Process Costing 443

overheadare debited tothe process account. The total (accumulated) costs of the process are
ranstèrred
tothe second process as raw materials (input) for that process.

Example
11.J
From
thefollowing figures showthe cost of three processes of manufacture. The production of
processis passed on to the next process immediately on completion.
cach
Process A Process B Process C
Wagesandmaterials 30,400 712,000 29,250
Worksoverheads 5,600 5,250 6,000
Productioninunits 36,000 37,500 48,000
Stock (Units from preceding
process-st July,2007) 4,000 16,500
Stock (Units from preceding
process-3Ist July, 2007) 1,000 5,500

Solution
Process A Account

To Wages and materials 30,400 By transfer to process B

To Works overheads 5,600 @1 per unit 36,000
36,000 36,000

Process B Account

To Stock: unit from By Stock: units from

preceding process @ preceding process
4,000 @1per unit 1,000
{l per unit
To Transfer from Process A 36,000 By Transfer to
To Wages and material 12,000 Process C@
To Works overheads 5,250 1.50per unit 56,250
57,250 57,250

Process C Account

To Stock: units from By Stock: units from

preceding process @ preceding process

?1.50 per unit 24,750 @R1.50 per unit 78,250
To Transfer from Process B 56,250 By Transfer to finished
lo Wages and materials 29,250 goods account (@

To Works overheads 6,000 2 per unit 1,08,000

1,16,250 1,16,250
 444 )Cost Accounting
Example 11.2
The Neodrug manufacturers proces a product 'plant food' through three distinct
product of oneprocess being transferred to the next process and so on to finished
Raw materials, labour and direct expenses incurred on each of the processes processes,
product the
are given int gact,
ProcessbelowC
.
Particulars Process A Process B
Raw materials 1,00,000 80,000
Labour
Direct expenses
50,000
15,000
60,000
25,000
20,70,000000
50,00
The overhead expenses for the period amounted to 3,60,000 and is to be
processes on the basis of labour wages. distributed to the
There were no stocks in any of the processes at the beginning or at the close of the
Ignore wastages. period.
(a) Assuming that the output was 1,00,000 kilos, show the process accounts of A. Rondn
indicating also the unit cost per kilo under each element of cost and the outnut i
process.

(b) If 10% of the output is estimated to be lost in the course of sale and sampling, what shoih
be the selling price per unit (correct to two decimal place) so as to provide for gros Droft
of 33%
2
on selling price.
Solution
ProcessA

Per kg Total Per kg Total

To Raw materials 1.00 1,00,000 By Transfer to Process B 2.65 2,65,000
To Labour 0.50 50,000
To Direct expenses 0.15 15,000
al
To Overheads 1.00 1,00,000
a
2.65 2,65,000 2.65 2,65,000

Process B

5.50 5,50,0 als

To Transfer from 2.65 2,65,000 By Transfer to th
Process A Process C
aco
To Raw materials 0.80 80,000
To Labour 0.60 60,000 Wa
To Direct expenses 0.25 25,000
Wa
To Overheads 1.20 1,20,000 5,50,00 go
5.50
5.50 5,50,000 los:
 Process Costing 445
Process C

5.50 5,50,000 By Transfer to 8.30

p Tanstèr
fiom 8,30,000
finished goods A/c
pRow
maternials
0.20 20,000
0.70 70,000
pLabour
D i expenses
t
0.50 50,000
1.40 1,40,000
pOrerheads
8.30 8,30,000
8.30 8,30,000
ffnished
Costof
goods <8,30,000
Poft(33%
3
on sellingprice)
Sales
4,15,000
12,45,000
Grossoutput 1,00,000 kg
-wastage10% 10,000
Less
90,000 kg
= 12,45,000
Sellingprice per kg
90,000 kg =13.83 per kg
mcess Costing having Process Losses and/or Gains
lmaterials put into process are not likely to be good saleable products. Some loss, scrap and
Sg is inevitable in process industries. Process loss can be divided into two categories:
Nomnal loss, (i) Abnormal loss. Normal loss is the loss which is unavoidable, uncontrollable
siapected in normal conditions. It may be inherent in the manufacturing process. Abnormal
ASs loss is controllable and avoidable and generally caused by abnormal or unexpected condi
iK, such as bad designing, poor materials, accident and negligence, etc.
Te treatment of normal and abnormal losses differ in process accounts. Normal losses are
bshd by good production. Assume, for example, that 25,000 units of amixture were put into
CeSsand that during processing 5,000 units were lost through evaporation. This in an unavoid
s costIfthe
anit of
totalcost recorded was 25,00,000, the remaining 20,000 units would be assigned
Z125.
Cost of production 25,00,000 =125
Number of units completed 20,000
Abnormal losses are valued as good units. The unit cost which is used to value good units is
applied for
Smanner is valuation toof abnormal loss units. The cost of abnormal loss units computed in
PNunt , transferredthis loss is transferred to the costing profit
a separate abnormal loss account and credited to relevant process
lossSubsaccount
ATmal equentlyis, thus closed.
and loss account and the ab-
aste (Spoilage)
ste is
without any value. If waste is part of the normal process loss, the cost is absorbed by the
$isproduction. Alternatively, if waste represents abnormal process loss, the waste (abnormal
valued like good units and treated as abnormal process loss.
 Process Costing 447

