Process & Operation Costing

10 Process & Operation Costing

Question 1

Dis Disting tingui uish sh betwe etween en job job (November,1996, 4 marks)

cost costin ing g

and and

proc proces ess s

cos costing ting..

Answer The main points point s of distincti disti nction on between betwee n job costing costin g and process proces s costing are as below: 1.

2.

3.

4.

5.

6.

Job Costin C osting g Process Proces s Costing Cos ting Job cos costing ing is a spe specif cific or order Process costing is a method of costing costing costing used used to ascerta ascertain in the cost of a product at each stage of manufacture Cost Co st here here is deter etermi mine ned d on on jo job Co Cos sts are are accum ccumul ula ated ted for for basis each process separately for a given period of time. Each job n ee d s s p e c i a l F i n i sh e d product of one treatment and no two jobs are process becomes the raw alike material for the next process. The cost of each job is The unit cost here is the compiled separately separately by adding average cost of the process for materials, l abour and a giv given per period. iod. Its correct overhead costs comput putation ion requir uires the measurement of production at various stages of manufacture. Costs are computed when job Costs Costs are computed computed for each is completed pro process cess at the the end end of ea each ch period. As ea each job job is dist istinc inct or or is is of of As the process operations are different nature, more detailed standar standardise dised d accumu accumulati lation on of supe superv rvis isio ion n and and cont contro roll are are costs and supe upervisio ision n and

10.2

Cost Accounting

nece necess ssar ary y

cont contro roll easier.

are are

comp compar arat ativ ivel ely y

Question 2

Writ Write e a shor shortt note note on unit unit cost costin ing g meth method od for for asce ascert rtai aini ning ng product prod uct cost c ost (November, 1995, 6 marks)

Process & Operation Costing

10.3

Answer It is a form of process or operation costing. It is suitable where only one product or a few grades of the same product involving a single single proc proces ess s or oper operat ation ion is prod produc uced. ed. Unde Underr this this syst system em the expenditure is not analysed in as much detail as is necessary for job costing because the whole of the expenditure is normally incurred for only one type of product but where, however, articles produced vary in grades and sizes, it is necessary to analyse the appropriate charges for ascertaining the cost of articles. On dividing the total expenditure by the number of units produced, the cost per unit is ascertained. This system of costing is suitable for breweries, cement works etc. In all these cases, unit cost of articles produced requires to be ascertained. The cost sheets sheet s are prepared prepar ed periodical period ically ly and usually usuall y contain contai n information on the under mentioned points: (i) Cost Cost of mate materia rials ls consum consumed ed with with deta details. ils. (ii)

Cost of labour with details.

(iii)

Work indirect expenses with details.

(iv)

Office and administrative expenses in lumpsum.

(v) Abnormal losses and gains are separated and not mixed with costs. Question 3

"The value of scrap generated in a process should be credited to the proce process ss acco account unt." ." Do you you agree agree with with this this state stateme ment nt? ? Give Give reasons. (November, 1995, 2 marks) Answer This statement stateme nt is not correct The value of scrap (as normal loss) receiv received ed from from its sale is credite credited d to the proces process s accoun account. t. But the value value of scrap scrap receiv received ed from from its sale sale under under abnorm abnormal al conditi conditions ons should be credited to Abnormal Loss Account. Question 4

Explain normal wastage, abnormal wastage and abnormal gain and state, how they should be dealt within process Cost Accounts. (November, 1998, 6 marks)

10.4

Cost Accounting

Answer

Normal wastage: It is defined as the loss of material which is inherent inherent in the nature of work. work. Such wastage wastage can be estimated estimated in advance advance on the basis of past experience experience or technical specifications. specifications. If the the wast wastag age e is withi within n the the spec specifi ified ed limit, limit, it is cons conside idere red d as norm normal al.. Suppo Suppose se a comp compan any y stat states es that that the norm normal al wast wastag age e in Process A will be 5% of input. In such a case wastage upto 5% of input will be considered as normal wastage of the process. When the wastage fetches no value, the cost of normal wastage is absorbed by good production units of the process and the cost per unit unit of good good produc productio tion n is incre increas ased ed acco accord rding ingly ly.. If the norm normal al wastage realises some value, the value is credited to the process account to arrive at normal cost of normal output.

Abnormal Abnor mal wastage: wastag e: It is defined as the wastage which is not inherent inherent to manufa manufactur cturing ing operat operations ions.. This type of wastag wastage e may occur to the carelessness of workers, a bad plant, design etc. Such a wastage cannot be estimated in advance. The units representin repres enting g abnormal abnorma l wastage are valued like good, units produced and debited to the separate separate account which is known as abnorm abnormal al wastag wastage e accoun account. t. If the abnorma abnormall wastag wastage e fetches fetches some value, the same is credited to abnormal wastage account. The balance of abnormal wastage account i.e. difference between value of units representing abnormal wastage minus realisation value is transferred to Costing profit and loss account for .the year.

Abnormal Abnor mal gain: gain : It is defined as unexpected gain in production under normal conditions. In other words, if the actual process waste is less than the estimated normal waste, the difference is considered as abnormal gain. Suppose, a Company states that 10% of its input will be normal loss of process A. If input of this company is 100 units then its normal output should be 90 units. If actual output is 95 units, then, 5 units will represent its abnormal gain! These units which represents abnormal gain are valued like normal output of the process. The concerned process account is debited with the quantity and value of abnormal gain. The abnormal gain account is credited with the the figure figure of abnormal abnormal gain amount. amount. Abnormal Abnormal gain being the the result of actual wastage, or loss being less than the normal. The scrap realisation shown against normal wastage gets reduced by the scrap value of abnormal gain. Consequently; there is an apparent loss loss by way way of reduc reductio tion n in the the scra scrap p reali realisa satio tion n attr attribu ibuta tabl ble e to abnormal abnormal effectives. This loss is set off against abnormal effectives effectives by debitin debiting, g, the accoun account. t. TheThe- balance; balance; of this account account become becomes s abnormal gain and is transferred to; costing profit and loss account.


10.5

Question 5

Write ite short hort note on Ab Abnorm ormal gai gain n in Proce ocess Co Costing ing 1995,4 marks)

(May May,

Answer

Abnormal Abnor mal Gain in Process Proce ss Costing: Costin g: proc proces ess s loss loss (whi (which ch is inhe inhere rent nt in a estima estimated ted normal normal loss, loss, the differe difference nce gain. Abnormal gain is accounted for in process loss.

If in a process the actual proc proces ess) s) is less less than than the the is conside considered red as abnorma abnormall the same way as abnormal

The concerned concern ed process account accoun t is debited debit ed with the abnormal gain units and value, and the abnormal gain account is credited. The abnormal gain account is debited with the figure of reduced normal loss (in units) and value. The balance of the abnormal gain account is transferred to the costing profit and loss account. Question 6

Compare Process Costing with Job Costing marks)

(November, 1998, 4

10.6

Cost Accounting

Answer Job costing costin g and process costing costi ng are the two methods method s of cost accoun accounting. ting. Job costing costing is applied applied where where product production ion is carried carried out under specific orders, depending upon customers requirement. Here each job is considered as a cost unit and to some extent the cost centre also. Proc Proces ess s cost costin ing g is appl applie ied d in case cases s wher where e the the iden identi tity ty of individual individual orders orders is lost in the general flow of production. production. Industries to which which proc proces ess s cost costing ing is appli applied ed prod produce uce unifo uniform rm prod produc ucts ts without reference to the specific requirements of customers. The main points of comparison compari son between job costing costin g and process costing are as follows: (i) Job costing costing is applica applicable ble to goods goods produce produced/ d/ manufa manufactur ctured ed to customers specifications. However, process costing is applicable to production consisting of succession of continuous operations or processes. (ii) Costs Costs are accumula accumulated ted by a job or work work order irrespe irrespectiv ctive e of its time of completion under job costing. When a job is finished all costs associated with it are charged to it in full. Whereas under proc proces ess s cost costin ing g cost costs s are are accu accumu mula late ted d by proc proces esse ses s for for a particular period regardless of the number of units produced. (iii)

Each job will be .different .different from the other under job costing costing wherea whereas s in the case of proces process s costing costing units of produ product ct are homogenous and indistinguishable, because goods are produced on a mass scale.

(iv)

Job is normally normally a single unit, the whole unit is taken as one for costing purposes. Even if job consists of number of parts, cost of job is calculated only after all the parts, are complete. As such there is no question of work-in-progress merely because some some part parts s are are not not yet yet comp comple lete ted. d. In the the case case of proc proces ess s costing, the unit of production may remain incomplete at various stages of production. It is therefore necessary to compute at the end of the period not only the cost of the finished units but of work in progress also.

