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
Factory Overheads
Marketable price of wastage/unit
Output
Normal Wastage
Opening Materials Stock
Closing Materials Stock
|
Rs.
48,000
24,000
13,600
15,200
–
Units
8,000
400
–
–
|
Rs.
–
34,000
16,128
15,000
2
Units
–
284
580
640
|
Rs.
–
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.
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General Working Notes » Assumptions
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• 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,
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| Particulars |
Quantity
(in Units) |
Amount
(in Rs) |
Particulars |
Quantity
(in Units) |
Amount
(in Rs) |
To Materials Introduced #
To Manufacturing Wages
To Other Direct Expenses
To Factory Overheads
|
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 |
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8,400 |
1,00,800 |
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Working Notes » Hide/Show
• Actual Output [AO]
AO = 8,000 units [Given]
• Normal Loss [NL]
• Normal Output [NO]
In the absence of information relating to inputs, we assume that the actual output itself is the normal output
• Gross/Total Input [GI/TI]
| NO |
= |
GI/TI − NL |
| ⇒ GI/TI |
= |
NO + NL |
|
= |
8,000 units + 400 units
|
|
= |
8,400 units |
• Abnormal Loss/Gain [AL/AG]
Since AO = NO, there is neither abnormal loss nor abnormal gain.
• Total Cost [TC]
| TC | = | Rs. 48,000 + Rs. 24,000 + Rs. 13,600 + Rs. 15,200 |
| = | Rs. 1,00,800 |
• Normal Loss Realisation [NLR]
| NLR | = | NL in units × Scrap Rate/unit |
| = | 400 units × Rs. 0/unit |
| = | 0 |
Normal loss is valued at market price, which is given to be nil.
• Normal Cost [NC]
| NC | = | TC − NLR |
| = | Rs. 1,00,800 − Rs. 0 |
| = | Rs. 1,00,800 |
• Normal Cost of Normal Output per unit [NCNO/U]
| NCNO/Unit |
= |
|
|
= |
|
| = | Rs. 12.60/unit |
Valuation »
Normal loss is valued at market price and all others are valued at the "Normal Cost of Normal Output per unit".
• Actual Output [VAO]
| VAO | = | AO × NCNO/Unit |
| = | 8,000 units × Rs. 12.60/unit |
| = | Rs. 1,00,800 |
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Notes/Assumptions
- Material stocks are recorded through the "Process a/c" itself without using a separate account for materials.
- # Quantities relating to these are derived through calculations.
- * Values relating to these are derived through calculations.
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| Particulars |
Quantity
(in Units) |
Amount
(in Rs) |
Particulars |
Quantity
(in Units) |
Amount
(in Rs) |
To Opening Mat. Stock *
To Process A a/c
To Manufacturing Wages
To Other Direct Expenses
To Factory Overheads
|
580
8,000 |
7,308
1,00,800
34,000
16,128
15,000 |
By Normal Loss a/c *
By Process C a/c **
By Closing Mat. Stock *
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284
7,656
640 |
568
1,64,604
8,064 |
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8,580 |
1,73,236 |
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8,580 |
1,73,236 |
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Working Notes » Hide/Show
• Opening Stock of Raw Material [OS(RM)]
| OS(RM) | = |
580 units [given] |
• Inputs Introduced [II]
| II | = |
Pertaining to Stock received from Process A |
| = | 8,000 units |
• Gross/Total Input [GI/TI]
| GI/TI |
= |
OS + II |
|
= |
580 units + 8,000 units
|
|
= |
8,580 units |
• Closing Stock of Raw Material [CS(RM)]
| CS(RM) | = | 640 units [Given] |
• Input Processed [IP]
| IP | = | GI − CS(RM) |
| = | 8,580 units − 640 units |
| = | 7,940 units |
• Normal Loss [NL]
• Normal Output [NO]
| NO | = | IP − NL |
| = | (7,940 units − 284 units) |
| = | 7,656 units |
• Actual Output [AO]
In the absence of information relating to outputs, we assume that the actual output is equal to normal output
• Abnormal Loss/Gain [AL/AG]
Since AO = NO, there is neither abnormal loss nor abnormal gain.
