Closing Stock of Finished Goods/Stock in Process Account

The product of a company passes through three different processes I, II and III. It is ascertained from past experience that loss in each process is incurred as under:

Process I : 2%. Process II: 5% process III : 10%

The percentage of loss in each case is computed on the basis of number of units entering the process concerned. The loss of each process has a scrap value. The loss of processes I and II is sold at 1 per unit and that of process III at 4 per unit.

The company gives you the following information for the month of October, 20_5:

2,000 units of crude material were introduced in process I at a cost of 8 per unit. Besides this the following were other expenses:

	Process I	Process II	Process III
Materials consumed Direct labour Works expenses	8,000 12,000 2,000	3,000 8,000 1,000	2,000 6,000 3,000
Output Stock Oct 1 Oct 31 Stock Valuation On Oct 1, per unit	Units 1,950 200 150 19	Units 1,925 300 400 27	Units 1,590 500 – 36.5

Stock on 31st October, 20_5 are to be valued at cost as shown by month's production accounts.

Prepare the Process Accounts.

Process I a/c
Dr Cr
Particulars	Quantity (in Units)	Amount	Particulars	Quantity (in Units)	Amount
To Crude Material To Material To Direct Labour To Works Expense	2,000	16,000 8,000 12,000 2,000	By Normal Loss By Abnormal Loss By Process I Stock a/c	40 10 1,950	40 194 37,766
	2,000	38,000		2,000	38,000

Process I Stock a/c
Dr Cr
Particulars	Quantity (in Units)	Amount	Particulars	Quantity (in Units)	Amount
To Balance b/d To Process I a/c	200 1,950	3,800 37,766	By Process II a/c By Balance c/d	2,000 150	38,661 2,905
	2,150	41,566		2,150	41,566
To Balance b/d	150	2,905

Notes/Assumptions

Process Stock a/c is used for handling process outputs.

Working Notes

Input
Particulars	Crude Material			Material			Total
Particulars	Quantity	Rate	Value	Quantity	Rate	Value	Quantity	Value
Current Period input	2,000	8	16,000			8,000	2,000	24,000
Input Processed (IP)							2,000	24,000

Processing
Particulars	Quantity	Cost	Cost/Unit
Input Processed (IP) + Other Costs Direct Labour Works Expense	2,000	24,000 12,000 2,000
Total (IP \| TC) − Normal Loss (IP × 2%)	2,000 40	38,000 40	1.00
Normal (NO \| NC \| NCNO/U) − Actual Output	1,960 1,950	37,960 37,766	19.3674
Abnormal Loss(+)/Gain(−)	+10	+194

Process losses are calculated based on number of units entering the process i.e. the inputs processed.
Normal Cost of Normal Output per unit
NCNO/U = $\frac{NC}{NO}$
Actual output (1,950 × 19.3674) and Abnormal Loss (10 × 19.3674) are valued at NCNO/U

Output Stocks
Particulars	Quantity	Cost	Cost/Unit
Opening Stock + Current Period Output	200 1,950	3,800 37,766	19 19.3674
Total Stock − Closing Stock	2,150 150	41,566 2,905	19.3330 19.3674
Transfer to Process II	2,000	38,661	19.3305
Closing Stock Valuation Rates FIFO method LIFO method Average method			19.3674 19 19.3330

Closing stocks are to be valued at cost as shown by current months production acccount i.e. at the current period rate of 19.3674.

Detailed Working

Primary Material is the Crude Materail introduced into the process.
Secondary Material results in increase in quantity of input.
Normal Loss Units
NLU = 2% of input processed
= IP × 2%
= 2,000 units × 2%
= 40 units
Normal Output Units
NOU = IP − NLU
= 2,000 units − 40 units
= 1,960 units
Actual Output Units
The Output that is actually obtained in the process.
AOU = 1,950 units (given)
Abnormal Loss or Gain
Since NOU > AOU, there is abnormal loss

Valuations

Total Cost
TC = 24,000 + 12,000 + 2,000
= 38,000
Normal Loss Realisation Rate per unit
NLRR/U = 1/unit
Normal Loss Realisation
NLR = NLU × NLRR/U
= 40 × 1/unit
= 40
Normal Cost
NC = TC × NLR
= 38,000 − 40
= 37,960
Normal Cost of Normal Output per unit
NCNO/U = $\frac{NC}{NO}$
= $\frac{37,960}{1,960}$
= 19.3674/unit
Value of Actual Output
VAO = AO × NCNO/Unit
= 1,950 units × 19.3674/unit
= 37,766
Value of Abnormal Loss
VAL = ALU × NCNO/Unit
= 10 units × 19.3674/unit
= 194