(v) Job costing does not involve transfer of costs from one job to another another.. Where Where as in the case of proces process s costing costing transfer transfer of output from one process to another involves the transfer of its costs as well. (vi)

Job costs are ascertained only after the completion of job and not at the end of a particular period. Whereas in the case of


10.7

pro process cess cost costin ing g cos costs are asce ascert rta ained ined at the the end end of the the accounting period and not when the process is complete, since production is a continuous flow constituting itself into cycle. (vii) (vii) Since Since each each job job may may be differe different nt from from other other ther therefo efore re they they will not involve the use of identical material and labour, costs of jobs cannot be ascertained ascertai ned by averaging. averagi ng. In the case of process proces s cost costing ing sinc since e units units of prod product uctio ion n are are unifo uniform rm and and are are at the same same stag stage e of prod product uctio ion n ther theref efor ore, e, cost costs s are are comp compute uted d by averaging the total cost of each stage of production. (viii) Control Control becomes becomes difficult in the case of job costing because because each ea ch job job is diffe differe rent nt from from the othe other. r. Wher Wherea eas s contr control ol over over production and costs is easier in the case of process costing since production is a standardised one. Question 7

A company compan y within withi n the food industry indu stry mixes powdered powde red ingredien ingr edients ts in two different processes to produce one product. The output of Process I becomes the input of Process 2 and the output of Process 2 is transferred to the packing department. From From the infor informa matio tion n given given below below,, you you are requi require red d to open open acco accoun unts ts for for Proc Proces ess s 1, Proc Proces ess s 2, abno abnorm rmal al loss loss and and pack packin ing g department and to record the transactions for the week ended 11 th May,1985. Process 1 Input: Material A

6,000 kilograms at 50 paise per kilogram

Material B

4,000 kilograms at Rupee 1 per kilogram

Mixing Labour Normal Loss kilogram Ou tput

430 hours at Rs.2 per hour 5% of weight input, disposed off at 16 paise per 9,2 0 0 kil ogr ams.

No work in process at the beginning or end of the week. Process 2 Input Ma teri a l C

6,600 kilograms at Rs. 1.25 per kilogram

Ma teri a l D

4,200 kilograms at Re. 0.75 per kilogram

Flavouring Essence

Rs. 330

10.8

Cost Accounting

Mixing Mixing Labou Labourr

370 hours hours at Rs. Rs. 2 per per hour hour

Normal Normal Waste Waste

5% of weight weight input input with with no dispo disposal sal value value

Ou tput

18,000 kilograms.

No work in process at the beginning of the week but 1,000 kilograms in process at the end of the week and estimated to be only 50% complete so far as labour and overhead were concerned. Over Overhe head ad of Rs. Rs. 3,200 3,200 incurred incurred by the the two two proce process sses es to be absorbed on the basis of mixing labour hours.


10.9

Answer Process 1 Account

Kg. To Material Mater ial A To Material Mater ial B

6,00 0 4,00 0

To Mixing Mixin g Labour (430 hours @ Rs.2 Rs.2.00 .00 per hour) h our) To Overhead Overh ead

Per kg. Kg. Rs. Rs. 0.50 3,00 By Normal 500 0 Loss 1.00 4,00 By Abnormal 300 0 Loss (See Note 2) 860 To Transfer Trans fer to Process 2

_____ 10,0 00

1,72 0 9,58 0

9,20 0

Per kg. R s. Ps. 0. 1 6 80 1. 0 0

300

1. 0 0

9,20 0

_____

____ _ 9,58 0

10,0 00

Process 2 Account

K g. To Process Proce ss 1

9,20 0 To Material Mater ial C 6,60 0 To Material Mater ial D 4,20 0 To Flavouring Flavou ring Essence To Mixing Mixi ng Labour (370 hours @ 2.00 per hour) To Overhead Overh ead

Per Kg . Rs. Rs. 1.00 9,20 0 1.25 8,25 0 0.75 3,15 0 300

Kg . By Normal Waste To Work

1,00 0 1,00 0

1,16 0

inprocess (See Note 3)

740 To Packing Deptt.

1,48 0

Per kg. Rs. Rs.

18,0 00

1.22

2 1, 6 90

10.10 Cost Accounting

(See Note 1)

_____ 20,0 00

_____ 23,1 20

_____ 20,0 00

_____ 23,1 20

Abnormal Loss Account

Kg . To Process Proce ss A/c

300

Per Kg . R s. Rs. 1.00 300 By Sale A/c ___ By Balance Balan ce to P/L A/c 300

Kg. 300

Per kg . Rs. Rs. 0. 1 6 48 252 300

Process & Operation Costing 10.11

Packing Department Account

K g. To Process Proce ss 2 A/c

18,0 00

Per K g. Rs. Rs. 1.22 21,9 By Balance 60 21,9 60

Kg .

Per kg. Rs. Rs. 21.9 60 21,9 60

Notes: 1. Tota Totall over overhea head d expe expens nses es : Rs. Rs. 3,2 3,200 00 Total labour l abour hours in Process Pro cess 1 and 2 = 800 Overhead absorption rate = Rs. 3,200/800 hours = Rs. 4 per labour hour

Overhead under Process 1 = 430 × Rs. 4 = Rs. 1,720 Overhead under Process 2 = 370 × Rs. 4 = Rs. 1,480 2. Co Cost st of 9,500 9,500 Kg. Kg. of outp output ut is = (Rs. (Rs. 9,58 9,580 0 – Rs. 80) 80) i.e. i.e.,, Rs. Rs. 9,500 Hence cost per kg. of output is Re. 1.00 3.

Equivalent Units Statement of Output Output Units

Completed WIP (100% Material 50% Labour and Overhead) Normal Waste

E q ui v a l e n t U n i t s

18,000 1, 0 0 0

M ater i al 18,000 1,000

Lab ou r 18,000 500

1,000 2 0, 0 0 0

____ _ 19,000

__ ___ 18,500

Overhead 1 8, 0 0 0 550

___ __ 1 8, 5 0 0

Cost Statement for the week ending 11th May 1985 Material (Process 1) Material C Material D Flavouring Essence

Rs. 9,200 8,250 3,150 300


Total Material Materi al Cost Total Mixing Mixin g Labour Labo ur Cost Cos t Total Overhead Overhe ad Cost

20,900 740 1,480

Cost per Equivalent Unit Material = Rs. 20,900 / 19,000 = Rs. 1.10 Labour = Rs. 740 / 18,500 = 0.04 P Overhead = Rs. 1,480 / 18,500 = 0.08 P W.I.P. Material = 1,000 1,100

× Rs. 1.10

Labour =

× 0.04 P= Rs.

20

× 0. 0 8 P = R s .

40

500

Overhead =500

= Rs.

Rs.1,160 Rs. 1,160 Question 8 In a manuf manufac actu turin ring g unit, unit, raw raw mate materi rial al pass passes es thro through ugh four four processes processes I, II, III & IV and the output of each process is the input of the subsequent process. The loss in the four processes I, II, III & IV are respectively 25%, 20%, 20% and 16-2/3% of the input. If the end prod produc uctt at the the end end of the the proc proces ess s IV is 40,0 40,000 00 kg, kg, what what is the the quanti quantity ty of raw raw mate materia riall requ require ired d to be fed fed at the the begin beginnin ning g of Process I and the cost of the same at Rs. 4 per kg.? Find out also the effect of increase or decrease in the material cost of the end product for variation of every rupee in the cost of the raw material. Answer Statement of Production (based on 100 kg. of input)

Process No. I II III IV

In pu t Kg . 100 75 60 48

Loss Percentage 25 20 20 1 6 2/ 3

Loss Kg.

Ou tpu t Kg .

25 15 12 8

Quantity of Raw Material required for 40,000 kg. of output

75 60 48 40


As is apparent from the above table, 40 kg of output requires 100 kg. of raw material to be fed at the beginning of Process I. Therefore Therefo re 1 kg k g of output outpu t require req uire 2.5 kg. kg . of raw material mat erial to be fed at the beginning of the process I. Hence Hence 40,0 40,000 00 kg. kg. of outpu outputt will will requ require ire 1,00 1,00,0 ,000 00 kg. kg. of raw raw material at the beginning of the Process I.


Cost of Raw Material required:1,00,000 kg. × Rs. 5 = Rs. 5,00,000

Effect of increase or decrease in the material cost: For every incr increa ease se or decr decrea ease se of Re Re.1 .1,, in the the cost cost of raw raw mate materi rial al,, the the corresponding increase or decrease in the material cost of 1 kg. of the end product is Rs. 2.50. Therefore the material cost of the end product / finished product goes up or down by Rs. 2.50 per kg. as the cost of raw material goes up or down by Re.1/- per kg. Question 9

A company compa ny is manufactur manufa cturing ing building buil ding bricks bric ks and fire bricks. bric ks. Both the products require two processes: Brick-forming Heat treating Time requirements for the two bricks are: Building Bricks Forming per 100 Bricks 3 Hrs. Heat – trea reatment per 2 Hrs. 100 Bricks

Fire Bricks 2 Hrs. 5 H r s.

Total costs of the two departments in one month were Forming Heat treatment

Rs. 21,200 Rs. 48,800

Production during the month was:

Building bricks Fire Bricks

1,30,000 Nos. 70,000 Nos.

