Working Notes (Direct » Materials, Labour/Labor)

There is a primary direct material introduced in the first process whose value is to be debited to the process account. Primary Direct Materials = 1,000 units @ Rs. 6/unit = Rs. 6,000 The secondary direct material Rs. 5,200 is also to be debited to the process account. The direct wages Rs. 4,000 are also to be debited to the process account.

Working Notes (Apportionment of 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

Ledger Accounts

Dr Process I a/c Cr Particulars Quantity (in Units) Amount (in Rs) Particulars Quantity (in Units) Amount (in Rs) To Material (Primary) To Material (Secondary) To Direct Labour/Labor To Production Overheads 1,000 6,000 5,200 4,000 4,000 By Normal Loss a/c By Process II a/c   [Output Transferred] 50 950 200 19,000   1,000 19,200   1,000 19,200             The values on the credit side of the account should be derived as given below in the working notes and should not be ascertained as balancing figures. 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 50 200                         Note: 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. We give them here each time to enable understanding.

Working Notes

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 • Gross Input [GI] GI = 1,000 units [Given] • Normal Loss [NL] NL = 5 % of input = 1,000 units × 5% = 50 units • Normal Output [NO] NO = GI − NL = 1,000 units − 50 units = 950 units • Actual Output [AO] AO = 950 units [Given] • Abnormal Loss/Gain [AL/AG] Since AO = NO, there is neither abnormal loss nor abnormal gain. • Total Cost [TC] TC = Rs. 6,000 + Rs. 5,200 + Rs. 4,000 + Rs. 4,000 = Rs. 19,200 • Normal Loss Realisation [NLR] NLR = NL in units × Scrap Rate/unit = 50 units × Rs. 4/unit = Rs. 200 • Normal Cost [NC] NC = TC − NLR = Rs. 19,200 − Rs. 200 = Rs. 19,000 • Normal Cost Normal Output per unit [NCNO/U] NCNO/Unit = NC NO = Rs. 19,000 950 units = Rs. 20/unit • Value of Actual Output [VAO] VAO = AO × NCNO/Unit = 950 units × Rs. 20/unit = Rs. 19,000 Normal loss is valued at market price and all others are valued at the "Normal Cost of Normal Output per unit". The value of output transferred to the next process should always be ascertained using this method and not as a balancing figure.

Author Credit : The Edifier

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