Examination Questions (answers begin page 545) A4. a.
Explain the fundamental differences between
job costing and process costing and state three industries, other than the food industry, which use
process costing. b. A company within the food industry mixes powdered ingredients in two different
processes to produce one product. The output of process 1 becomes the input of process 2 and the
output of process 2 is transferred to the packing department.
From the information given below, you are required to open accounts for process 1, process 2,
abnormal scrap and packing department and to record the transactions for the week ended 17th
November, 1978.
Process 7 Input: Material A 6,000 kilograms at £0.50 per kilogram Material B 4,000 kilograms at £1.00
per kilogram Mixing labour 430 hours at £2 per hour Normal scrap 5% of weight input Scrap was sold for
£0.16 per kilogram Output was 9,200 kilograms There was no work in process at the beginning or end of
the week.
Process 2 Input: Material C 6,600 kilograms at £1.25 per kilogram Material D 4,200 kilograms at £0.75
per kilogram Flavouring essence £300 | Mixing labour 370 hours at £2 per hour Normal waste 5% of
weight input Output was 18,000 kilograms There was no work in process at the beginning of the week
but 1,000 kilograms were in process at the end of the week and were estimated to be only 50%
complete so far as labour and overhead were concerned.
205
FLSERE Ot hy BEC area Ne | clack ar aaa 2 oN ae ecg Seek
15 Costing methods — Process costing
Overhead of £3,200 incurred by the two processes was absorbed on the basis of mixing labour hours.
Within process 1, abnormal scrap arose because some batches failed to pass the quality control check at
the end of each mix. However, no loss in weight occurred and all scrap was sold for cash on the last day
of the week. Any resultant balance on the abnormal scrap account was transferred to profit and loss
account. (ICMA, Cost Accounting 1, November 1978).
A®5. a. Outline the characteristics and purpose of: i. Job Costing li. Process Costing b. Explain carefully
how material waste, or any other losses in production, should be treated in a process costing system,
clearly indicating the reasons for your recommended treatment. (ACCA, Costing, December 1979).
A6. The following information relates to Process B for Period 4:
Work in Progress at start of period — Nil. Material transferred from Process A during the period — 2,500
kilos valued at £7,145. Wages paid — 23412 hours at £4.00 hour. Other direct costs allocated £463.
Normal waste during processing — 5% of Process A input. This has a scrap value of 16p per kilo and is
credited to the Process Account. At the end of Period 4, there were 2,100 kilos transferred to Finished
Stock, and 150 kilos remained in Work in Progress. The Work in Progress is 100% completed so far as
materials are concerned, but only 80% labour and 60% other direct costs are completed.
a. You are required to construct: i. The Process B Account showing your workings clearly li. Any other
accounts relevant to the process b. Process costing is a method of costing falling withifi the broader
category of Operation costing. An alternative category is known as Specific Order Costing. Briefly
distinguish between Operation Costing and Specific Order Costing stating any other methods of costing
associated with these broader terms. (AAT, Cost Accounting and Budgeting, June 1982.)