Prepare a statement of manufacturing costs for the two varieties of bricks. Answer


Computation of Total Cost: It can be calculated in the case of bric brick k form formin ing g and and heat heat trea treati ting ng by usin using g the the rte rte per per hour hour as calculated in the statement or by using the following: Cost of brick forming Building and Fire bricks can be determined by dividing the total cost of forming i.e., Rs. 21,200 in the ratio 39:14. Cost of forming Building bricks : Cost of forming Fire bricks :

Rs.21,20 × 39 = Rs. 15,600 53

Rs.21,20 × 14 = Rs. 5,600 53

Cost of giving heat treatment to Building and Fire Bricks are determi determined ned by dividing dividing the total total cost cost of heat heat treatm treatment ent i.e., i.e., Rs. 48,800 in the ratio 26:35 Cost of heat treatment to Building Bricks

Rs..48,80 × 26 = Rs. 61

20,800 Cost of heat treatment to Fire Bricks :

Rs.48,80 × 35 = Rs. 28,000 61

Manufacturing Cost Statement (for two varieties of bricks) Process es

Building Bricks

F ir e B r icks s

Tota l time

Total Cost (for 1,30,0 00 Nos.)

(Hrs .) Time per 100 Nos. (Hrs. )`

Brick forming

P r o c e

3

Rat e per Hr.

3, 9 0 0

Tota l time

R s.

R s.

R s.

4.0 0

15,60 0

12.0 0

Tim e per 100 Nos. (Hrs .)

2

Rat e per Hr.

1 ,4 0 0

& O p

Total Cost (for 1,30,0 00 Nos.)

(Hrs .) Cost per 100 Nos.

s

e r a ti

o n C o

Cost per 100 Nos.

Rs.

R s.

Rs.

4.0 0

5, 6 00

8. 0 0

s

ti

n g

4 4 2


Heat treating

2

Total

2, 6 0 0

8.0 0

6,50 0

20,80 0

16.0 0

36,40 0

28.0 0

5

3 ,5 0 0

8.0 0

4,90 0

28,00 0

40.0 0

33,60 0

48.0 0

Working Notes:

Computation of rate per hour Brick forming :

Rs.21,20 = Rs. 4.00 5,300

=

(Total cost / Total hours) Heat treating:

=

Rs.48,80 = Rs. 8.00 6,100

Question 10

An article arti cle passes through throu gh three successive succes sive operation oper ations s from the raw material material to the finished finished product stage. stage. The following following data are available from the production records of a particular month:– Operation No. of Pcs. No. of Pcs. No. of Pcs. No. Input Rejected Output 1 6 0,0 0 0 20 ,0 00 4 0,0 0 0 2 6 6,0 0 0 6 ,0 00 6 0,0 0 0 3 4 8,0 0 0 8 ,0 00 4 0,0 0 0 (i) (i) Det Determ ermine ine the the inpu inputt requ requir ired ed to be intr introd oduc uced ed in the the firs first t operation in number of pieces in order to obtain finished output of 100 pieces after the last operation. (ii) Calculate the cost cost of raw material material required required to produce produce one piece piece of finished product, given the following information. Weight of the finished piece is 0.10 kg. and the price of raw material is Rs. 20 per kg. Answer Statement of Production (for a month)

Oper ati on s No. 1

Input To tal No.

T otal No.

60,000

20,000

Rejections % R ej ecti on to output 5 0%

Output Tota l No. 4 0, 0 0 0


2. 3.

66,000 48,000

6,000 8,000

1 0% 2 0%

6 0, 0 0 0 4 0, 0 0 0

Input required for final output of 100 units: Output of process 3 Loss in process, 20% Input to process 3 or output of process 2 Loss in process 2, 10% Input to process 2 or output of process 1 Loss in process 1, 50% Input in process 1

No. of Pcs. 100 20 120 12 132 66 198

(iii) To produce produ ce 100 pieces of final output outpu t 198 pieces piece s of initial init ial input is used. The weight of one piece of finished output is 0.10 kg. Thus the weight of input to produce one piece of output is 0.19 0.198 8 kg. kg. The The rate rate bein being g Rs.2 Rs.20, 0, the the cost cost of mate materi rial als s for for producing 1 piece is Rs.3.96 i.e.,

19 × 0.10 10


Question 11

A Ltd. produces prod uces product prod uct 'AXE' which passes passe s through throu gh two processes proce sses before befor e it is completed compl eted and transferr tran sferred ed to finished fini shed stock. The following data relate to October 1981. Process Particulars Op e n i n g s t o c k Direct materials Direct wages Facto ry overh ead s Closing stock Inter-process profit Included in opening stock

I R s. 7 ,5 00 15 ,0 00 11 ,2 00 10 ,5 00 3 ,7 00

F i n i sh e d stock

II R s. 9 ,0 00 15 ,7 50 11 ,2 50 4 ,5 00 4 ,5 00

1 1 ,25 0

1 ,5 00

8 ,25 0

Rs. 2 2 ,50 0

Output of process I is transferred to process II. at 25% profit on the transfer price. Output of process II is transferred transferred to finished stock at 20% profit on the transfer price. Stocks in process are valued at prime cost. Finished stock is valued at the price at which it is received from the process proce ss II. II . Sales Sal es during du ring the period pe riod are Rs. 1,40,0 1, 40,000. 00. Required: Process cost accounts and finished goods account showing the profit profi t element ele ment at a t each stage. stage . Answer Process I Account

Total Rs.

Cost Rs.

Profi t Rs.

Opening stock

7,50 0

7,50 0

— Transfe r

Direct materials

15,0 00

15,0 00

— to process

Direct Wages

11,2 00

11,2 00

II Account

33,7

33,7

Tota l Rs.

Cost Profi Rs. t Rs.

54,0 00

40,5 00

13,5 00


00

00

3,70 0

3,70 0

—

Prime cost

30,0 00

30,0 00

—

Overheads

10,5 00

10,5 00

—

Process cost

4 0, 5 00

40,5 00

13,5 00

—

13,5 00

( S ee working _____ note 1)

_____

_____

_____

_____

_____

54,0 00

40,5 00

13,5 00

54,0 00

40,5 00

13,5 00

Less: Stock

Closing

Profit 33 1/3% of total cost

Process II Account

Total Rs. Opening stock Transferred Transfer red from Process I

9,000

Cost Profit Rs. Rs. 7,50 0

Finishe d — Stock A/c

40,5 00

Direct materials

15,75 0

15,7 50

Direct wages

11,25 0

11,2 50

—

90,00 0

75,0 00

15,0 00

4,500

3,75 0

750

85,50 0

71,2 50

14,2 50

Stock Prime cost

Cost Profit Rs. Rs.

1,50 Transfer to 0

54,00 0

Less: Closing

Total Rs.

—

112,5 00

75,7 50

36,7 50


Overheads

4,500

4,50 0

Process cost

90,00 0

75,7 50

P r of i t 2 5 %

22,50 0

—

—

22,5 00

on total cost

(See See workin king _____ _____ _____ note 1) _ _ _

______ _____ _

_____ _____ _ _

1,12,5 00

1,12,5 00

75,7 50

75,7 50

36,7 50

36,7 50

Finished Stock Account

Total Rs.

Cost Rs.

22,50 0

14,2 50

8,25 Sales 0

1 , 1 2, 5 00

75,7 50

36,7 50

1,35,0 00

90,0 00

45,0 00

11,25 0

7,50 0

3,75 0

cost

1,23,7 50

82,5 00

41,2 50

Profit

16,25 0 1,40,0 00

Opening stock

Profi t Rs.

Total Rs.

Cost Profi Rs. t Rs.

1,40,0 00

82,5 00

57,5 00

______ _____ _

_____

_____

—

12,2 50

82,5 00

57,5 00

1,40,0 00

82,5 00

57,5 00

Transferred Transfer red from Process II

Less: Stock

Closing

Finishe Finished d Stock Stock at

Working Notes Let the transfer price, be 100 then profit is 25; i.e. cost price is 75


1. If cos costt is Rs. Rs. 75 75 then then prof profit it is Rs. Rs. 25 25

If cost is Rs. 40,500 then profit is

× 40,500 = Rs. 13,500

75

2. If cos costt is Rs. Rs. 80 80 then then prof profit it is Rs. Rs. 20 20

If cost is Rs. 90,000 then profit is

× 90,000 = Rs. Rs. 22,500 22,500

80

3. Out of Rs. 90,000 90,000 total total cost, cost, the profit profit is If the cost is Rs. 4,500, the profit is

Rs. 15,000 15,000

15,00 × Rs. 4,500 4,500 = Rs. 90,00

750 Question 12

The following data pertains to Process I for March 1987 of Beta Limited : Opening Work in Progress

1,500 units at

Rs. 15,000

Degree of completion Materials 100% ; Labour and Overheads 33 31 % Input of Materials

18,500 Units at Rs. 52,000

Di rect Lab ou r

Rs. 1 4 ,00 0

Overheads

Rs. 28,000

Cl osi n g W ork i n Pr ogr ess

5 , 0 0 0 u ni t s

Degree of Completion Materials 90% and Labour and Overheads 30% Normal Process Loss is 10% of total Input (opening work in progress units + units put in) Scrap value Rs. 2.00 per unit Units transferred to the next process 15,000 units. Your are required to :– (a) Compute equivalent equivalent units units of production. (b) (b) Comp Comput ute e cost cost per per equi equiva vale lent nt unit unit for for each each cost cost element i.e., materials, labour and overheads. (c) Compute the cost cost of finished finished output and and closing work work in progress.