No Process Stock a/c

Process I a/c
Dr Cr
Particulars	Quantity (in Units)	Amount	Particulars	Quantity (in Units)	Amount
To Balance b/d To Crude Material To Material To Direct Labour To Works Expense	200 2,000	3,800 16,000 8,000 12,000 2,000	By Normal Loss By Abnormal Loss By Process II a/c By Balance c/d	40 10 2,000 150	40 194 38,661 2,905
	2,200	41,800		2,200	41,800
To Balance b/d	150	2,905

Process Stock a/c used only for recording closing stock

Process I a/c
Dr Cr
Particulars	Quantity (in Units)	Amount	Particulars	Quantity (in Units)	Amount
To Process I Stock a/c To Crude Material To Material To Direct Labour To Works Expense	200 2,000	3,800 16,000 8,000 12,000 2,000	By Normal Loss By Abnormal Loss By Process II a/c By Process I Stock a/c	40 10 2,000 150	40 194 38,661 2,905
	2,200	41,800		2,200	41,800

Process I Stock a/c
Dr Cr
Particulars	Quantity (in Units)	Amount	Particulars	Quantity (in Units)	Amount
To Balance b/d To Process I a/c	200 150	3,800 2,905	By Process I a/c By Balance c/d	200 150	3,800 2,905
	350	6,705		350	6,705
To Balance b/d	150	2,905

Process II a/c
Dr Cr
Particulars	Quantity (in Units)	Amount	Particulars	Quantity (in Units)	Amount
To Process I Stock a/c To Material To Direct Labour To Works Expense To Abnormal Gain	1,950 73	37,766 3,000 8,000 1,000 1,958	By Normal Loss By Process II Stock a/c	98 1,925	98 51,626
	2,023	51,724		2,023	51,724

Process II Stock a/c
Dr Cr
Particulars	Quantity (in Units)	Amount	Particulars	Quantity (in Units)	Amount
To Balance b/d To Process II a/c	300 1,925	8,100 51,626	By Process III a/c By Balance c/d	1,825 400	48,999 10,727
	2,225	59,726		2,225	59,726
To Balance b/d	400	10,727

Notes/Assumptions

Process Stock a/c is used for handling process outputs. Thus the input receved from Process I is from Process I Stock a/c and output of Process II is transferred to Process II Stock a/c

Working Notes

Input
Particulars	Crude Material			Material			Total
Particulars	Quantity	Rate	Value	Quantity	Rate	Value	Quantity	Value
Current Period input	1,950	19.3674	37,766			3,000	1,950	40,766
Input Processed (IP)							1,950	40,766

Processing
Particulars	Quantity	Cost	Cost/Unit
Input Processed (IP) + Other Costs Direct Labour Works Expense	1,950	40,766 8,000 1,000
Total (IP \| TC) − Normal Loss (IP × 5%)	1,950 98	49,766 98	1.00
Normal (NO \| NC \| NCNO/U) − Actual Output	1,852 1,925	49,668 51,626	26.8186
Abnormal Loss(+)/Gain(−)	−73	−1,958

Process losses are calculated based on number of units entering the process i.e. the inputs processed.
Normal Cost of Normal Output per unit
NCNO/U = $\frac{NC}{NO}$
Actual output (1,925 × 26.8186) and Abnormal Loss (73 × 26.8186) are valued at NCNO/U

Output Stocks
Particulars	Quantity	Cost	Cost/Unit
Opening Stock + Current Period Output	300 1,925	8,100 51,626	27 26.8186
Total Stock − Closing Stock	2,225 400	59,726 10,727	26.8432 26.8186
Transfer to Process IV	1,825	48,999	26.8488
Closing Stock Valuation Rates FIFO method LIFO method Average method			26.8186 27 26.8432

Closing stocks are to be valued at cost as shown by current months production acccount i.e. at the current period rate of 26.8186.

