Scribd
Upload
11 views1 page

Abnormal Loss in Process Costing Example

The document discusses a complex example of process costing involving opening and closing work in progress (WIP), normal and abnormal losses, and scrapped units in Process 2. It provides data for calculating production, normal loss, and abnormal loss using both FIFO and Average Cost methods. The example illustrates how to prepare the Process Account and calculate effective units for cost purposes.

Uploaded by

charleschirwa05
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
11 views1 page

Abnormal Loss in Process Costing Example

The document discusses a complex example of process costing involving opening and closing work in progress (WIP), normal and abnormal losses, and scrapped units in Process 2. It provides data for calculating production, normal loss, and abnormal loss using both FIFO and Average Cost methods. The example illustrates how to prepare the Process Account and calculate effective units for cost purposes.

Uploaded by

charleschirwa05
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Example 7 This is a more complicated example which brings together the various facets of process

costing covered in the chapter. It includes opening and closing WIP and normal and abnormal losses
where the scrapped units are not fully complete. The following data relate to Process 2 for one
accounting period. Process 2 receives units from Process 1 and, after processing, transfers them to
Process 3.

Opening WIP 600 units

Value Percentage Complete £ Input material 720 100 Material introduced 500 60 Labour 340 50
Overheads 270 40

Transfers from Process 1: 4100 units valued at £5200.

Transfers to Process 3: 3500 units

Materials introduced 2956 Labour 2200 Overheads 1900

199

15 Costing methods — Process costing

Closing stock 800 units at the following stage of completion Input material 100% complete Material
introduced , 60% g Labour 50% — Overheads 40% %

400 units were scrapped at the following stage of completion Input material 100% complete Material
introduced 100% ‘ Labour 40% y Overheads 30% #

The normal loss is 10% of production and the scrapped units realised 40p each. It is required to prepare
the Process Account for Process 2 using i. the FIFO method, ~ ii. the Average Cost method.

SOLUTION USING FIFO METHOD The first stage is to calculate the amount of normal loss to see whether
there is any abnormal loss or gain involved. The production for the period is calculated as follows:

Opening WIP 600 units + Transfers in 4100 4700 — Closing WIP 800 .. Production 3900 units

. . Normal loss is 10% of 3900 = 390, and as the actual number scrapped were 400, there were 10 units
of abnormal loss. The calculation of effective units for cost calculation purposes follows the same
principles as in Examples 5 and 6 except that the number of units abnormal loss must be included in the
total effective production because, as explained in Para 7, abnormal losses are costed on the same basis
as good production

You might also like