Abnormal Gain (Efectives)

when the actual loss is less than the normal loss expected. The abnormal
Abnormal gain arises
valuedin the same manner as abnormal loss and is credited to a separate account known
gainis
asthe
abnormal gain account. The abnormal gain account appears on the debit side of the relevant
process account. The amount of scrap which would otherwise have been realised, had there been
normalloss and no abnormal gain, is debited to the abnormal gain account and the balance is
creditedtothe costing profit and loss account. Cost per unit of output computed (as mentioned
above) is usedto value the output transferred to the next process.
Example 11.3
Araw-material has to pass through three sucessive processes to reach the finished product stage.
The Joss of material expressed as percentage of input is : Process-I : 10%, Process-II : 20%,
Process-III: 25%.
Required:
Calculate the raw-material introduced in Process-I if the finished product transferred from
Process-III is 1080 units. ([Link]., Delhi University, 2008)

Solution
Let input introduced in process I= 100 units
Process Input Net Loss Output
100 10 90
90 18 77

II 72 18 54

For 54 units output, input required = 100 units.

1080 x 100
= 2000 units
For 1080units = 54

Example 11.4
Process-I amounted to 40,000.
Aproduct passes from Process-I and Process-II. Material issued to input as
Labour 30,000 and Manufacturing overheads were 27,000. Normal loss was 3% ofworkers.
the carelessness of
estimated. But 500 more units of output of Process-Iwere lost due to
no opening stocks. Input
Only 4,350units of output were transferred to process-Il. There were show Process-I account.
Taw material issued to Process-I were 5,000 units. You are required to
(CA. November, 2008)
Solution Process-I Account

Units
Units
To Material 40,000 By Normal loss* 150
5,000
30,000 By Abnormal loss** 500 10,000
To Labour
(Contd.)
 448 ) Cost Accounting

Units
To Overhead 27,000 By Process-II Units KS
5,000 97,000 4,350
3% of input = 3% x 5,000 = 150
5,000 1
97,000 97,000
=20 per unit. for 500 units, ?500x 20 =10,000
(5,000 -1S0) 4,850
Example 11.5
PCT introduced 1,000 units in a process at a cost of 10 per unit. Wages and
curred are 79,000 and ,000 respectively. It is expected that 10% of total
be defective. Actual output of good units is 850. Cost of rectification of aoutput is
overheadslikely to
R5. There is no wastage or scrap of materials. defective unit 's
Required:
Calculate the cost per unit if:
(i) defectives are rectified;
(ii) defectives are not rectifiedbut sold as 'seconds' @79 each.
([Link]., Delhi University, 20R
Solution
Particulars Ifdefectives are If defectives are
rectified not rectified

Cost of materials (1000 units @10) 10,000 10,000

Wages 9,000 9,000
Overheads 8,000 8,000
27,000 27,000
Add: Cost of rectification of

normal defectives (100 xS) 500

Less: Realisable value of normal

defectives (100x 9) 900

Cost of goods produced (4) 27,500 26,100

No. of units (B) 1,000 900

27.50 29
Cost per unit (4 + B)
Treatment of Abnormal Defectives:
(a) Cost of certification of abnormal defectives (i.e., 50 >x 5 =250) will be charged 0
costing Profit & Loss Account.
(b) Loss on sale of abnormaldefectives (i.e., 50 x 29-79 =R1,000) willbe charged to cosi
Profit & Loss Account.
 Process Costing 449
Workingnotes:
Normal defective = 10% of 1,000units = 100 units.
Abnormal Defective = 1000- 100 -850 = 50units

Example11.6
D. [Link] 5,000 units in a process at a cost of 10,000. The wages and overheads in-
ured are ?10,000 and 8,000 respectively. It is expected that 10% of the output is likely to be
ofective. Actual output of goods is 4,400 units.
The rectification of defective unitscosts 4 per unit.
Calculate the cost per unit and show how willyou deal with the cost of rectification of abnor
mal defective units. (B. Com.,DelhiUniversity, 2011)
Solution

Process Account

Units Amt. Units Amt.