Detailed Working

Primary Material is the output of Process I received as in Input.
Secondary Material does not result in increase in quantity of input.
Normal Loss Units
NLU = 5% of input processed
= IP × 5%
= 1,950 units × 5%
= 98 units
Normal Output Units
NOU = IP − NLU
= 1,950 units − 98 units
= 1,852 units
Actual Output Units
The Output that is actually obtained in the process.
AOU = 1,925 units (given)
Abnormal Loss or Gain
Since NOU < AOU, there is abnormal gain
Abnormal Gain Units
AGU = AOU − NOU
= 1,925 units − 1,852 units
= 73 units

Valuations

Total Cost
TC = 40,766 + 7,000 + 1,000
= 49,766
Normal Loss Realisation Rate per unit
NLRR/U = 1/unit
Normal Loss Realisation
NLR = NLU × NLRR/U
= 98 × 1/unit
= 98
Normal Cost
NC = TC × NLR
= 49,766 − 98
= 49,668
Normal Cost of Normal Output per unit
NCNO/U = $\frac{NC}{NO}$
= $\frac{49,668}{1,852}$
= 26.8186/unit
Value of Actual Output
VAO = AO × NCNO/Unit
= 1,925 units × 26.8186/unit
= 51,626
Value of Abnormal Gain
VAG = AGU × NCNO/Unit
= 73 units × 26.8186/unit
= 1,958

No Process Stock a/c

Process II a/c
Dr Cr
Particulars	Quantity (in Units)	Amount	Particulars	Quantity (in Units)	Amount
To Balance b/d To Process I a/c To Material To Direct Labour To Works Expense To Abnormal Gain	300 1,950 73	8,100 37,766 3,000 8,000 1,000 1,958	By Normal Loss By Process III a/c By Balance c/d	98 1,825 400	98 48,999 10,727
	2,323	49,824		2,323	49,824
To Balance b/d	400	10,727

Assumed that Process I a/c also does not have a stock a/c and as such output of process I transferred to Process II is from Process I a/c itself.

Process Stock a/c used only for recording closing stock

Process II a/c
Dr Cr
Particulars	Quantity (in Units)	Amount	Particulars	Quantity (in Units)	Amount
To Process II Stock a/c To Process I Stock a/c To Material To Direct Labour To Works Expense To Abnormal Gain	300 1,950 73	8,100 37,766 3,000 8,000 1,000 1,958	By Normal Loss By Process III a/c By Process II Stock a/c	98 1,825 400	98 48,999 10,727
	2,323	49,824		2,323	49,824

Process II Stock a/c
Dr Cr
Particulars	Quantity (in Units)	Amount	Particulars	Quantity (in Units)	Amount
To Balance b/d To Process II a/c	300 400	8,100 10,727	By Process II a/c By Balance c/d	300 400	8,100 10,727
	700	18,827		700	18,827
To Balance b/d	400	10,727

Assumed that Process I a/c has a stock a/c and as such output of process I transferred to Process II is from Process I Stock a/c.

Process III a/c
Dr Cr
Particulars	Quantity (in Units)	Amount	Particulars	Quantity (in Units)	Amount
To Process II Stock a/c To Material To Direct Labour To Works Expense	1,925	51,626 2,000 6,000 3,000	By Normal Loss By Abnormal Loss By Process III Stock a/c	193 142 1,590	772 5,071 56,783
	1,925	62,626		1,925	62,626

Process III Stock a/c
Dr Cr
Particulars	Quantity (in Units)	Amount	Particulars	Quantity (in Units)	Amount
To Balance b/d To Process III a/c	500 1,590	18,250 56,783	By Finished Stock a/c	2,090	75,033
	2,090	75,033		2,090	75,033

Notes/Assumptions

Process Stock a/c is used for handling process outputs.

Working Notes

Input
Particulars	Crude Material			Material			Total
Particulars	Quantity	Rate	Value	Quantity	Rate	Value	Quantity	Value
Current Period input	1,925	26.8188	51,626			2,000	1,925	53,626
Input Processed (IP)							1,925	53,626

Processing
Particulars	Quantity	Cost	Cost/Unit
Input Processed (IP) + Other Costs Direct Labour Works Expense	1,925	53,626 6,000 3,000
Total (IP \| TC) − Normal Loss (IP × 10%)	1,925 193	62,626 772	4.00
Normal (NO \| NC \| NCNO/U) − Actual Output	1,732 1,590	61,854 56,783	35.7125
Abnormal Loss(+)/Gain(−)	+142	+5,071

Process losses are calculated based on number of units entering the process i.e. the inputs processed.
Normal Cost of Normal Output per unit
NCNO/U = $\frac{NC}{NO}$
Actual output (1,590 × 35.7125) and Abnormal Loss (142 × 35.7125) are valued at NCNO/U

Output Stocks
Particulars	Quantity	Cost	Cost/Unit
Opening Stock + Current Period Output	500 1,590	18,250 56,783	36.5 35.7125
Total Stock − Closing Stock	2,090 –	75,033 –	35.9010 –
Transfer to Finished Stock	2,090	75,033	35.9010