(d) Prepare the process process and other Accounts. Accounts. Assume: Assume : (I) the Company.

FIFO Method Metho d is used by

(ii) (ii) The The cost cost of openi opening ng work work in prog progre ress ss is fully transferred to the next process. Answer (a) Production

Statem Statement ent of Equiva Equivalen lentt Units Units of

I N PU T

OUTPUT

EQUIVALENT PRODUCTION Material Labour & Overhead

Particul ars

Unit s

P a r t i c u l ar s

Uni ts

%

Units

Op . W I P

1,50 0

Work on Op. WIP

1,500

—

—

66 2 3

1,000

Introduc ed

18,5 00

Introduced and completed in the period

13,500

100

13,50 0

100

13,50 0

Transferre Trans ferred d to next process

%

Uni ts

15,000

N or m a l L o s s

2,000

—

—

—

—

C l o si n g W I P

5,000

90

4,500

30

1,500

22,000

Less: _____ Abnormal Gain 20,0 00

2,000

18,00 0 100

2,000

16,00 0 100

2,000

_____ ____ _

_____

_____ ____ _

22,000

16,00 0

14,00 0

(b ) Statement of o f Co C ost pe p er Eq E quivalent Un U nit fo f or Ea E ach Cost Element

Cost

R s. Material

52,000

R s.

E q u i v a l en t Units

Cost per Equivalent Unit R s.


Less: Value

Scrap

4,000

48,000

1 6, 0 0 0

3

Labour

14,000

1 4, 0 0 0

1

Overheads

28,000

1 4, 0 0 0

2

(c) Statement of Cost of Finished Output and Closing Work in Progress

Particulars

Element Equivale s nt Units —

Cost per Units R s. —

NI L

—

—

1,000 1,000

1 2

1, 0 0 0 2, 0 0 0

13,500

3

4 0, 5 0 0

13,500 13,500

1 2

1 3, 5 0 0 2 7, 0 0 0

4,500

3

1 3, 5 0 0

1,500 1,500

1 2

1, 5 0 0 3, 0 0 0

Opening WIP (1,500 units) Open in g WIP

Materia l Open in g WIP Labour Open in g WIP Overhe ad Units Materia introduc introduced ed and l completed du rin g the period " Labour " Overhe ad

Cost of Equivale nt Units Rs. —

Total Rs. 15,000

3,000

81,000

Total Cost of 15,000 Units of finished output 99,000 Closing WIP

(5,000 units)

Materia l Labour Overhe ad

Total cost of c l os i n g WIP (5,000 units)

18,000

(d)

To Opening Ope ning WIP

Process Account – I

Unit s 1,50

R s. 15,000

U ni ts By Normal Loss

2,000

Rs. 4,000


To

0 18,5 00

Units 52,000 introduced (Direct Material) To Direct — 14,000 Labour To Overhead Overh ead — 28,000 To Abnormal 2,00 12,000 (See Gain 0 working _______ _____ __ note) _____ 22,0 1,21,0 00 00

By Transfer to next process

15,00 99,000 0

By Closing WIP

5,000 18,000

_____ 22,00 0

______ _____ _ _ 1,21,0 00


Abnormal Gain Account

To Process Proce ss A/c A/ c I To Profit & Loss A/c

Unit s 2,00 0 —

Rs. 4, 0 0 0

By Process I

Un i ts

Rs.

2, 0 0 0

12,00 0

8,000

_____ ____ _

1 2, 0 0 0

12,00 0

Working Note Total cost of Abnormal Gain: (2,000 Units) @ Rs. 6/- p.u.

= Rs. 12,000

Question 13

The The follo followi wing ng data data are avail availab able le in respe respect ct of Proc Proces ess s 1 for February 1990 : (1) Opening stock stock of work work in process process : 800 units at a total cost cost of Rs. 4,000. (2) Degree of completion completion of opening work work in process: process: Material

100%

Labour

60%

Overheads

60%

(3) (3) Inpu Inputt of mater materia ials ls at a tota totall cost cost of Rs. Rs. 36,8 36,800 00 for for 9,20 9,200 0 units. (4) Direct Direct wages wages incurred incurred Rs. Rs. 16,740 (5) Producti Production on overhead overhead Rs. Rs. 8,370. 8,370. (6) Units scrapped scrapped 1,200 units. units. The stage of completion completion of these these units was: Materials

100%

Labour

80%

Overheads

80%

(7) Closing Closing work in process; process; 900 units. The stage of completi completion on of these units was: Material Labour

100% 70%


Overheads

70%

(8) (8) 7,90 7,900 0 unit units s were were comp comple lete ted d and and tran transf sfer erre red d to the the next next process. proce ss. (9) Normal loss is 8% of the total total input (opening (opening stock stock plus units units put in) i n) (10)

Scr Scrap value lue is is Rs. Rs. 4 per un unit. it.

You are required to : (a) Compute Compute equiva equivalent lent product production, ion, (b) Calculate the the cost per per equivalent equivalent unit for each element. element. (c) Calculat Calculate e the cost of abnormal abnormal loss (or gain), gain), closing closing work in process proc ess and the units unit s transferr tran sferred ed to the next process proc ess using the FIFO method, (d) Show the the Process Process Account Account for for February February 1990 Answer (a )

Input (Unit s)

Statement of of Equivalent Pr Production (F (FIFO Method)

O utpu t

U ni t

800 Opening ing st stock of WIP 9,20 Finished 0 Closing WIP Normal Loss Abnormal Loss

(b )

800 7,10 0 900 800 400

100 100 — 100

7,10 0 900 — 400 8,40 0

100

7, 1 0 0

70 — 80

630 — 320 8,370

100

7,10 0 70 630 — — 80 320 8,37 0

Statement of Cost per equivalent units

E l e me n t s

Material Cost

Mat eri al Labo ur Overheads % Unit % Uni ts % Unit Co s Com Com s mpl pleti pleti etio on on n — — 40 320 40 320

Cost

R s. 36,80

Rs.

Equivalent Cost per producti prod uction on equivalent (Units) Unit R s.


0 3,200

Less: Scrap realisation 800 units @ Rs. 4/- p.u. Labour cost Overhead Cost Total Cost (c)

33,600

8,400

4/-

16,740 8, 3 7 0

8,370 8,370

2/ 1/-

Cost of Abnormal Loss – 400 Units

Rs. Material Material cost of 400 equivalent equivalent units @ Rs. 4/- p.u. 1,600 Labo Labour ur cost cost of 320 320 equ equiv ival alen entt uni units ts @ Rs. Rs. 2/2/- p.u p.u.. 640 640 Overhead cost cost of 320 equivalent units @ Rs. Rs. 1/- p.u. 320 2,560 Cost of closing WIP – 900 Units Material Material cost of 900 equivalent equivalent units @ Rs. 4/- p.u. 3,600 Labour Labour cost cost of 630 630 equiva equivalent lent units units @ Rs.2/ Rs.2/-- p.u. 1,260 1,260 Over Overhe head ad cost cost of 630 630 equi equiva vale lent nt @ Rs. Rs. 1/1/- p.u. p.u. 630 630 5,490 Cost of 7,900 units transferred to next process (i) Cost Cost of opening opening WIP Stock Stock b/f – 800 units

4,000 4,000

(ii) Cost Cost incurred incurred on openi opening ng WIP stoc stock k Material cost

—

Labo Labour ur cos costt 320 320 equi equiva valen lentt units units @ Rs. Rs. 2/2/- p.u. p.u.

640 640

Overhead cost 320 equivalent units @ Rs. 1/- p.u.320 960 (iii) Cost of 7,100 7,100 completed completed units

7,100 units @ Rs.7/- p.u.

49,700

Total cost [(i) [ (i) + (ii) + (iii))] (ii i))] (d )

To Opening Ope ning WIP Stock

54,660

Process Account for February, 1990

Unit s 800

Rs. 4,000

By Cost of Finished

Un i ts

Rs.

