7 50
A Company produces a component, which passes through two processes. During the month of April, 2006, 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: Direct Materials Direct Wages Factory Overheads Rs.15,000 Rs.18,000 Rs.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 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 Materials Direct Wages Factory Overheads Required: Rs.4,000 Rs.3,500 Rs.4,500
(i) Prepare Statement of Equivalent Production, Cost per unit and Process I A/c. (ii) Prepare statement of Equivalent Production, Cost per unit and Process II A/c. Answer 30
Statement of Equivalent Production and Cost Materi al Units completed Closing Inventory Equivalent Production Current Process cost Cost/unit Closing inventory cost Material Process II transferred to 30,000 10,000 40,000 Rs 15,000 0.375 3,750 Labour and Overheads 30,000 5,000 35,000 Rs 30,000 0.8571 4,286 8,03 6 36,9 64 Rs 45,0 00 Total
Process I Account Units Direct material Direct wages Factory overheads 40,00 0 (ii) and Cost Material Labour and Overheads Total 40,00 0 Rs. 15,00 Process II A/c 0 18,00 Work-in-progress 0 inventory 12,00 0 45,00 0 Statement of Equivalent 40,000 45,0 00 Units 30,000 10,000 Rs. 36,9 64 8,03 6
Production
Units completed Closing Inventory Equivalent Production Process cost Cost/unit Closing inventory Packing cost material
28,000 1,800 29,800 36,964 1.24 2,232
28,000 450 28,450 8,000 0.2812 127 2,359 42,605 4,00 0 Rs. 46,605 44,964
Process II Account
Unit s T o T o T o T o Material transferred from Process I Packing Material Direct wages Factory overheads 30,00 0 30,00 0 Rs. 36,9 64 4,00 0 3,5 00 4,50 0 48,9 64 B y B y B y Finished goods stores A/c WIP stock Normal loss Units Rs.
28,00 0 1,800 200 _____ _ 30,00 0
46,60 5 2,359 ______ 48,96 4
Question 31 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: Material input quantity Opening work-in-progress quantity (Material 100% complete) and conversion 50% 40,000 kgs. 2,00,000 kgs.
Work completed quantity Closing work-in-progress quantity (Material 100% and conversion two-third complete) Material input cost Processing cost Opening work-in-progress cost Material cost Processing cost
1,60,000 kgs. 30,000 kgs. Rs. 75,000 Rs. 1,02,000 Rs. 20,000 Rs. 12,000
Normal process loss in quantity may be assumed to be 20% of material input. It has no realisable value. Any quantity of Product A can be sold for Rs. 1.60 per kg. Alternatively, it can be transferred to Process II for further processing and then sold as Product AX for Rs. 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: 1,20,000 kgs. of Product A input Rs. Materials Cost Processing Costs Required: (i) Determine, using the weighted average cost method, the cost per kg. of Product A in Process I and value of both work completed and closing work-in-progress for the month just ended. (ii) Is it worthwhile processing 1,20,000 kgs. of Product A further? (iii) Calculate the minimum acceptable selling price per kg., if a 1,32,000 1,20,000 1,60,000 kgs. of Product A input Rs. 1,76,000 1,40,000
potential buyer could be found for additional output of Product AX that could be produced with the remaining Product A quantity. (6 + 4 + 4 = 14 marks) Answer (i) Process I Statement of equivalent production
Inputs Particula Units rs Kg. Opening W.I.P. New material introduced 40,00 0 2,00,0 00 Output Particula Units rs Kg. Normal loss Units introduce d& complete d Abnormal loss Closing WIP 40,00 0 Equivalent output Material Conversion % Unit kg. % Units kg.
1,60,0 00 10,00 0 30,00 0 2,40,0 00
100 % 100 % 100 %
1,60,0 00 10,00 0 30,00 0 2,00,0 00
100 % 100 % 2/3rd
1,60,0 00 10,00 0 20,00 0 1,90,0 00
______ _ 2,40,0 00
Process I Statement of cost for each element Elements of cost Costs of openin g WIP Rs. Material Conversion cost 20,000 Costs in proce ss Rs. 75,00 0 Total Equivalent cost units Cost/Uni t (Kg.)
Rs. 95,000 1,14,0 00 2,09,0 00
Kg. 2,00,000 1,90,000
Rs. 0.475 0.600 1.075
12,000 1,02,0 00 32,000 1,77,0 00
Statement of apportionment of cost
Units completed Work completed
Elemen ts Material Convers ion Material Convers ion
Equivalent units 1,60,000 1,60,000 30,000 20,000
Cost/u nit Rs. .475 .600 .475 .600
Cost Rs. 76,00 0 96,00 0 14,25 0 12,00 0
Total cost Rs.
1,72,00 0
Closing WIP
26,250
(ii) Statement showing comparative data to decide whether 1,20,000 kg. of product A should be processed further into AX. Alternative I To sell product A after Process I Rs. Sales 1,20,000 1.60 Less: Cost from Process I 1,20,000 1.075 Gain 63,000 Alternative II Process further into AX Sales 2,40,000 2.00 Material in Process II Gain Hence company should process further It will increase profit by 99,000 63,000 = Rs. 36,000 (iii) Calculation of minimum selling price/kg: 44,000 20,000 Cost of processing remaining 40,000 kg. further Rs. Material 1,76,000 1,32,000 Processing cost 1,40,000 1,20,000 = Rs. 1,32,000 = Rs. 1,20,000 3,81,000 99,000 4,80,000 Less:Cost from Process I 1,20,000 1.075 = Rs. 1,29,000 Processing cost in Process II 1,92,000 ,29,000
Cost from process I relating to 40,000 kg. A (40,000 1.075) 43,000 Benefit foregone if 40,000 kg. A are further processed
40,000 (1.60 1.075) Total cost
21,000 1,28,000
Additional quantity of product AX (40,000 2) 80,000 Minimum selling price Question 32 Following details are related to the work done in Process A of XYZ Company during the month of March, 2007: Opening work-in-progress (2,000 units) Materials Labour Overheads Materials introduced in Process A (38,000 units) Direct labour Overheads Units scrapped: 3,000 units Degree of completion: Materials Labour and overheads Closing work-in-progress : 2,000 units Degree of Completion: Materials Labour and overheads Units finished and transferred to Process B : 35,000 Normal Loss: 5% of total input including opening work-inprogress 100% 80% 100% 80% Rs. 80,000 15,000 45,000 14,80,000 3,59,000 10,77,000
1,28,000 = 80,000
Rs. 1.60
Scrapped units fetch Rs. 20 per piece. You are required to prepare: (i) Statement of equivalent production; (ii) Statement of cost; (iii) Statement of distribution cost; and (iv) Process A Account, Normal and Abnormal Loss Accounts. (May 2007, 10 Marks)
Answer (i)
Input Units
Statement of Equivalent Production