• Value of Opening Stock [VOS]
| VOS | = | OS × Rate/unit |
| = | 580 × Rs. 12.60/unit |
| = | Rs. 7,308 |
Material used in this process is Output of "Process A".
Thus, the cost of materials (current period) is nothing but the cost of output of "Process A" during the current period which is Rs. 12.60/unit.
• Current Period Costs [CPC]
| CPC | = | Rs. (1,00,800 + 34,000 + 16,128 + 15,000) |
| = | Rs. 1,65,928 |
These are costs debited to the process account excluding the opening stocks values.
• Total Cost [TC]
| TC | = | VOS + CPC |
| = | Rs. 7,308 + Rs. 1,65,928 |
| = | Rs. 1,73,236 |
Total cost includes the value of opening stocks and the costs incurred in the current period.
• Normal Loss Realisation [NLR]
| NLR | = | NL in units × Scrap Rate/unit |
| = | 284 units × Rs. 2/unit |
| = | Rs. 568 |
• Value of Closing Stock [VCS]
| VCS | = | Closing Stock in units × Rate/unit |
| = | 640 units × Rs. 12.60/unit |
| = | Rs. 8,064 |
Rates for Valuation of Closing Stock
| Particulars |
Quantity |
Amount |
Rate |
Opening Stock (?)
Received during the current period
|
580
8,000 |
7,308
1,00,800 |
12.60
12.60 |
|
Total Stock
|
8,580 |
1,08,108 |
12.60 |
Rate for Valuing Stocks::
FIFO method
LIFO method
Average method
|
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12.60
12.60
12.60 |
• Normal Cost [NC]
| NC | = | (TC − VCS) − NLR |
| = | (Rs. 1,73,236 − 8,064) − Rs. 568 |
| = | Rs. 1,65,172 − Rs. 568 |
| = | Rs. 1,64,604 |
• Normal Cost of Normal Output per unit [NCNO/U]
| NCNO/Unit |
= |
|
|
= |
|
| = | Rs. 21.50/unit |
Valuation »
Normal loss is valued at market price and all others are valued at the "Normal Cost of Normal Output per unit".
• Actual Output [VAO]
| VAO | = | AO × NCNO/Unit |
| = | 7,656 units × Rs. 21.50/unit |
| = | Rs. 1,64,604 |
• Normal Loss [VNL]
Ascertain all the values used on the credit side of the process account through the Working Notes.
It would not be good practice to ascertained them as balancing figures.
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Notes/Assumptions
- Material stocks are recorded through the "Process a/c" itself without using a separate account for materials.
- * Values relating to these are derived through calculations.
- ** Both Quantities and Values relating to these are derived through calculations.
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process,cost,accounting,tutorials,study-notes,process accounting,process cost accounting,process costing system,work in process accounting,a process costing system,using process costing,use process costing,cost accounting,process manufacturing,process cost,costing methods,costing systems,costing techniques,process planning,product process,costing system,costing method,process industry,production process,process account
| Particulars |
Quantity
(in Units) |
Amount
(in Rs) |
Particulars |
Quantity
(in Units) |
Amount
(in Rs) |
To Opening Mat. Stock *
To Process A a/c
To Manufacturing Wages
To Other Direct Expenses
To Factory Overheads
|
738
7,656 |
15,867
1,64,604
18,000
13,452
9,500 |
By Normal Loss a/c *
By Abnormal Loss a/c **
By Finished Stock a/c *
By Closing Mat. Stock *
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356
204
7,000
834 |
1,780
5,712
1,96,000
17,931 |
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8,394 |
2,21,513 |
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8,394 |
2,21,513 |
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Working Notes » Hide/Show
• Opening Stock of Raw Materials [OS(RM)]
• Inputs Introduced [II]
| II | = |
Pertaining to Stock received from Process B |
| = | 7,656 units |
• Gross/Total Input [GI/TI]
| GI/TI |
= |
OS + II |
|
= |
738 units + 7,656 units
|
|
= |
8,394 units |
• Closing Stock of Raw Materials [CS(RM)]
| CS(RM) | = | 834 units [Given] |
• Input Processed [IP]
| IP | = | GI − CS(RM) |
| = | 8,394 units − 834 units |
| = | 7,560 units |
• Normal Loss [NL]
• Normal Output [NO]
| NO | = | IP − NL |
| = | 7,560 units − 356 units |
| = | 7,204 units |
• Actual Output [AO]
AO = 7,000 units [Given]
• Abnormal Loss/Gain [AL/AG]
Since AO < NO, there is abnormal loss.
