Management

accounting
assignment

Submitted By:
Akshay Minocha
PGP/09/006
Section A
Problem Description:
A company within the food industry mixes produced ingredients in two different
processes to produce one product. The output of Process-1 becomes the input of
Process-2 and the output of Process-2 is transferred to 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 transactions for the week
ended 11th May, 2003.

Process-1
Input: Material A – 6,000 kg @ 50 paise/kg
Material B – 4,000 kg @ Re. 1/kg
Mixing Labour – 430 hours @ Rs. 2/hr
Normal loss – 5% of weight input, disposed @ 16 paise/kg
Output: 9,200 kg
No work in progress at the beginning or at the end of the week

Process-2
Input: Material C – 6,600 kg @ Rs. 1.25/kg
Material D – 4,200 kg @ 75 paise/kg
Flavouring Essence – Rs. 330
Mixing Labour – 370 hours @ Rs. 2/hr
Normal waste – 5% of weight input, with no disposable value
Output: 18,000 kg
No work in progress at the beginning of the week, but 1,000 kg 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 should be absorbed on the basis
of mixing labour hours.

Solution:
For Process-1,
Total Material Input = Material A + Material B
= 6,000 + 4,000 = 10,000 kg
Normal Loss = 5% of weight input = 5% of 10,000 kg = 500 kg
Expected output = Total Material Input – Abnormal Loss
= 10,000 – 500 = 9,500 kg
Actual Output = 9,200 kg
Abnormal Loss = Expected Output – Actual Output
= 9,500 – 9,200 = 300 kg

For Process-2,
Total Material Input = Output of Process-1 + Material C + Material D
= 9,200 + 6,600 + 4,200 = 20,000 kg
Normal Waste = 5% of weight input = 5% of 20,000 kg = 1,000 kg
WIP at end of week = 1,000 kg
Actual Output = 18,000 kg
Process-2 has no abnormal loss/gain, since
Total Material Input = Actual Output + WIP + Normal Waste

Overhead needs to be allocated in proportion to mixing labour hours.

Total mixing labour hours = 430 + 370 = 800 hours
Overhead allocated to Process-1 = 3200 x 430/800 = Rs. 1,720
Overhead allocated to Process-2 = 3200 x 370/800 = Rs. 1,480

Normal Cost/kg = (Total Cost – Value of Normal Loss)/Normal Production

Process-1: Statement of cost

Element of Cost Weight/Time Rate Cost
Material A 6,000 kg Re. 0.50/kg Rs. 3,000
Material B 4,000 kg Re. 1/kg Rs. 4,000
Mixing Labour 430 hours Rs. 2/hr Rs. 860
Overhead Rs. 1,720
Total Rs. 9,580

Value of Normal Loss for Process-1 = 500 x 0.16 = Rs. 80

Normal Production = 9,500 kg
Normal Cost/kg for Process-1 = (9580 – 80)/9500 = Re. 1/kg

Process-2: Statement of Equivalent Production

Input Particulars Output Equivalent Production
Weight Weight Materials Labour Overhead
(kg) (kg)
% Weight % Weight % Weight
9,200 Input from Process-1 - - - - - -
Normal Waste 1,000 - - - - - -
Quantity completed 18,000 100 18,000 100 18,000 100 18,000
Closing WIP 1,000 100 1,000 50 500 50 500
Total 20,000 19,000 18,500 18,500

Process-2: Statement of Cost

Element of Cost Weight/Time Rate Cost Equivalent Rate/kg
(Rs.) Weight (kg) (Rs.)
Material Input from Process-1 9,200 kg Re. 1/kg 9,200 - -
Material C 6,600 kg Rs. 1.25/kg 8,250 - -
Material D 4,200 kg Re. 0.75/kg 3,150 - -
Flavouring Essence - - 330 - -
Total Materials - - 20,930 19,000 1.10
Mixing Labour 370 hours Rs. 2/hr 740 18,500 0.04
Overhead - - 1,480 18,500 0.08

Thus, cost per equivalent weight for materials = Rs. 1.10,

labour = Re. 0.04
overhead = Re. 0.08
Therefore, Material Cost of Closing WIP = 1000 x 1.10 = Rs. 1,101
 Labour Cost of Closing WIP = 500 x 0.04 = Rs. 20
Overhead Cost of Closing WIP= 500 x 0.08 = Rs. 40
Total Cost of Closing WIP = Rs. 1,161

Process-1 A/C
Particulars Weight Amount Particulars Weight Amount
(kg) (Rs.) (kg) (Rs.)
To Material A 6,000 3,000 By Process-2 A/C 9,200 9,200
To Material B 4,000 4,000 By Normal Loss 500 80
To Mixing Labour 860 By Abnormal Loss 300 300
To Overhead 1,720
Total 10,000 9,580 10,000 9,580

Process-2 A/C
Particulars Weight Amount Particulars Weight Amount
(kg) (Rs.) (kg) (Rs.)
To Process-1 A/C 9,200 9,200 By Packaging A/C 18,000 21,989
To Material C 6,600 8,250 By Normal Waste 1,000 0
To Material D 4,200 3,150 By Closing WIP 1,000 1,161
To Flavouring 330
Essence
To Mixing Labour 740
To Overhead 1,480
Total 20,000 23,150 20,000 23,150

Normal Loss A/C

Particulars Weight Amount Particulars Weight Amount
(kg) (Rs.) (kg) (Rs.)
To Process-1 A/C 500 80 By Cash 500 80
Total 500 80 500 80

Abnormal Loss A/C

Particulars Weight Amount Particulars Weight Amount
(kg) (Rs.) (kg) (Rs.)
To Process-1 A/C 300 300 By Cash 300 48
By Costing Profit & 252
Loss A/C
Total 300 300 300 300

Packaging A/C
Particulars Weight Amount Particulars Weight Amount
(kg) (Rs.) (kg) (Rs.)
To Process-2 A/C 18,000 21,989 By Cash 18,000 21,989
Total 18,000 21,989 18,000 21,989

Note: Since no details are mentioned for transactions in Packaging Department, it has
been assumed that all the output of Process-2 is sold at no profit/no loss basis.