Output Units Equivalent production Material Labour & Overheads % Units % Units 100 35,0 100 35,000 00
Opening WIP
2,00 0
Units introduced
38,0 00
_____ 40,0 00
Completed and transfer to Process B Normal loss (5% of 40,000) Abnormal loss Closing WIP
35,0 00
2,00 0 1,00 0 2,0 00 40,0 00 100 100
1,00 0 2,0 00 38,0 00 80 80
800 1,600 37,400
(ii) Details
Statement of Cost Cost at the beginnin g of process Rs. 80,000 Cost added Total cost Equi vale nt Units Rs. Cos t per unit Rs.
Material Less: Value of normal loss Labour Overheads
Rs. 14,80,0 00
15,000 45,000
3,59,00 0 10,77,0 00
Rs. 15,60,000 (20 2,000 = 40,000) 15,20,000 3,74,000 11,22,000
38,0 00 37,4 00 37,4 00
40 10 30 80
(iii)
Statement of distribution of cost:
(a) Completed and transferred to process B = 35,000 units @Rs. 80 = Rs. 28,00,000. (b) Abnormal loss : 1,000 units: Materials 1,000 units @ 40 = Rs. 40,000
Labour and Overheads 800 units @ 40 32,000 Rs. 72,000 (c) Closing WIP : 2,000 units Materials 2,000 units @ 40 Labour and Overheads 1,600 units @ 40 (iv)
Dr. Particulars T o Opening WIP Material introduced Direct labour Overheads 3,59,0 00 10,77, 000 _____ _ 40,0 00 _______ _ 30,56, 000 B y Closing WIP Units 2,00 0 38,0 00 Amoun t 1,40,0 00* 14,80, 000 B y B y B y Cr. Particulars Normal Loss Abnormal loss Process B A/c transfer to next process
Rs.
= Rs. 80,000 = Rs. 64,000 Rs. 1,44,000
Process A Account
Units 2,00 0 1,00 0 35,0 00
Amoun t 40,000 72,000 28,00, 000
2,0 00 40,0 00
1,44, 000 30,56, 000
*Materials + Labour + Overheads = Rs. (80,000 + 15,000 + 45,000) = Rs.1,40,000. Normal Loss Account
Dr. T o Process A A/c 2,00 0 2,00 0 Dr. Cr. 40,00 0 40,00 0 By Cr. By Cost Ledger Control A/c 2,00 0 2,00 0 40,0 00 40,0 00
Abnormal Loss Account
10.88 Cost Accounting T o Process A A/c 1,00 0 ____ _ 1,00 0 72,00 0 ______ 72,00 0 B y B y By Cost Ledger Control A/c Costing Profit and Loss A/c 1,0 00 ____ 1,0 00 20,0 00 52,0 00 72,0 00
Question 33 RST Limited processes product Z through two distinct process Process I and Process II. On completion, it is transferred to finished stock. From the following information for the year 2006-07, prepare Process I, Process II and Finished Stock A/c:
Particulars Raw materials used Raw materials cost per unit Transfer to next process/finished stock Normal loss (on inputs) Direct wages Direct expenses 5% Rs. 1,35,750 60% of direct wages Manufacturing overheads 20% of direct wages Realisable value of scrap per unit Rs. 12.50 10% Rs. 1,29,250 65% of direct wages 15% of direct wages Rs. 37.50 Process I 7,500 units Rs. 60 7,050 units Process II