• Abnormal Loss [AL]
| AL | = | NO − AO |
| = | 7,204 units − 7,000 units |
| = | 204 units |
• Value of Opening Stock [VOS]
| VOS | = | OS × Rate/unit |
| = | 738 × Rs. 21.50/unit |
| = | Rs. 15,867 |
Material used in this process is Output of "Process B".
Thus, the cost of materials (current period) is nothing but the cost of output of "Process B" during the current period which is Rs. 21.50/unit.
• Current Period Costs [CPC]
| CPC | = | Rs. (1,64,604 + 18,000 + 13,452 + 9,500) |
| = | Rs. 2,05,556 |
These are costs debited to the process account excluding the opening stocks values.
• Total Cost [TC]
| TC | = | VOS + CPC |
| = | Rs. 15,867 + Rs. 2,05,556 |
| = | Rs. 2,21,423 |
Total cost includes the value of opening stocks and the costs incurred in the current period.
• Normal Loss Realisation [NLR]
| NLR | = | NL in units × Scrap Rate/unit |
| = | 356 units × Rs. 5/unit |
| = | Rs. 1,780 |
• Value of Closing Stock [VCS]
| VCS | = | Closing Stock in units × Rate/unit |
| = | 834 units × Rs. 21.50/unit |
| = | Rs. 17,931 |
Rates for Valuation of Closing Stock
| Particulars |
Quantity |
Amount |
Rate |
Opening Stock
Received during the current period
|
738
7,656 |
15,867
1,64,604 |
21.50
21.50 |
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Total Stock
|
8,394 |
1,80,471 |
21.50 |
Rate for Valuing Closing Stock::
FIFO method
LIFO method
Average method
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21.50
21.50
21.50 |
• Normal Cost [NC]
| NC | = | (TC − VCS) − NLR |
| = | (Rs. 2,21,423 − 17,931) − Rs. 1,780 |
| = | Rs. 2,03,492 − Rs. 1,780 |
| = | Rs. 2,01,712 |
• Normal Cost of Normal Output per unit [NCNO/U]
| NCNO/Unit |
= |
|
|
= |
|
| = | Rs. 28/unit |
Valuation »
Normal loss is valued at market price and all others are valued at the "Normal Cost of Normal Output per unit".
• Actual Output [VAO]
| VAO | = | AO × NCNO/Unit |
| = | 7,000 units × Rs. 28/unit |
| = | Rs. 1,96,000 |
• Abnormal Loss [VAL]
| VAG | = | AL × NCNO/Unit |
| = | 204 units × Rs. 28/unit |
| = | Rs. 5,712 |
• Normal Loss [VNL]
Ascertain all the values used on the credit side of the process account through the Working Notes.
It would not be good practice to ascertained them as balancing figures.
|
Notes/Assumptions
- Material stocks are recorded through the "Process a/c" itself without using a separate account for materials.
- * Values relating to these are derived through calculations.
- ** Both Quantities and Values relating to these are derived through calculations.
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