To Units introduced 5,000 10,000 By Abnormal loss* 100 600

To Wages 10,000 By Finished stock A/c @

76 4900* 29.400
To Overheads 8,000
To Cost of rectification,* 2,000
(500 units @74)
5,000 30,000 5,000 30,000

Working Notes:
1. Rectification of normal defective units is an item of factoryoverheads. Hence 10% of 5,000
units, i.e., s00 units multiplied by 74, i.e., T2,000 has been added to the cost.
2. Total Output =Actual outpute +Rectified units =4,400+ S00 =4,900 units
3. There is no normal loss
Normal cost 30,000
Cost per unit =6
Normal output 5,000
Normal cost = Total cost - Scrap value of normal loss
= 30,000 0=30,000
Normal output = Units introduced Units of normal loss
= 5,0000 = 5,000
4. Units of abnormal loss = 5,000 4,900= 100units
Value of abnormal loss = Units of abnornmal loss X Cost per unit
= 100 x6=600
5. Cost of rectification of abnormal defective units is debited to the costing Profit & Loss
Account.
450 Cost Accounting

Example 11.7
The output of Process Xwas 5,000 [Link]
loss allowed was 10% of input.
was 400 units. The following further information is
obtained: Abnormal loss
Material @5 per unit
Labour 8,000
Overheads 6,700
Wastage realised 2.50per unit.
Prepare Process Xaccount and Abnormal Loss account. ([Link].,Delhi University, 201o
Solution
(a) Let the input be x units
Normal loss = 10% of input
10
= xX units
100 10
Abnormal loss = 400 units
Output =5,000 units
Now Input =Output + Abnormal loss + Normal loss
X= 5,000 + 400 +
10

x= 5,400 +
10
10x =54,000+ x
9x =54,000
x =6,000
Units introduced =6,000
Alternate Method:
(Output + Abnormal loss) x 100
Input = 90
(5,000+ 400) × 100 5,400 ×100
90 90
=6,000 units

Proçess X Account
Amount
Particulars Units Amount Particulars Units

1,500
To Materials 6,000 30,000 By Normal loss 600

@5 per unit @2.50 per unit 3,200

8,000 400
To Labour By Abnormal loss
@8 per unit
 Process Costing 451

Particulars Units Amount Particulars Units Amount

ToOverheads 6,700 By Output transferred 5,000 40,000

to process Y alc
@ 78 per unit
6,000 44,700 6,000 44,700

Working Notes:
10x 6000
1 Normal loss = 10% of 6,000=
100
= 600 units
2. Value of abnormal loss
Total cost - Value of normal loss
x Unitsof abnormal loss
Total input - units of normal loss
44,700-1,500
x400 =3,200
6,000 - 600

Abnormal Loss Account

Particulars Units Amount Particulars Units Amount

To process By Sale of scrap @

XAccount 400 3,200 2.50 per unit 400 1,000
By Costing Profit
& Loss Alc 2,200
400 3,200 400 3,200

Example 11.8
The product of a manufacturing concern passes through two processes A and B, and then to
finished stock. It is ascertained that in each process normally 5% of the total weight is lost
and 10% is scrap which from processes A and B realises T80 per tonne and 200per tonne
respectively. The following are the figures relating to both the processes.
ProcessA Process B
Materials in tonnes 1,000 70
Cost of materjals in rupees per tonne 125 200
Wages in rupees 28,000 10,000

Manufact uring
Output in tonnes
expenses in rupees 8,000
830
5,250
780

Prepare Process Cost Accounts showing cost per tonne of each process. Also prepare Abnormal
Loss/Gain Account. ([Link]., Delhi University, 2009)
452 Cost Accounting

Solution
Process A Account

Particulars Tonnes Per Amount Particulars Tonnes Per

tonne tonne Amoun
Materials 1,000 125 1,25,000 Weight loss (5%) 50

28,000 Normal loss (10%) 100 80

Wages 8,000
Manufacturing
expenses 8,000 Abnormal Loss A/c 20 180*
Output transfered
3,600
to process B 830 180* 1,49,400

1,000 1,61,000 1,000

161,000
1,61, 000-8,000 =180
*Cost per unit of process A=
850

Process B Account

Particulars Tonnes Per Amount Particulars Tonnes Per Amount

tonne tonne

Output from Process A 830 180 1,49,400 Weight loss (5%) 45

Materials 70 200 14,000 Normal loss (10%) 90 200 18,000

Wage 10,000 Process output 780 210 1,63,800

Manufacturing
expenses 5,250
Abnormal Gain A/c 15 210 3,150
915 1,81,800
915 1,81,800