7,900

54,66 0


goods To Materials Mater ials

9,20 0

To Labour Labou r To Overhead Overh ead

36,800 16,740 8,370

_____

_____

10,0 00

65,910

By Closing Clo sing WIP By Abnormal Loss By Normal Norma l Loss

900 400

5,490 2, 5 6 0

800

320 0 65.,91 0

1 0, 0 0 0

Question 14 A comp compan any y manuf anufa actur ctures es a prod produc uctt which hich invo involv lves es two two consecutive processes, viz. Pressing and Polishing. For the month of October, 1991, the following information is available:

Open in g S tock I n p u t o f u ni t s i n p r o c e s s U n i t s c o m p l e t ed U ni ts un der pr ocess Ma teri a l s Cost Conversion Cost

Pressing — 1 ,20 0 1 ,00 0 20 0 Rs., 96 ,00 0 Rs. 3 ,36 ,00 0

Pol i shi ng — 1 ,0 00 5 00 5 00 R s. 8 , 0 0 0 Rs. 54 ,00 0

For incomplete units in process, charge materials cost at 100 percent perce nt and conversio conve rsion n cost at 60 percent perce nt in the Pressing Pressi ng Process Proces s and 50 percent in Polishing Process. Prepare a statement of cost and calculate the selling price per unit which will result in 25 percent profit profi t on sale price. pric e. Answer Statement of Cost

(i) Pressing process:

Elements of cost

Material cost Co n v e r s i o n c o s t Total

Cost Equivalent Cost Production Units per unit u nit Rs. (Refer to Worki rking (Rs.) Note 1) 96,000 1,200 80 3,36,000 1,120 300 380

Cost of 1,000 1,000 completed units @ Rs. 380/- p.u.= Rs. 3,80,000


Cost of 200 units under Work-in-Process: Mater Ma teria iall cost cost 16,000

=

200× 200× Rs. Rs. 80

Conver Conversio sion n cost cost 36,000

=

120 × Rs. 300 = Rs.

Total

= Rs. Rs.

= Rs. 52,000 52, 000

(ii) Polishing Process

Element of cost

Cost Equivalent Production Units Rs. (Refer to Working Note 1)

Cost per unit (Rs.)

Cost of units introduced 3,80,000

(Rs.)

Mater terial ial cost 8,000

( Rs . )

Conversion cost

3,88,00 0

1, 0 0 0

388

54,000

750

72 460

Total Cost of 500 completed compl eted units @ Rs. 460 p.u. 2,30,000

=

Rs.

Materi Mate rial al cost cost 1,94,000

= 500 500 × Rs. Rs. 388 388 = Rs. Rs.

Conver Conv ersi sion on cost cost 18,000

=

Total

250 250 × Rs. Rs. 72 = Rs. Rs.

= Rs. 2,12,000 2, 12,000


Selling price per unit Cost per unit

Rs. 460.00

Profit @ 25% on sale price

Rs. 153.33

Or 33 31 % on cost Selling price (p.u.)

Rs. 613.33

Working Note 1. process:

Inpu t (Unit s)

1,20 0

Statement of equivalent production of pressing

Outp ut

Un i ts

Completed W or k process

1,000 in

1,20 0 2. process

Inpu t (Unit s)

1,00 0

Equi val en t uni ts

Ma teri a l Qty. % (Units) 1,000 100

200

200

1,200

1,200

100

Conversion Qty. % (Units) 1,000 100 120

60

1,120

Statement of equivalent production of polishing

Outp ut

Un i ts

Completed W or k process

1,00 0 Question 15

500 in

E q u i v a l en t u n i t s

Ma teri a l Qty. % (units) 500 100

500

500

1,000

1,000

100

Conversion Qty. % (units) 500 100 250 750

50


A product passes through three processes – A, B and C. The details of expenses incurred on the three processes during the year 1992 were as under:

Pro cess Units issued / introduced cost per unit Rs. 100 S und ry M ater i al s Lab ou r D i r e c t E xp e n s e s Selli Selling ng price price per per unit unit of output

A 10,000

B

C

R s. 1 0 ,00 0 3 0 ,00 0 6, 00 0 12 0

Rs. 1 5,0 00 8 0,0 00 1 8,1 50 1 65

Rs. 5 ,0 00 65 ,0 00 27 ,2 00 2 50

Manag Managem emen entt expe expense nses s during during the the year year were were Rs. Rs. 80,000 80,000 and selling expenses were Rs. 50,000 These are not allocable to the processes. proce sses. Actual Actua l output ou tput of the th e three thr ee processe pr ocesses s was: A – 9,300 9,30 0 units, units , B-5, 400 units unit s and C-2, 100 units. unit s. Two third thir d of the output of Process A and one half of the output of Process B was passed on to the next process proce ss and the balance bala nce was sold. sold . The entire entir e output of process C was sold. The normal loss of the three processes, calculated on the input of every process was: Process A-5%; B-15% and C-20% The Loss of Process A was sold at Rs. 2 per unit, that of B at Rs. 5 per unit and of Process C at Rs. 10 per unit. Prepare the Three Processes Accounts and the Profit and Loss Account. Accou nt. Answer Process A Account

Dr. Particulars To

Units brought in (Rs.100×10, 000) To Sundry Sundr y

Unit Rs. s 10,0 10,00,0 00 00

10,000

Particulars By Normal Loss

(5% of 10,000 units @ Rs. 2/- p.u.)

U ni ts

Cr. Rs.

500

1,000


Materials To Labour Labou r To

30,000

Direct expenses

6,000

_____ 10,0 00

By

Abnormal loss (Work (Working ing note note 1) Process B A/c

(Output to be transferred Rs. 110 × 6,200) (Working Note 1) By Profit & Loss A/c (Rs. 100 × 3,100 units) _______ _____ __ (Working Note 1) 10,46,0 00

200

22,000

6, 2 0 0

6, 8 2 , 0 00

3,100

3,41,0 00

_____ _______ _____ __ 10,00 0

10,46, 000

U ni ts

Cr. Rs.

930

4, 6 5 0

2, 7 0 0

4, 0 5, 0 00

2, 7 0 0

4, 0 5, 0

Process B Account

Dr. Particulars To

Process A A/c To Sundry Sund ry Materials To Labour Labou r To Direct expenses To Abnormal Abn ormal gain (Working Note 2)

Unit s 6,20 0

130

R s.

Particulars

6,82,0 00 15,000 80,000 18,150

By Normal Loss (15% of 6,200 Units = 930 units @ Rs. 5/- p.u.)

19,500

By Process C A/c (Output to be transferred) Rs. 150 × 2,700 (Working Note 2) By Profit & Loss A/c


____ 6,33 0

_______ _____ __ (Rs. 150 × 2,700) 8,14,6 50

____

00 _______ _____ __ 6, 3 3 0 8, 1 4, 6 50

Process C Account

Dr. Particulars To

Process B A/c To Sundry Sund ry Materials To Labour Labou r To Direct expenses

Unit s 2,70 0

_____ 2,70 0

U ni ts

Cr. Rs.

By Normal Loss (20% of 2,700 units = 540 units @ Rs. 10/- p.u.)

540

5, 4 0 0

By Abnormal Loss (Working Note 3) By Profit & Loss A/c (Rs.230 × 2,100 units) (Working _______ _____ __ Note 3)

60

1 3, 8 0 0

2,100

4,83,0 00

R s. 4,05,0 00 5,000 65,000 27,200

Particulars

5,02,2 00

____ _______ _____ __ 2, 7 0 0 5, 0 2, 2 00

Profit & Loss Account

Dr. Particulars To

Process A A/c To Process B A/c To Process C A/c To Management Manag ement Expenses

Unit Rs. s 3,10 3,41,00 0 0 2,70 4,05,00 0 0 2,10 4,83,00 0 0

80,000

Cr. Rs.

Par ti cul a rs

U ni ts

By Sale

3,100

3, 7 2, 0 00

(Process A's Output @ Rs. 120/ p.m.) By Sale Sal e

2,700

4,45,5 00

(Process B's


To

Selling Sell ing Expenses To Abnormal Loss A/c

50,000 3 4, 8 0 0

(Working Note 4)

____ 7,90 0

Output @ Rs. 165/ p.u.) By Sale

(Process C's Output @ Rs. 250/- p.u.) By Abnormal gain A/c (Working Note 5) _______ _____ __ By Net Loss _ 13,93,8 00

2,100

5,25,0 00

18,850

___ _ 7,900

3 2, 4 50 13,93, 800

Working Notes 1. (i) Per unit cost of normal production under process A:

= =

Normal cost of normal outp Normal production output Rs.10,46,000– Rs.1,00 9,500units

= Rs. 110

(ii) Value of Abnormal loss under process A: Abno Abnorm rmal al loss loss unit units s production

=

Norm Normal al

prod produc ucti tion on

–

Actu Actual al

= 9,500 – 9,300 = 200 units Value of Abnormal Loss =

Per unit cost cost of norm normal al produc productio tion n × Abnor Abnormal mal loss loss units units

=

Rs. Rs. 110 110 × 200 200 – Rs. Rs. 22,0 22,000 00..

2. (i) Per unit cost of normal production under process B: =

(Rs.7,95,150– Rs.4,659 ) Rs.7,90,500 = = Rs.15 5,270 5,270


(ii) Value of Abnormal gain under process B: Abnormal gain units = Normal loss – Actual loss = 930 – 800 = 130 units =

Per unit cost cost of norm normal al produc productio tion n × Abnor Abnormal mal gain gain units units

=

Rs. Rs. 150 150 × 130 130 units units = Rs. Rs. 19,5 19,500 00..

