Process Accounts - Normal and Abnormal Losses

Problem 1

1,200 kg. of a material was charged to Process I at the rate of 2 per kg. The direct labor accounted for 200 and other departmental expenses amounted to 760. The normal loss is 10 per cent of the input where as the net production was 1,000 kg. If the process scrap is saleable at 1 per kg.

You are required to -

calculate the value of normal loss and abnormal loss
give journal entries to show how the loss arising out of spoiled units should be treated and
prepare a process account

Solution Will update soon

Problem 2

The output from Process X totalled 2,500 units. It was considered that 200 units were an abnormal loss. Normal loss allowed was 10%. The other information is given below:

Materials
Labour
Overheads
Wastage realized

@5 per unit
4,000
3,350
2.50 per unit

You are required to prepare Process Account and Abnormal Loss Account

Solution Will update soon

Problem 3

Department I of Coromandel Chemicals conducts a process which requires mixing of materials and cooking of the mixture in batches of 1,000 lbs each. Cooking results in 10 per cent loss of weight of the mixture. Also, past experience shows that two batches out of every ten started in the process are spoiled.

The production records for May, 20_3 show the following:

Production started in the Process: 50 batches of 1,000 lbs each.
Production completed and transferred to finished goods: 34,200 lbs.
There is no inventory of work-in-progress at the beginning or at the end of the month.

Costs recorded during the month totaled 45,000.

Prepare the account of the Process conducted by Department I.

Solution Will update soon

Problem 4

Process	A	B	C
Output (units) Process loss (units)	14000 1000	13200 800	11700 1500
Input	15000	14000	13200
Normal loss % on input units Costs incurred: Materials Labour Overheads	4% 45000 12500 12500	5% 20000 10000 12500	10% 7000 6750 18750

From the above details, work out the Process a/c, showing clearly the treatment of Normal and Abnormal Loss.

Solution Will update soon

Problem 5

A product passes through two distinct processes A and B and then to finished stock. The output of A passes direct to B and that of B passes to finished stock. From the following information you are required to prepare the process accounts.

	Process A	Process B
Materials consumed Direct labour Manufacturing Expenses Input in process A (Units) Input in process A (value) Output (Units) Normal wastage (percentage of input) Value of normal wastage (per 100 units)	12,000 14,000 4,000 10,000 10,000 9,400 5 percent 8	6,000 8,000 4,000 — — 8,300 10 percent 10

No opening or closing stock is held in process.

Solution Will update soon

Problem 6

The product of a Company passes through three distinct processes to completion. From past experience, it is ascertained that normal wastage in each process is as under:-

Process	Wastage	Sale value of wastage
A B C	2% 4% 2.5%	0.25 per unit 0.50 per unit 0.60 per unit

The expenses were as follows:-

	Process A	Process B	Process C
Material Direct labour Manufacturing Expenses Other Factory Expenses	12,000 16,000 2,000 3,500	10,000 5,000 3,400 2,005	9,000 4,900 3,590 2,004

4000 units were initially introduced in process A at a cost of 13,560. The output of each process was as under:-

Process	Output
A B C	3,850 units 3,600 units 3,500 units

Prepare process accounts and also work out the sale price per unit of finished stock so as to realize 20% profit on selling price.

Solution Will update soons

Problem 7

In a process engineering factory, a product has to pass through three distinct processes before it is ready for sale. From the information appended below, work out the selling price of the product if the management decides to have a mark up of 25% over its works cost.

1.
2.
3.
4.
5.
6.
7.
8.

Stages of Production
Input of Raw Materials at 4 per kg
Normal Loss on input of each stage
Delivered to Next Process (kg.)
Total Direct Labour Cost
Variable Overheads % on Direct Labour
Fixed Overheads % on Direct Labour
Finished Stocks held back at the stage

I
1,00,000 kg.
5%
90,000
14,000
150
250
4,000

II

5%
80,000
15,000
120
140
4,000

III

5%
-
30,000
100
200
-

For the purpose of this exercise abnormal loss, if any, may be charged to the respective stages since output of each stage can also be diverted to other processes for manufacture of other chemicals.

Solution Will update soon

Problem 8

A product is completed by passing through three stages viz., I, II, III. At the first stage, a quantity of 60,000 kg was charged at a cost of 5/- per kg. The entire material was consumed. The production particulars along with details of expenses are given below:-

Stage	Input kg	Output kg	Direct Wages	Variable overheads on direct wages	Fixed overheads
I II III	60,000 54,000 46,000	56,000 50,000 43,000	28,000 30,000 30,570	40% 50% 50%	40,000 40,000 65,550

Normal wastage may be assumed at 5% on input at every stage and saleable at 1/- per kg. Ascertain the selling price per kg of output assuming that selling price should yield a return of 20% on sales.

Solution Will update soon

Problem 9

A product is finished in three stages I, II, III.

At the first stage a quantity of 72,000 kg. of material was delivered at cost of 2.50 per kg. The entire material was consumed.

The production particulars with the allocated expenses were as indicated in the table below:

Stage	Input kg	Output kg	Direct Wages	Fixed Overhead %	Varying Overhead %
I II III	72,000 65,000 55,600	67,680 60,125 50,000	7,500 12,000 14,500	150 125 200	200 150 250

The producer, as was his usual practice assessed his cost of 6.77 per kg. based on his input expenditure and the finished output. With a selling price of 7.50 per kg. he estimated his profit at 36,500. If you do not approve of his assessment of the end results of the operation, convince him of the real end-results in a tabular form. You should assume the normal wastage as only 5% on input at each stage and any excess wastage should not be allowed to inflate the cost of the end product.

Solution Will update soon

Problem 10

The following transactions took place in respect of an order for 1000 blanks.

1000 blanks issued to Process A
Processing cost – A
20 blanks rejected after processing
Processing cost – B
70 blanks rejected after processing
Processing cost – C
10 blanks rejected after processing

@ 2.00 each
@ 0.30 each

@ 1.00 each

@ 0.50 each

The 70 blanks rejected following process – B are brought to saleable condition at a cost of 100. The scrap value of a blank is 0.20 and the selling price of completed blank is 4.50 each.

Show clearly how you would record the transactions in your cost accounts.

Solution Will update soon

Problem 11

A product passes through two consecutive processes having relative standard outputs of 80% and 90% of inputs. In addition, standard yield is obtained by giving scrap allowances of 10% and 5% of outputs of Process I and II respectively. Scraps of each process are sold at 1,000 per tonne.

There was no work in process at any stage. All materials, as follows, were issued in Process I only and all scrap arising from processes were sold, excepting closing stock of 10 tonnes (opening stock was nil).

Material issues:

A - 100 tonnes @ 2,000 per tonne
B - 400 tonnes @ 1,500 per tonne
C - 500 tonnes @ 1,200 per tonne

The actual output and scraps were 85% and 8% in Process I and 80% and 10% in Process II. Assume that there was no price variance.

You are required to find out the standard Cost and Actual Cost per tonne of a product.

Solution Will update soon

Author : The Edifier

Problems 7