# Problem

M/s Glenwell Extruders is involved in manufacturing a product, which involves three sequential processes, A, B and C. The following information has been extracted from their cost records relating to an accounting period.
Particulars A B C

Materials Introduced
Manufacturing Wages
Other Direct Expenses
Marketable price of wastage/unit

Output
Normal Wastage
Opening Materials Stock
Closing Materials Stock

48,000
24,000
13,600
15,200

Units
8,000
400

34,000
16,128
15,000
2

Units

284
580
640

18,000
13,452
9,500
5

Units
7,000
356
738
834

You are required to ascertain the output cost and the unit cost at the various stages of manufacture of the product. All other relevant values are to be found out as required.

It is known that, the operations in each process are complete on a daily basis i.e. that there would be no work-in-progress at the end of a day.

# General Working Notes - Assumptions

## Raw Material Stocks

The operations of each process are completed on a daily basis
⇒ There would be no work in progress at the end of any day.
⇒ Whatever remains at the end should be either raw materials or finished stock.

The information relating to stocks indicates that

• The stocks are raw material stocks and
• There is no stock of finished goods (either opening or closing).

## Opening Stock

Opening stock of raw material is stock pertaining to (closing stock of) the previous period.

Since the rate for valuation of opening stock is not given,
We assume that the opening stock is also valued at the current period rates.

⇒ The current period rates and the pervious period rates are the same.

## Closing Stock

Rate for valuation of opening stock = Current Period Rates (rate applicable to goods received during the current period)

When the rates applicable to the opening stock and the current period stock is the same, the average rate would also the be same rate.

Whatever may be the method adopted for valuation i.e. FIFO (current period rate), LIFO (previous period rate) or AVERAGE, the rate of valuation of Closing stock would be the same,

# Solution - Process A a/c

Process A a/c
Dr Cr
Particulars Quantity
(in Units)
Amount Particulars Quantity
(in Units)
Amount
To Materials Introduced
To Manufacturing Wages
To Other Direct Expenses
8,400 48,000
24,000
13,600
15,200
By Normal Loss a/c
By Process B a/c
400
8,000

1,08,800
8,400 1,00,800   8,400 1,00,800

## Working Notes

Input
Particulars Quantity Rate Value
Current Period input 8,400 5.7143 48,000
Input Processed (IP) 8,400 48,000
• In the absence of other losses,

Normal Output = Actual Output

NO = 8,000 units

Normal Output = Input Processed − Normal Loss Units

 IP = NO + NLU = 8,000 units + 400 units = 8,400 units
 Current period input = Input Processed = 8,400 units
Processing
Particulars Quantity Cost Cost/Unit
Input Processed (IP)
+ Other Costs
Manufacturing Wages
Other Direct Expenses
8,400 48,000

24,000
13,600
15,200
Total (IP | TC)
− Normal Loss
8,400
400
1,00,800
0

0
Normal (NO | NC | NCNO/U)
− Actual Output
8,000
8,000
1,00,800
1,00,800
12.60
Abnormal Loss(+)/Gain(−)
• Normal Cost of Normal Output per unit  NCNO/U = $\frac{\mathrm{NC}}{\mathrm{NO}}$
• Actual output (8,000 × 12.60) is valued at NCNO/U

## Detailed Working

• Primary Material is the material introduced into the process.
• ## Normal Loss Units

NLU = 400 units (given)

• ## Normal Output Units

 NOU = IP − NLU = 8,400 units − 400 units = 8,000 units
• # Actual Output Units

The Output that is actually obtained in the process.

AOU = 8,000 units (given)

• # Abnormal Loss or Gain

Since AOU = NOU, there is neither abnormal loss nor abnormal gain

• ## Total Cost

 TC = 48,000 + 24,000 + 13,600 + 15,200 = 1,00,800
• ## Normal Loss Realisation Rate per unit

NLRR/U = 0/unit

• ## Normal Loss Realisation

 NLR = NLU × NLRR/U = 400 × 0 = 0
• ## Normal Cost

 NC = TC × NLR = 1,00,800 − 0 = 1,00,800
• ## Normal Cost of Normal Output per unit

 NCNO/U = $\frac{\mathrm{NC}}{\mathrm{NO}}$ = $\frac{\mathrm{1,00,800}}{\mathrm{8,000}}$ = 12.60/unit
• ## Value of Actual Output

 VAO = AO × NCNO/Unit = 8,000 units × 12.60/unit = 1,00,800

# Solution - Process B a/c

Process B a/c
Dr Cr
Particulars Quantity
(in Units)
Amount Particulars Quantity
(in Units)
Amount
To Balance b/d
To Process A a/c
To Manufacturing Wages
To Other Direct Expenses
580
8,000
7,308
1,00,800
34,000
16,128
15,000
By Normal Loss
By Process C a/c
By Balance c/d
284
7,656
640
568
1,64,604
8,064
8,580 1,73,236   8,580 1,73,236

## Notes/Assumptions

• Material stocks are recorded through the Process a/c itself without using a separate account for materials.