3. (i) Per unit cost of normal production under process C: =

(Rs.5,02,200– Rs.5,400 ) Rs.4,96,800 = = Rs.23 2,160units 2,160units


(ii) Value of Abnormal loss under process C: Abnormal loss units = Normal production – Actual production production = 2,160 units – 2,100 units = 60 units = Rs. 230 × 60 units = Rs. Rs. 13,800 4.

Abnormal Loss Account

Dr.

To Process A A/c

Uni ts

Cost p.u. Rs.

200

110

22,0 00

60

230

13,8 00

To Process Proce ss C A/c

Amo Particulars unt Rs.

___ _____ _ 260 35,8 00 5.

By Sale proceeds of Process A Loss By Sale proceeds of Process C loss By Profit Profi t & Loss A/c

Uni ts

Normal loss shortfall To Profit & Loss A/c

Question 16

60

10

__ _ 260

600

34,8 00 35,8 00

Abnormal Gain Account

Dr.

To

Cr. Uni Cos Amo ts t unt p.u. Rs. Rs. 200 2 400

Co st p.u . R s. 130 5

Amo unt

R s. 650

18,8 50 19,5 00

Particulars

By Process B

Cr. Uni Cos Amo ts t unt p.u.

130

R s. 150

Rs. 19,5 00 _____ 19,5 00


Following data are available for a product for the month of July, 1993. Process I NIL R s.

Openi ng wor k-i n- p ro gr ess Cost Incurred during the month: D i r e c t ma t e r i a l s Labour Facto r y o verh ead s Units of production: Received in Process Completed and transferred Closing work-in-progress Normal loss in process

Process II N IL Rs.

6 0 ,00 0 1 2 ,00 0 2 4 ,00 0

– 1 6,0 00 2 0,0 00

4 0 ,00 0 3 6 ,00 0 2 ,00 0 2 ,00 0

3 6,0 00 3 2,0 00 ? 1,5 00

Production remaining in Process has to be valued as follows: Materials

100%

Labour

50%

Overheads

50%

There has been no abnormal loss in Process II Prepare process accounts after working out the missing figures and with detailed workings. Answer Statement of equivalent production units (Process – I) TABLE 1

Particulars

Units Introdu ced

Units in Units completed and transferred to Process-II

40,000

Units Out

36,00 0

Equivalent Production M ater i al Labo ur a nd Overhead % Units % Units Comple Comple tion tion 100

3 6, 0 0 0

100

3 6, 0 0 0


Normal loss Closing workin-progress Total

2,000 2,000 40,000

— 100

— 2,000

40,00 0

— 50

38,00 0

— 1,000 37,00 0

Computation of cost per equivalent unit for each cost element TABLE 2

Total Cost

Equivalent Units

Rs. Direct materials Labour Factory overheads Total

60,000 12,000 24,000

3 8, 0 0 0 3 7, 0 0 0 3 7, 0 0 0

Cost per Equivalent Unit Rs. 1.5780 0.3243 0.6487 2.5519

Process –1 Account

To Units introduced (Direct materials) To Labour Labou r

Unit s 40,0 00

Rs. 60,000

By Normal Loss

12,000

To Factory Factor y overheads _____ 40,0 00

By Process Proce ss – III transferred (Refer to Working Note1) 24,000 By Work inprocess (Refer _____ to Working Note 2) 96,000

U ni ts

Rs.

2,000

NIL

36,00 91,869 0

2,000

4,131

_____

_____

40,00 96,000 0

Statement of equivalent production units (Process – II) TABLE 3

Particulars

Equivalent Production


Units Introduc ed

Units transferred from process-I Normal loss Closing work-inprocess

Units Out

M ater i al

% Completi on 36,000 32,000 100

– –

1,500 2,500

Units

32,0 00

– 100

– 2,50 0

36,000 36,000

Lab ou r a nd Overheads % Units Completi on 100 32,00 0

– 50

3 4, 5 00

– 1,250

33,25 0

Computation of cost per equivalent unit for each cost element TABLE 4

Total Cost Rs. Cost of 36,000 units transferred transferred from Process Process –I Labour Factory overheads Total

Equivalen t Units

91,869

3 4, 5 0 0

16,000 20,000

3 3, 2 5 0 33,250

Cost per Equivalent Units Rs. 2.6629

0.4812 0.6015 3.7456

Process-II Account

To

Units introduced (Transferred from Process-I)

Unit s 36,0 00

Rs. 91,869

U ni ts By No Normal Lo L os s By Finished stock transferred

Rs.

1,500

–

32,00 0

1,19,8 59


(Refer to Working Note 3) To Factory Factor y 20,000 By Work-inoverheads process (Refer _____ _____ to Working Note 4) 36,0 1,27,86 00 0

To Labour Labou r

16,000

2,500

8,010

_____

_____

36,00 0

1,27,8 69

Working Notes: 1. Cost of 36,000 completed units in Process – I: =

36,0 36,000 00 × Co Cost per per uni unitt (Refer to Table 2)

=

36,0 36,000 00 × Rs. Rs. 2.55 2.5519 19 = Rs. Rs. 91,8 91,869 69..

2. Cost of 2,000 units under work-in-process in Process-I: =

Cost of 2,00 Cost 2,000 0 equi equiva vale lent nt units units of mater materia iall + Co Cost st of 1,000 1,000 equivalent units of labour and overheads (Refer to Tables 1 and 2).

=

2,00 2,000 0 × Rs. Rs. 1.5 1.5789 789 + 1,000 ,000 × Rs.0 s.0.32 .3243 + 1,0 1,000 × Rs. 0.6487

=

Rs. 4,131

3. Cost of 32,000 units of finished stock in Process-II: =

32,0 32,000 00 × Co Cost per per uni unitt (Refer to Table 3)

=

32,0 32,000 00 × Rs. Rs. 3.7 3.745 456 6 = Rs. Rs. 1,1 1,19, 9,58 589 9

4. Cost of 2,500 units under work-in-process in Process-II: =

Cost of 2,50 Cost 2,500 0 equi equiva vale lent nt units units of mater materia iall + Co Cost st of 1,250 1,250 equivalent units of labour and overhead (Refer to Tables 3 and 4)

=

2,50 2,500 0 × Rs. Rs. 2.66 .6629 + 1,2 1,250 × Rs. 0.48 0.481 12 + 1,25 1,250 × Rs. 0.6015

=

Rs. Rs. 6657 6657.2 .25 5 + Rs. Rs. 601 601.5 .50 0 + Rs. Rs. 751 751.8 .88 8

=

Rs. 8,010.63.

Question 17

In a manu manufa fact ctur urin ing g comp compan any, y, a prod produc uctt pass passes es thro throug ugh h 5 th operations. The output of the 5 operation becomes the finished product. prod uct. The input, input , rejection rejec tion,, output outpu t and labour labo ur and overheads overh eads of each operation for a period are as under:


Oper ati o n 1 2 3 4 5

Inp u t (units)

Rejection (units)

Output (units)

5,4 00 1,3 50 1,3 50 1,8 00 2,8 80

1 6,2 0 0 1 8,9 0 0 1 7,5 5 0 2 1,6 0 0 1 4,4 0 0

21 ,6 00 20 ,2 50 18 ,9 00 23 ,4 00 17 ,2 80

Labour and Overhead (Rs.) 1,9 4,4 0 0 1,4 1,7 5 0 2,4 5,7 0 0 1,4 0,4 0 0 8 6,4 0 0

You are required to: (i) Dete Determ rmine ine the inpu inputt require required d in each each operat operation ion for one unit unit of final output. (ii) (ii) Calcu Calculat late e the labour labour and overhea overhead d cost cost at each each operat operation ion for one unit of final output and the total labour and overhead cost of all operations for one unit of final output. (November,1996,8 marks) Answer (i ) Statement of of In Input re required in in ea each op operation fo for one unit of final output:

(Refer to Working Note) Oper ati o n 5

Ou tpu t (Units) 1

Rejection of output in %

Input required

20

1.20 1×

4

1.20

8.33

1.30 1.20×

3

1.30

7.69

1.40

7.14

1.50

33.33

107 .69 100 1.50

1.40× 1

108 .33 100 1.40

1.30× 2

12 10

107 .14 100 2.00


1.50×

133 .33 100


Working Note: Input required for final output

Operatio n

Input Rejection (units) (units)

Output (units)

1

21,600

5,400

16,200

3 3. 3 3

2

20,250

1,350

18,900

7. 1 4

1.50

3

18,900

1,350

17,550

7, 6 9

1.40

4

23,400

1,800

21,600

8. 3 3

1.30

5

17,280

2,880

14,400

2 0. 0 0

(i i )

Rejection

Input required for final output

as % of output

2.00

1.20

Statement of labour and overhead cost at each operation for one unit of final output

Operatio n

Input (Units)

Labour & Overhead s)

(Rs.)