1,78,650-18,000 =7210
Cost per unit at process B= 765 *

* 830 + 70 45-90=765 units

Example 11.9
labour accountedl for 20
600 kg of materials was charged to process A @ 4 per kg. The direct
thenetproduc
and the other department expenses to 760. The normal loss is 10% of input and prepare Process
tion was 500 kg. Assuming that the process scrap itself is saleable at 2 pernormal
kg. and abnorma
2009
Aclearly showing the value of normal and abnormal loss. Also prepare
loss account. ([Link]., Delhi University.
 Process Costing 453
Solution
Process A
Account

Particulars Units Rate Amount Particulars Units Rate Amount

kg kg.
To Material By Normal loss 60 2 120
(Input) 600 4 2,400 By Abnormal loss* 40 6 240
To Direct labour 200 By Process output 500 6 3,000
To Department exp. 760
600 3,360 600 3,360

Allnormal cost incurred at the process - Realisable value of normal scrap

* Cost per unit
Normal output
3,360 -120
=6
600 60

Abnormal loss = 40×6 =240

Normal Loss Amount

Particulars Units Rate Amount Particulars Units Rate Amount

kg. kg.
ToProcess A Alc 60 2 120 By Cash/Bank 60 2 120
60 120 60 120

Abnornmal Loss Account

Particulars Units Rate Amount Particulars Units Rate Amount

kg. Kg.
To Process A A/c 40 6 240 By Cash 40 80
By Costing P & LA/c 160

40 240 40 240

Example 11.10
The product of a manufacturing concern passes through two processes-A and B. The nor
mal losses and abnormal losses are defective units having a scrap value of 2 and ending
5 per
ut in processes A and B respectively. The following information relates to the month
31-3-2010: Process A Process B
Kaw materials issued @ S 3000 units
10% of input
Normal loss S% of input
(Contd.)
454 Cost Accounting
Process A
2800 units
Process B
Output
71,000
2600 units
Additional components
74,000
Direct wages
10,000
3,000
Direct expenses
75%
Z14,000
Production overhead (as a percentage of direct wages) 125%
closing stocks of
There was no opening or closing work in progress but opening and finished
goods were 20,000 and 23,000 respectively. andAhne.
Prepare Process A/c, Finished StockA/c, Normal Loss Alc, Abnormal Loss A/c
Gain A/c. (B. Com. (Hons.), Delhi University, 2010)
Solution
Process A

Particulars Oty Amount Particulars Amount

To Raw material 3,000 15,000 By Normal loss 300 600

To Additional input 1,000 (10% of Input) (@ 2 per unit)

To Direct wages 4,000 By Output to Process B 2,800 33,600
To Direct expenses 10,000 @12/- (W.N.1)
To Production overhead
(75% of direct wages) 3,000
To Abnormal gain (WN-1) 100 1,200
3.100 34,200 3,100 34,200

Total cost of normal units 33,000 - 600

Normal cost per unit 3,000 - 300
Normal units
32,400
=12/
2,700
Cost of abnormal gain = 100 × 12.
Process B
Oty Amount
Particulars Oty Amount Particulars
140 700
To Process A Trf 2,800 33,600 By Normal loss (5% of 2,800)
60 1,228
To Additional input 780 By Abnormal loss (W.N.2)
2,600 53,202
To Direct wages 3,000 By Trf. to finished stock
To Direct expenses 14,000 @ 20.4623
To Production overhead 3,750
(125% of direct wages) 55,130
2,800 2,800
55,130
 Procoss Costing 455
WN.2.
Normalcost per unit for process B Total cost of normalunits
Normal units
55,130- 700
2,800- 140
54,430
=20,462
2,660
Cost of abnormal loss 60 x20,462 1228 (Approx)
Finished Stock
Particulars Amount Particulars Amount
ToBalance b/d 20,000 By Cost of goods sold 50,202
To Process B-Trf from Process B 53,202 ByBalance c/d 23,000
73,202 73,202

Normal Loss A/c

Particulars Ory Amount Particulars On Amount

To Process A 300 600 By Abnormal gain 100 200
To Process B 140 700 By Bank-sale of waste units 340 1,100
440 1,300 440 1,300

Abnormal Loss A/c

Particulars Amount Particulars Amount

To Process B 60 1,228 By Bank-sale proceed @ 5 60 300
By Profit and Loss A/e 928
60 1,228 60 1,228

Abnormal Gain A/c

Particulars Amount
Particulars Qty Amount
To Normal loss @ 2 100 200 By Process A 100 1,200
To Profit and Loss Alc I,000
100 1,200 100 1,200