## Working Notes

Input
Particulars Quantity Rate Value
Opening Stock
Current Period input
580
8,000
12.60
12.60
7,308
1,00,800
Total Input
− Closing Stock
8,580
640
12.60
12.60
1,08,108
8,064
Input Processed (IP) 7,940 12.60 1,00,044
Closing Stock Valuation Rates
FIFO method
LIFO method
Average method

12.60
12.60
12.60
• In the absence of information relating to its value, the opening stock of material is valued at the same rate (12.60) as in the current period.
• The rates for valuation of closing stock under FIFO, LIFO and Average methods being the same, the rate would be the same irrespective of the method of valuation chosen.
Processing
Particulars Quantity Cost Cost/Unit
Input Processed (IP)
+ Other Costs
Manufacturing Wages
Other Direct Expenses
7,940 1,00,044

34,000
16,128
15,000
Total (IP | TC)
− Normal Loss
7,940
284
1,65,172
568

2.00
Normal (NO | NC | NCNO/U)
− Actual Output
7,656
7,656
1,64,604
1,64,604
21.50
Abnormal Loss(+)/Gain(−)
• In the absence of information relating to outputs, we assume that the actual output is equal to normal output
• Normal Cost of Normal Output per unit  NCNO/U = $\frac{\mathrm{NC}}{\mathrm{NO}}$
• Actual output (7,656 × 21.50) is valued at NCNO/U

## Detailed Working

• Primary Material is the output of Process A introduced into the process.
• ## Normal Loss Units

NLU = 284 units (given)

• ## Normal Output Units

 NOU = IP − NLU = 7,940 units − 284 units = 7,656 units
• # Actual Output Units

The Output that is actually obtained in the process.

AOU = 7,656 units (given)

• # Abnormal Loss or Gain

Since AOU = NOU, there is neither abnormal loss nor abnormal gain

• ## Total Cost

 TC = 1,00,044 + 34,000 + 16,128 + 15,000 = 1,65,172
• ## Normal Loss Realisation Rate per unit

NLRR/U = 2/unit

• ## Normal Loss Realisation

 NLR = NLU × NLRR/U = 284 × 2/unit = 568
• ## Normal Cost

 NC = TC × NLR = 1,65,172 − 568 = 1,64,604
• ## Normal Cost of Normal Output per unit

 NCNO/U = $\frac{\mathrm{NC}}{\mathrm{NO}}$ = $\frac{\mathrm{1,64,604}}{\mathrm{7,656}}$ = 21.50/unit
• ## Value of Actual Output

 VAO = AO × NCNO/Unit = 7,656 units × 21.50/unit = 1,64,604

# Solution - Process C a/c

Process C a/c
Dr Cr
Particulars Quantity
(in Units)
Amount Particulars Quantity
(in Units)
Amount
To Balance b/d
To Process B a/c
To Manufacturing Wages
To Other Direct Expenses
738
7,656
15,867
1,64,604
18,000
13,452
9,500
By Normal Loss
By Abnormal Loss
By Finished Stock
By Balance c/d
356
204
7,000
834
1,780
5,712
1,96,000
17,931
8,394 2,21,513   8,394 2,21,513

## Notes/Assumptions

• Material stocks are recorded through the Process a/c itself without using a separate account for materials.

## Working Notes

Input
Particulars Quantity Rate Value
Opening Stock
Current Period input
738
7,656
21.50
21.50
15,867
1,64,604
Total Input
− Closing Stock
8,394
834
21.50
21.50
1,80,471
17,931
Input Processed (IP) 7,560 21.50 1,62,540
Closing Stock Valuation Rates
FIFO method
LIFO method
Average method

21.50
21.50
21.50
• In the absence of information relating to its value, the opening stock of material is valued at the same rate (21.50) as in the current period.
• The rates for valuation of closing stock under FIFO, LIFO and Average methods being the same, the rate would be the same irrespective of the method of valuation chosen.
Processing
Particulars Quantity Cost Cost/Unit
Input Processed (IP)
+ Other Costs
Manufacturing Wages
Other Direct Expenses
7,560 1,62,540

18,000
13,452
9,500
Total (IP | TC)
− Normal Loss
7,560
356
2,03,492
1,780

5.00
Normal (NO | NC | NCNO/U)
− Actual Output
7,204
7,000
2,01,712
1,96,000
28
Abnormal Loss(+)/Gain(−) +204 +5,712
• In the absence of information relating to outputs, we assume that the actual output is equal to normal output
• Normal Cost of Normal Output per unit  NCNO/U = $\frac{\mathrm{NC}}{\mathrm{NO}}$
• Actual output (7,656 × 28) and Abnormal Loss (204 × 28) are valued at NCNO/U

## Detailed Working

• Primary Material is the output of Process B introduced into the process.
• ## Normal Loss Units

NLU = 356 units (given)

• ## Normal Output Units

 NOU = IP − NLU = 7,560 units − 356 units = 7,204 units
• # Actual Output Units

The Output that is actually obtained in the process.

AOU = 7,000 units (given)

• # Abnormal Loss or Gain

Since NOU > AOU, there is abnormal loss
• # Abnormal Loss Units

 ALU = NOU − AOU = 7,204 units − 7,000 units = 204 units

• ## Total Cost

 TC = 1,62,540 + 18,000 + 13,452 + 9,500 = 2,03,492
• ## Normal Loss Realisation Rate per unit

NLRR/U = 5/unit

• ## Normal Loss Realisation

 NLR = NLU × NLRR/U = 356 × 5/unit = 1,780
• ## Normal Cost

 NC = TC × NLR = 2,03,492 − 1,780 = 2,01,712
• ## Normal Cost of Normal Output per unit

 NCNO/U = $\frac{\mathrm{NC}}{\mathrm{NO}}$ = $\frac{\mathrm{2,01,712}}{\mathrm{7,204}}$ = 28/unit
• ## Value of Actual Output

 VAO = AO × NCNO/Unit = 7,000 units × 28/unit = 1,96,000
• ## Value of Abnormal Loss

 VAL = ALU × NCNO/Unit = 204 units × 28/unit = 5,712