6,525 units
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-progress. (No vember 2007, 10 Marks) Answer
Process I Account
Qty. Amoun Rate t To Raw material 7,500 60 4,50,00 By Normal 0 Loss (5%
Qty. Rate 375 12.50
Amoun t 4,688
7,500) To Direct wages To Direct expenses 60% of direct wages To Manufactu ring Overheads (20% of direct wages) _____ 7,50 0 27,15 0 6,94,35 0 ____ _ 7,5 00 _______ 6,94,35 0 1,35,75 By Abnormal 0 Loss 81,450 By Process II Account 75 96.79 7,260
7,0 96.79 6,82,40 50 2
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. Cost unit per = 6,94,350 4,688 = Rs.96.7947.(96.80 approx.) 7,125
Process II Account
Qty. T o T o T o Process I 7,05 0
Rate 96.79
Amount 6,82,40 B 2 y 1,29,25 B 0 y 84,013 Normal Loss (10%) Finished Stock A/c
Qty. 705
Rate 37.50
Amount 26,438
Direct wages Direct expenses 65% of direct wages
6,5 25
140.0 5
9,13,82 3
T o
Manufacturin g Overheads (15% of direct wages)
19,38 7 9,15, 052
T o
Abnormal gain 180 7,230
140.0 5
25,2 09 9,40,2 61
____ 7,2 30
_______ 9,40,26 1
Planned output of Process II = 7,050 705 = 6,345 units Cost unit per = 9,15,052 26,438 = Rs. 140.05. 6,345 = Actual output Planned output = 6,525 6,345 = 180 units.
Finished Stock Account
Abnormal gain
Qty. To To Process II Profit and Loss Account 6,525
Rate
Amount
Qty. Rate
Amount
6,525 140.0 9,13,823 By Sales 5 A/c By Balanc e c/d 1,26,04 4 10,39,86 7
6,0 161.0 9,66,341 00 6 140.0 5 5 25 6,5 25 73,526
10,39,86 7
Question 34 A product passes through three processes X, Y and Z. The output of process X and Y is transferred to next process at cost plus 20 per cent each on transfer price and the output of process Z is transferred to finished stock at a profit of 25 per cent on transfer price. The following informations are available in respect of the year ending 31st March, 2008: Process X Rs. Opening stock Material 15,000 80,000 Proce ss Y Rs. 27,00 0 65,00 Process Z Rs. 40,000 50,000 Finished Stock Rs. 45,000
0 Wages Manufacturing Overheads Closing stock Inter process included in Opening stock Stock in processes is valued at prime cost. The finished stock is valued at the price at which it is received from process Z. Sales of the finished stock during the period was Rs. 14,00,000. You are required to prepare: (i) (ii) (iii) Process accounts and finished stock account showing profit element at each stage. Profit and Loss account. Show the relevant items in the Balance Sheet. (No vember 2008, 12 Marks) Answer (i) Dr. Process X Account profit NIL 4,000 10,000 20,000 1,25,000 96,000 20,000 1,08,0 00 72,00 0 32,00 0 92,000 66,500 39,000 50,000
Cr.
Particulars Cost Rs. To Opening Stock 15,000 Profit Rs. Total Rs. 15,000 By Process Y A/c (Transfer) To To Material Wages 80,000 1,25,00 0 80,000 1,25,00 0 Particulars Cost Rs. 2,96,0 00 Profit Rs. 74,00 0 Total Rs. 3,70,0 00
Total
2,20,00 0
2,20,00 0
Less: Closing stock
20,00 0
20,00 0 2,00,00 0
Prime Cost
2,00,00 0
To
Manufacturing Overheads 96,00 0 96,00 0 2,96,00 0
Total cost
2,96,00 0
To
Profit and Loss A/c (20% on transfer Price Or 25% on cost) _______ 74,00 0 2,96,00 0 74,00 0 74,0 00 3,70,00 0 ______ _ 2,96,0 00 74,00 0 ______ ______ _ 3,70,0 00
Process Y Account Dr. Cr.