Labour & Overhead per unit u nit of input (Rs.)

(Rs.) (a)

(b)

(c)

(d) = (c)/ (b)

Input units required for one unit of final output

Labour and Overhead cost per unit of final output (Rs.)

(e )

( f) = (d)×(e)

1

21,600

1,94,400

9

2.00

18.00

2

20,250

1,41,750

7

1.50

10.50

3

18,900

2,45,700

13

1.40

18.20

4

23,400

140,400

6

1.30

7.80

5

17,280

86,400

5

1.20

6.00 60.50

Total labour labou r and overhead cost of all operations operati ons for one unit of final output is Rs. 60.50 Question 18

From the following information for the month of October, 2003, prepare prep are Process Pr ocess III cost co st accoun a ccounts: ts:


Open Openin ing g WI WIP P in Proc Proces ess s III III

1,80 1,800 0 unit units s at Rs. Rs. 27,0 27,000 00

T r a n s f e r f r o m P r o c e s s II

4 7 , 7 0 0 un i t s a t R s . 5 , 3 6 , 6 2 5

Transferred to Warehouse

43,200 units

Closing WI WIP of Pr Process II III

4,500 un units

Units scrapped

1,800 units

D i r e c t m a t e r i a l a d d e d i n P r o c e s s II I Direct Wages

Rs.87,840

Production overheads

Rs. 43,920

Rs. 1,7 7 ,84 0

Degree of completion: Ma teri a l Lab our Over heads

Op e n i n g S t o c k 8 0% 6 0% 6 0%

Cl o s i n g S t o c k 70 % 50 % 50 %

S cra p 10 0% 7 0% 7 0%

The normal loss in the process was 5% of the production and scrap was sold @ Rs. 6.75 per unit. (November, 2003, 10 marks) Answer Statement of Equivalent Production (Process III)

Equivalent production Input Output Material A Material B Labour & __________ _____ ________ ___ __________ _____ __________ _____ __________ _____ _____ __________ ______ ____ overheads Details Quant uant Quant Quantit % Quant % Quant % ity ity y units uni ts ity ity Units units units units Op WIP 1,800 Work on 1,800 – – 360 20 720 40 Op. WIP Proces 47,70 Introduc 41,40 41,400 10 41,40 100 41,40 100 s II 0 ed & 0 0 0 0 Transfe complet r ed during the month Normal 2,250 – – – – – – loss (5%


of 45,000 units) Cl . W I P

4,500

4,500 10 3,150 70 2,250 50 0 49,95 45,900 44,91 44,37 0 0 0 Abnorma –450 –450 10 –450 100 –450 100 l gain 0 49,50 49,50 45,450 44,46 43,92 0 0 0 0 Working note Production units: Production units = O p e ni n g transferred from process II – Closing units

un u ni ts

+

Un U ni ts

= 1,800 units + 47,700 units – 4,500 units = 45,000 units Statement of cost

Cost

Material A

(Transfer from previous process) Less: Scrap value value of normal loss (2,250 units × Rs 6.75)

Material B Labour Overheads

Rs. (a) 5,36,62 5

Equivale nt

(b)

Cost per equivalent units Rs. ( a ) / (b )

4 5, 4 5 0

11.4728

4 4, 4 6 0

4.0000

43,920 4 3, 9 2 0

2.0000 1.0000

15,187 5,21,43 8 1,77,84 0 87,840 43, 920 8,31,03 7.50

Statement of apportionment of process cost

18.4728


Material A Completed opening WIP Material units – 1,800 B Wages

Rs. 27,000

Open in g WIP

Overhea ds Introduced complete leted d units

–

& 41,400

Total cost of 43,200 finished goods units Closing WIP Units – Material 4,500 A Material B Wages Overhea ds Abno Abnorm rmal al gain gain units units – 450

360 units × Rs.4 = Rs. 1,440 720 units × Rs.2 = Rs. 1,440 720 units × Re. 1 = Rs. 720 41,400 units × Rs. 18.4728

4,500 units × Rs. 11.4728 3,150 units × Rs.4 2,250 units × Rs.2 2,250 units × Re.1

450 uni ts 18.4728

×

3,600 7,64,7 73 ______ _____ _ 7,95,3 73 51,628 12,600 4,500 2,250

Rs.

70,978 8313

Process III A/c

To Balance Balan ce b/d b/ d To Process Proce ss II A/c

To Direct material To Direct Wages To Production Produ ction overheads

Unit Rs. s 1,80 27,000 0 47,7 5,36,62 00 5

U ni ts

Rs.

By Normal Loss

2,250 15,187

By Finished goods stock

43,20 0

By Closing WIP

4,500 70,978

7,95,3 73

1,77,84 0 87,840 43,920


To Abnormal Abn ormal gain

45 0 49,9 50

8,31 3 8,81,53 8

_____

_______ _____ __

49,95 0

8,81,5 38

Question 19

The following information is given in respect of Process No.3 for the month of January 2001. Opening stock – 2,000 units made up of Direct Materials I

Rs. 12,350

D i re c t M a t e r i a l s – I I

R s. 1 3 , 2 0 0

Direct Labour

Rs. 17,500

Overheads

Rs. 11,000

Transferred from Process No.2: 20,000 units @ Rs. 6.00 per unit Transferred to Process No.4: 17,000 units Expenditure incurred in Process No.3 Direct Materials

Rs. 30,000

Direct Labour

Rs. 60,000

Overheads

Rs. 60,000

Scrap 1,000 units – Direct Direct Materials Materials 100%, Direct Direct Labour Labour 60%. Overheads 40%. Normal loss 10% of production. Scrapped units realised Rs. 4 per unit. Clos Closin ing g Stoc Stock: k: 4,00 4,000 0 unit units s – Degr Degree ee of comp comple leti tion on:: Dire Direct ct Materials 80%, Direct Labour 60% and overheads 40%. Prep Prepare are Proce Process ss No.3 No.3 Ac Acco count unt using using avera average ge price price meth method od,, alongwith necessary supporting statements. (May,2001, 10 marks)

Answer Statement of Equivalent Production (Average cost method)

Particular Total s Unit

Mate Materi rial al I

Mate Materi rial al II

Labo Labour ur

Over Overhe head ad


% Units complete ly processe d Normal Loss 10% of (2,000 units + 20,000 units – 4,000 units) (Refer to working note) Abnormal gain Closing stock

17,0 00

U ni t % U ni t % U ni t % U ni t s s s s 100 17,0 100 17,0 100 17,0 100 17,0 00 00 00 00

1,80 0

—

—

—

—

—

—

—

—

800 4,0 00 22,0 00

100

-800

100

-800

100

-800

100

- 800

100

4,00 0 20,2 00

80

3, 2 0 0 19,4 00

60

2,40 0 18,6 00

40

1,60 0 17,8 00

Statement of Cost

Cost Rs. Material I: Opening balance 2,000 units Cost of 20,000 units @ Rs. 6/- per unit Less: Scrap realized (1,800 units × Rs. 4)

Material II: Opening Stock

12,35 0 1,20,0 00 (7,200 ) ______ _____ _ 1,25,1 50 13,20 0

Equivalent Units

_____ 20,200

Rate/Equivalent (Unit) (Rs.)

_____ 6,1955


In Process II

30,00 0 43,20 0

Labour Opening labour

_____ 19,400

17,50 0 60,00 0 77,50 0

In Process II

Overhead: Opening stock

2.2268

_____ 18,600

11,00 0 60,00 0 71,00 0

In Process II

_____

_____ 4.1667

_____ 17,800

_____ 3.9888 16.5778

Statement of Evaluation Cost of 17,000 finished goods units 2,81,822.60 or Rs.2,81,822 (say)

(17,000 units × Rs. 16.5778) Cost of 800 abnormal units

13,262.24 or 13,262 (say)

(800 units × Rs. 16.5778) Cost of 4,00 Cost 4,000 0 clo closi sing ng wor workk-in in-p -pro rogr gres ess s uni units ts (say)

48,2 48,289 89.9 .92 2 or or 48, 48,29 290 0

Rs. Material I 4,000 units × Rs. 6.1955

=

24,782.00

Material II 3,200 units × Rs. 2.2268

=

7, 1 2 5. 7 6

Labour

=

10,000.08

=

6, 3 8 2. 0 8

2,400 units × Rs. 4.1667

Overhead 1,600 units × Rs. 3,988

48,289.92 Process 3 A/c Dr. Particulars

Unit s

Rs.

Particulars

Un Unit s

Cr. Rs.