Detailed Working

Primary Material is the output of Process II received as input.
Secondary Material results in increase in quantity of input.
Normal Loss Units
NLU = 10% of input processed
= IP × 10%
= 1,925 units × 2%
= 193 units
Normal Output Units
NOU = IP − NLU
= 1,925 units − 193 units
= 1,732 units
Actual Output Units
The Output that is actually obtained in the process.
AOU = 1,590 units (given)
Abnormal Loss or Gain
Since NOU > AOU, there is abnormal loss

Valuations

Total Cost
TC = 53,626 + 6,000 + 3,000
= 62,626
Normal Loss Realisation Rate per unit
NLRR/U = 4/unit
Normal Loss Realisation
NLR = NLU × NLRR/U
= 193 × 5/unit
= 772
Normal Cost
NC = TC × NLR
= 62,626 − 772
= 61,854
Normal Cost of Normal Output per unit
NCNO/U = $\frac{NC}{NO}$
= $\frac{61,854}{1,732}$
= 35.7125/unit
Value of Actual Output
VAO = AO × NCNO/Unit
= 1,590 units × 35.7125/unit
= 56,783
Value of Abnormal Loss
VAL = ALU × NCNO/Unit
= 142 units × 35.7125/unit
= 5,071

No Process Stock a/c

Process III a/c
Dr Cr
Particulars	Quantity (in Units)	Amount	Particulars	Quantity (in Units)	Amount
To Balance b/d To Process II Stock a/c To Material To Direct Labour To Works Expense	500 1,925	18,250 51,626 2,000 6,000 3,000	By Normal Loss By Abnormal Loss By Finished Stock a/c	193 142 2,090	772 5,071 75,033
	2,425	80,876		2,425	80,876

Process Stock a/c used only for recording closing stock

Process III a/c
Dr Cr
Particulars	Quantity (in Units)	Amount	Particulars	Quantity (in Units)	Amount
To Process III Stock a/c To Process II Stock a/c To Material To Direct Labour To Works Expense	500 1,925	18,250 51,626 2,000 6,000 3,000	By Normal Loss By Abnormal Loss By Finished Stock a/c	193 142 2,090	772 5,071 75,033
	2,425	80,876		2,425	80,876

Process III Stock a/c
Dr Cr
Particulars	Quantity (in Units)	Amount	Particulars	Quantity (in Units)	Amount
To Balance b/d	500	18,250	By Process III a/c	500	18,250
	500	18,250		500	18,250

NLU	=	2% of input processed
	=	IP × 2%
	=	2,000 units × 2%
	=	40 units

NLU	=	5% of input processed
	=	IP × 5%
	=	1,950 units × 5%
	=	98 units

NLU	=	10% of input processed
	=	IP × 10%
	=	1,925 units × 2%
	=	193 units

NLR	=	NLU × NLRR/U
	=	40 × 1/unit
	=	40

NCNO/U	=	$\frac{NC}{NO}$
	=	$\frac{37,960}{1,960}$
	=	19.3674/unit

VAO	=	AO × NCNO/Unit
	=	1,950 units × 19.3674/unit
	=	37,766

VAL	=	ALU × NCNO/Unit
	=	10 units × 19.3674/unit
	=	194

Closing Stock of Finished Goods/Stock in Process Account - Illustration

Illustration - Problem

Illustration - Solution - Process I

Notes/Assumptions

Working Notes

Detailed Working

Normal Loss Units

Normal Output Units

Actual Output Units

Abnormal Loss or Gain

Valuations

Total Cost

Normal Loss Realisation Rate per unit

Normal Loss Realisation

Normal Cost

Normal Cost of Normal Output per unit

Value of Actual Output

Value of Abnormal Loss

No Process Stock a/c

Process Stock a/c used only for recording closing stock

Illustration - Solution - Process II

Notes/Assumptions

Working Notes

Detailed Working

Normal Loss Units

Normal Output Units

Actual Output Units

Abnormal Loss or Gain

Abnormal Gain Units

Valuations

Total Cost

Normal Loss Realisation Rate per unit

Normal Loss Realisation

Normal Cost

Normal Cost of Normal Output per unit

Value of Actual Output

Value of Abnormal Gain

No Process Stock a/c

Process Stock a/c used only for recording closing stock

Illustration - Solution - Process III

Notes/Assumptions

Working Notes

Detailed Working

Normal Loss Units

Normal Output Units

Actual Output Units

Abnormal Loss or Gain

Valuations

Total Cost

Normal Loss Realisation Rate per unit

Normal Loss Realisation

Normal Cost

Normal Cost of Normal Output per unit

Value of Actual Output

Value of Abnormal Loss

No Process Stock a/c

Process Stock a/c used only for recording closing stock