Particulars Cost Rs. To Opening Stock 23,00 0 Profit Rs. 4,000 Total Rs. 27,000 By Process A/c (Transfer) To Process A/c To Material X 2,96,0 00 65,00 0 To Wages 1,08,0 00 Total 4,92,0 00 Less: stock Closing 27,6 21 78,00 5,70,000 0 4,37 9 32,00 0 1,08,000 74,00 3,70,000 0 65,000 Z Particulars Cost Rs. 5,36,3 79 Profit Rs. 2,26,1 21 Total Rs. 7,62,5 00
Prime Cost
4,64,3 79
73,62 5,38,000 1
To
Manufacturin g Overheads 72,0 00 5,36,3 79 73,6 21 1,52,5 1,52,500 00 72,00 0 6,10,000
Total cost
To
Profit Loss A/c
and
(20% on transfer Price or 25% on ______ _ 5,36,3 79 ______ _ 2,26,1 7,62,500 21 _______ ______ _ 5,36,3 79 2,26,1 21 ______ ______ _ 7,62,5 00
cost)
Process Z Account Dr.

Particulars Cost Rs. To Opening Stock 30,000 Profit Rs. 10,000 Total Rs. 40,000 By Finished Stock A/c (Transfer) To Process A/c To To Total Material Wages 50,000 92,000 Y 5,36,379 2,26,12 7,62,500 1 50,000 92,000 Particulars Cost Rs. 7,45,6 29 Profit Rs.
Cr.
Total Rs.
5,50,3 12,96,00 71 0
7,08,379 2,36,12 9,44,500 1
Less: stock
Closing
29,250
9,75 0
39,000
Prime Cost
6,79,129 2,26,37 9,05,500 1
To
Manufacturi ng Overheads 66,500 66,500
Total cost
7,45,629 2,26,37 9,72,000 1
To
Profit Loss A/c
and
3,24,00 3,24,000 0
(25% on transfer Price or 33 1/3% on cost) ______ _______ _______ _______ _______ 7,45,6 29 _______
7,45,62 5,50,37 12,96,00 9 1 0
5,50,3 12,96,00 71 0
Finished Stock Account Dr.

Particulars Cost Rs. To Opening Stock Profit Rs. Total Rs. 45,000 By Finished Stock (Transfer) To Process A/c Total Z 7,45,6 29 7,70,6 29 Less: stock To Profit Loss A/c and Closing 28,7 67 7,41,8 62 _______ 5,50,3 12,96,00 71 0 A/c Particulars Cost Rs. 7,41,8 62 Profit Rs.
Cr.
Total Rs.
25,000 20,000
6,58,1 14,00,00 38 0
5,70,3 13,41,00 71 21,2 33 5,49,1 38 1,09,0 00 0 50,00 0 12,91,0 00 1,09,00 0 7,41,8 62 6,58,1 14,00,00 38 0 _______ _______ ________
7,41,8 62
6,58,1 14,00,00 38 0
(ii) Dr.
Profit and Loss Account for the year ending 31st March, 2008
Cr.
Process & Operation Costing 10.95 Particulars Amou nt Rs. T o By 35,36 2 6,58,1 38 By By By ______ _ 6,93,5 00 By Particulars Amount Rs. Provision for unrealized profit on opening stock (Rs. 4,000 + 10,000 + 20,000) Process X A/c Process Y A/c Process Z A/c Finished Stock A/c 74,000 1,52,50 0 3,24,00 0 1,09,00 0 6,93,50 0
Provision for unrealized profit on closing stock

(Rs. 4,379 + 9,750 + 21,233)
34,000
T o
Net Profit
Workings: Calculation of amount of unrealized profit on closing stock: Process X = Nil Process = 'Y' Rs.78,000 Rs.32,000Rs.4,379. = Rs.5,70,000 Rs.2,36,121 Rs.39,000Rs.9,750. = Rs.9,44,500 Rs.5,50,371 Rs.50,000Rs.21,233. = Rs. 12,96,000 Balance Amou nt Rs. Net profit 6,58,1 Closing stock 38 Sheet Assets as on 31st March, Amount Rs. 2008
Process = 'Z'
Finished = stock (iii) (Extract) Liabilities
Amount Rs.
Process X Process Y Process Z Finished stock Less: Provision for unrealized profit
20,000 32,000 39,000 50,000 1,41,000 35,362 1,05,638

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