Working Notes (Direct » Materials, Labour/Labor)

The primary direct material here is the output of Process I which is received as an input. Primary Direct Materials = Value of output received from Process I = Rs. 19,000 (950 units @ Rs. 20 per unit) The secondary direct material Rs. 3,960 is also to be debited to the process account. The direct wages Rs. 6,000 are also to be debited to the process account.

Working Notes (Production Overhead)

Since production overhead is incurred over all the processes together, it is to be apportioned among the process on some rational basis. It is given that Production overheads are absorbed as a % of direct wages. Therefore, Rate of Absorption of Production Overhead = Total Production Overheads Total Direct Wages × 100 = Rs. 18,000 Rs. 18,000 × 100 = 100% ⇒ Production overheads are 100% of Direct Wages. Therefore, Production overheads Chargeable to a process = Direct Wages of the Process × 100% Thus, Production Overheads chargeable to : Process I = Rs. 4,000 × 100% = Rs. 4,000 Process II = Rs. 6,000 × 100% = Rs. 6,000 Process III = Rs. 8,000 × 100% = Rs. 8,000 Note Calculations for apportionment of production overheads are done only once. They are given here just for reference

Ledger Accounts

Dr Process II a/c Cr Particulars Quantity (in Units) Amount (in Rs) Particulars Quantity (in Units) Amount (in Rs) To Process I a/c (Primary) To Material (Secondary) To Direct Labour/Labor To Production Overheads 950 19,000 3,960 6,000 6,000 By Normal Loss a/c By Abnormal Loss a/c By Process III a/c   [Output Transferred] 95 15 840 760 600 33,600   950 34,960   950 34,960             Dr Normal Loss a/c Cr Particulars Quantity (in Units) Amount (in Rs) Particulars Quantity (in Units) Amount (in Rs) To Process I a/c To Process II a/c 50 95 200 760                         Dr Abnormal Loss a/c Cr Particulars Quantity (in Units) Amount (in Rs) Particulars Quantity (in Units) Amount (in Rs) To Process II a/c 15 600                         Note 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. The Normal loss, Abnormal loss and Abnormal Gain accounts are not prepared for each process account separately. They are prepared only once after preparing all the process accounts. They are given here each time to enable understanding.

Working Notes

• Gross Input [GI] GI = 950 units All these are units received from the previous (Process I). Assumption The additional material added would not result in an increase in the units input. [In the absence of any information relating to quantities] • Normal Loss [NL] NL = 10 % of input = 950 units × 10% = 95 units • Normal Output [NO] NO = GI − NL = 950 units − 95 units = 855 units • Actual Output [AO] AO = 840 units [Given] • Abnormal Loss/Gain [AL/AG] Since AO < NO, there is abnormal loss. • Abnormal Loss [AL] AL = NO − AO = 855 units − 840 units = 15 units • Total Cost [TC] TC = Rs. 19,000 + Rs. 3,960 + Rs. 6,000 + Rs. 6,000 = Rs. 34,960 • Normal Loss Realisation [NLR] NLR = NL in units × Scrap Rate/unit = 95 units × Rs. 8/unit = Rs. 760 • Normal Cost [NC] NC = TC − NLR = Rs. 34,960 − Rs. 760 = Rs. 34,200 • Normal Cost Normal Output per unit [NCNO/U] NCNO/Unit = NC NO = Rs. 34,200 855 units = Rs. 40/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 = 840 units × Rs. 40/unit = Rs. 33,600 • Abnormal Loss [VAL] VAL = AL × NCNO/Unit = 15 units × Rs. 40/unit = Rs. 600 • Normal Loss [VNL] VNL = Normal Loss Realisation [NLR] = Rs. 760 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.

Author Credit : The Edifier

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