Process Costing Coordinator Dr D Heena Cowsar Assistant Professor of Commerce Bon Secours College for Women Thanjavur Process Costing Process costing is a term used in cost accounting to describe one method for collecting and assigning manufacturing costs to the units ID: 1032044
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1. Advanced Cost & Management AccountingProcess Costing Coordinator Dr. D. Heena CowsarAssistant Professor of CommerceBon Secours College for WomenThanjavur
2. Process CostingProcess costing is a term used in cost accounting to describe one method for collecting and assigning manufacturing costs to the units produced. A processing cost system is used when nearly identical units are mass producedNormal LossThe normal loss is the unavoidable loss of units in a processing department that occurs majorly due to the nature of production operation or the nature of raw materials being processed. This loss cannot be avoided under normal and efficient production environment and is considered within the normal or acceptable tolerance limit for machines and human errors.Abnormal LossIn process costing, abnormal loss can be defined as the loss or spoilage of units in a processing department that should not occur under normal and efficient working conditions. The abnormal loss signifies that the production operation has one or more serious issues that need to be identified and fixed quickly.Abnormal GainIf losses are greater than expected, the extra loss is abnormal loss. If losses are less than expected, the difference is known as abnormal gain. Abnormal loss and gain units are valued at the same cost as units of good output, they are valued at the full cost per unit
3. SUM NO: 1 A product passes through two distinct processes A and B and then to finished stock. The normal wastage of each process is as follows: Process A- 3% of the units entering the process Process B – 5% of the units entering the processWastage of process A was sold at Re.0.50 per unit and that of Process B at Rs. 1per unit .10,000 units were issued to process A at a cost of Rs. 2 per unit. Process A PROCESS B Rs. Rs.Sundry materials 2,000 3,000Wages 10,000 16,000Overhead expenses 2,100 2,375Actual output (units) 9,500 9,100Prepare Process account and other accounts.
4. Solution: Process A account Calculation of Abnormal Loss= Normal Cost of Normal Output X Abnormal units Normal OutputNormal output = 10,000- 3% of 10,000 =9,700 unitsCost of normal output =Rs.34,100 – Rs. 150 =RS.33,950 = (33950/9700)X 200 = 700(OR)Units rate =Rs. 33,950 /9,700 = Rs.3.50 Abnormal loss = normal output – actual output =(10,000-3% of 10,000) -9,500 =9,700 – 9,500 =200 units Cost =200 unitsXRs.3.50 = Rs. 700UnitsAmountUnitsAmount To raw materials10,000Rs.20,000By Normal loss300Rs.150To sundry materials 2,000By Abnormal loss200700To wages 10,000By process B a/c (b/f)9,50033,250To overhead expenses2,10010,00034,10010,00034,100
5. Solution: Process account UnitsAmountUnitsAmountTo process ATo sundry materialsTo wages To overhead expensesTo abnormal gain9,500 - - - 75Rs.33,250 3,000 16,0002,375 450By normal lossBy final stock @Rs. 64759,100Rs.47554,600 9,57555,075 9,57555,075Calculation of Abnormal Gain= Normal Cost of Normal Output Normal OutputNormal output =9500-475 = 9025Normal Cost of Normal Output = Rs. 54,625 –Rs. 475 = 54,150 (54625 is the Debit side total without the cost of Abnormal gain)Abnormal gain = 54150/9025 = Rs. 6X 75= 450Finished Goods = 6X9100 = Rs. 54600
6. Normal loss account UnitsAmountUnitsAmountTo Process ATo Process B300475Rs.150475By Sale (300xRs.0.05+400 x Rs1)By Abnormal Gain70075Rs.55075 9,57555,075 9,57555,075Abnormal loss accountUnitsAmountUnitsAmountTo process A200Rs.200By salesBy costing P&L a/c 200 -Rs.100600200700200700Abnormal GainUnitsAmountUnitsAmountTo normal loss a/cTo costing P&L a/c75Rs. 75375By process B a/c 75Rs.4507545075450
7. SUM NO: 2 Make out the necessary accounts from the following details: PROCESS A PROCESS BMaterials 30,000 3,000Labour 10,000 12,000Over heads 7,000 8,600Input (units) 20,000 17,500Normal loss 10% 4%Sale of wastes per unit Rs.1 Rs.2 There was no opening or closing stock or work-in-progress. Final output from process B was 17,000 units.
8. UnitsAmount UnitsAmountTo materials2000030000By normal loss2,0002,000To Labour10000By abnormal loss 5,00 1,250 To over heads7,000By process B a/c@ Rs. 2.5017,50043,75020,0004700020,00047000Process A a/c Cost per unit = Total process cost - scrap value from normal loss normal Input – Normal loss = 47,000 – 2,000 = 2.50 20,000 – 2,000Abnormal wastage (in units) Input 20,000 Less: Normal Wastage 10% 2,000 Normal output 18,000 Less: Actual output 17,500 Abnormal Wastage 500
9. UnitsAmount UnitsAmountTo process A a/c17,50043,750By normal loss7001400To Materials3000By Finished Goods a/c @ Rs. 2.5017,50043,750To Labour12000To over heads8600To Abnormal Gain20078517700681351770068135Process B a/c Cost of abnormal gain = Rs. 65,950 x 200 = Rs. 785 16,800Cost of finished stocks = Rs. 65,950 x 17,000 = Rs. 66,735 16,800 Abnormal gain = Actual output - Normal Output = 17,000 – (17,500 – 4% of 17,500) = 17,000— 16,800 = 2, 00 Units.
10. Normal Loss AccountUnits AmountRs.Units AmountRs.To process A a/cTo process B a/c 2,000 700 2,000 1,400By sale (process A: 2,000 xRs.1+ process: B 500xRs.2)By abnormal gain a/c 2,500 2003,000 4002,700 3,4002,7003,400Abnormal Loss AccountUnits AmountRs. Units Amounts Rs.To Process A a/c5001250By sale (500X1)500500By Costing P&L--75050012505001250Abnormal Gain AccountUnits AmountRs.Units AmountRs.To Normal Loss200400To Process B a/c200785To Costing P&L a/c--385200785200785
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