To Opening Ope ning WIP To Process Proce ss 2

To Direct Material II To Direct Dire ct Labour To Overhead Overh ead To Abnormal Abn ormal gain

2,00 0 20,0 00

54,050 1,20,00 0

By Normal Loss By Finished goods units By Closing balance

1,80 7,200 0 17,0 2,81,8 00 22 4,00 48,290 0

30,000 60,000

80 0 22,8 00

60,000 13,2 62 3,37,31 2

_____ 22,8 00

_______ _____ __ 3,37,3 12

Working Note: Normal loss given is 10% of production. The word production here means those units which come upto the state of inspection. In that case, opening stock plus receipts minus closing stock of WIP will represent units of production (2,000 units + 20,000 units – 4,000 units). In this case the units of production comes to 18,000 units and hence 1,800 units as normal loss units.


Question 20

JKL Limited Limit ed produces prod uces two products prod ucts – J and K together toget her with a by product prod uct L from f rom a single singl e main m ain process proce ss (process (proc ess I). Product Produ ct J is sold at the point of separation for Rs. 55 per kg. Whereas product K is sold for for Rs. Rs. 77 per kg. Afte Afterr furth further er proce process ssing ing into into produc productt K2. By By- product prod uct L is sold so ld withou wi thoutt further fur ther processing proce ssing for Rs. R s. 19.25 19 .25 per p er kg. Proc Proces ess s I is clos closel ely y moni monito tore red d by a team team of chem chemis ists ts,, wh who o planned plan ned the t he output ou tput per 1,000 1 ,000 kg of input inpu t material mate rials s to be as follows: foll ows: Product J

500 kg

Product K

350 kg.

Product L

1 0 0 kg.

Toxic waste

50 kg.

The toxic waste is disposed at a cost of Rs. 16.50 per kg. And arises at the end of processing. Process II which is used for further processing of product K into product prod uct K2, K 2, has ha s the following follo wing cost structure struc ture:: Fixed costs

Rs. 2,64,000 per week

Var i ab l e cost

Rs. 16.50 per kg. processed

The following actual date relate to the first week of the month: Process I

Openi ng wor k-i n- p ro gr ess

NIL

Mat eri al i np ut

40,000 kg costing Rs. 6,60,000

D i re c t L a b o u r

R s. 4 , 4 0 , 0 0 0

Var i ab l e overh ead s

R s. 1 , 7 6 , 0 0 0

Fixed overheads

R s. 2 , 6 4 , 0 0 0

Outputs:

Product J

19,200 kg.

Product K

14,400 kg.

Product L

4,000 kg.

Toxic waste

2 ,4 00 kg .

Closing work-in-progress

NIL


Process II

Openi ng wor k-i n- p ro gr ess

NIL

Input of product K

14,400 kg.

Output of product K2

13,200 kg.

Closing work-in-progress (50% converted and conversion costs were incurred in accordance with the planned cost structure)

1,200 kg.

Required (i) Prepare Prepare Proce Process ss I account account for for the first first week week of the the month month using using the final sales value method of attribute the pre-separation costs to join products. (ii) Prepare Prepare the toxic toxic waste waste account account and Process Process II account account for the first week of the month. (iii) Comment Comment on the method used by the JKL Limited Limited to attribute the pre-separ pre- separatio ation n costs cost s to joint join t product pro ducts. s. (iv) Advise the management management of JKL Limited whether whether or not, on purely financial grounds it should continue to process product K into product prod uct K2. K 2. (a) If product product K could be sold at the point point of separati separation on for Rs. 47.30 per kg; and (b) (b) If the the 60% 60% of the the week eekly fix fixed cost costs s of Proc Proces ess s II were ere avoided by not processing product K further. (May,2004, 10 marks) Answer (i )

Process I account

Particulars

Qty in Kg.

Rate / Amoun Kg. t Rs. Rs.

Par ticu lar s

Qty Rate in / Kg. Kg.R s.

Amou nt Rs.

To Ma terial teria l input

40,00 0

16 . 50

6 ,6 0 ,0 00

By Product L sales

4,00 0

19.2 5

77,000

4,40,0 00

By No rm a l loss

2, 0 0 0

(-) 16.5 0

(-) 33,000

To Direct Di rect Labour


To Variab Va riable le overheads

1,76,0 00

By Abnormal Loss*

To Fixed F ixed overheads

2,64,0 00

By Joint Product J (Refer to working note 2)

_____ ____ _ 40,00 0

400

44

1 7 ,6 0 0

19,2 00

7,21,1 71

By Joint product K 14,4 00 _______ ____ ___ (Refer to working note 2) _____ ____ _

7,67,2 29

15,40,0 00

40,0 00

_______ ____ ___ 15,40, 000


Valuation Valuation of abnormal abnormal loss per kg. kg. =

Rs.15,40,000– Rs.77,000+ Rs.33,00 40,000Kgs.× 0.85

(Using physical measure method) = Rs. 14,96,000 14,96,000 / 34,000 kgs. = Rs. 44 per kg. (ii)

Toxic Waste Account

Par ti cul ars

Qty Rat Amou Particula . in e / nt Rs. rs Kg. Kg. Rs. To Process I 2,0 16. (-)33,0 By A/c 00 50 00 Balance

Qty. in Kg.

Rate/ Amoun Kg. t Rs. Rs. 1 6. 5 0

( -)33,0 00

Process II Account

Par ti cu l ars

Qty. Rate Amou Particular Qty. in / Kg. nt s in Kg. Kg. Rs. Rs. To Process 14,4 52,5 7,57,23 By 13,2 I 00 85 6 Product 00 A/c K 2 (Product K) account To Variable Varia ble 16.5 2,37,60 By 1,20 overhead 0 0 Closing 0 s WIP To Fixed Fix ed 2,64,00 (Refer to overhead 0 working note 3) s 12,58,8 36

Rat Amoun e/ t. Kg. Rs. Rs. 11,73, 924 84,912

_______ _____ __ _ 12,58, 836

Working notes: 1. Calculation of joint cost of the output: =

Rs. 15,4 15,40,0 0,000 00 – Rs. Rs. 77,00 77,000 0 – Rs. Rs. (-) (-) 33,00 33,000 0 – Rs. Rs. 17,600 17,600

=

Rs. 14,78,400

2. & K

Allocation of joint cost over joint products J (By using final sales value method)

Products

Qu ant i ty (Kgs.)

Sales Value Rs.

Joint Cost Rs.


J

19,200

K

14,400

Total

10,56,000 10,56,00 0 (19,200 kg × Rs. 55) 11,08,800 (14,400 kgs x Rs.77) 21,64,800 21,64,80 0

7,21,171

7,57,229

14,78,400 14,78,40 0


3.

Valuation of 1,200 Kgs. of Closing WIP : Material I

100% complete

Rs.

(1200 kgs x Rs.52.5858)63,103 Fixed & variable overheads

 Rs.5,01,600    x 600 units 13 , 800 units  

21,809 Total valuati v aluation on of 1,200 kgs kg s of closing cl osing WIP (iii)

84,912

Comment on the method used by the JKL Ltd :

(To attribute the pre-separation costs to joint products) For attributing the joint costs over joint products J and K , JKLF Ltd. Ltd.,, used used the the basi basis s of fina finall sale sales s valu value. e. This This is one one of the the popular method used in the industry. Other methods can also be used for the purpose. Some of these are as follows: – Phys Physic ical al Meas Measur ure e Me Meth thod od (if (if both both the the prod produc ucts ts are are equa equall lly y complex).

(iv)

–

Const Co nstan antt Gro Gross ss Ma Marg rgin in Perc Percen enta tage ge metho method. d.

–

Net Net Rea Reali liza zati tion on Valu Value e Met Metho hod. d. Advise to the management of JKL Ltd.:

Rs. Incremental Incremental sales revenue revenue per kg. from further further processing processing 29.70 29.70

Less: Increme Incrementa ntall variabl variable e cost cost per kg. of further further processi processing ng 16.50 Incr Increm ement ental al contr contribu ibutio tion n per kg from from fur furthe therr proc proces essi sing ng

13.2 13.20 0

At an outpu outputt of 14,4 14,400 00 kgs kgs the the incre increme ment ntal al cont contrib ribut ution ion is: 1,90,080

Less: Avoidable fixed cost (60% x Rs. 2,64,000)

1,58,400

__ ___

N e t b e n e f i t ( Rs . )

31,680

Break-even point

=

Avoidable fixedcosts Rs..1,58,40 = Incrementa l contributi onperkg. Rs.13.20

= 12,000 kgs.


Hence Hence furt further her proce process ssing ing should should be under underta take ken n if outpu outputt is expected to exceed 12:000 kgs. per week. Question 21

A produ p roduct ct passes p asses through thro ugh two processes. proc esses. The output outp ut of Process Proces s I becomes the input of Process II and the output of Process II is transferred to warehouse. The quantity of raw materials introduced into Process I is 20,000 kg. at Rs. 10 per kg. The cost and output data for the month under review are as under: D i re c t M a t e r i a l s D i re c t L a b o u r Produ roduc ction ion overhe rheads ads Normal Loss Ou tput Loss realisation of Rs. / Unit

Process I Rs. 6 0 ,00 0 Rs. 4 0 ,00 0 Rs. 39, 39,000 8% 18 ,00 0 2.0 0

Process II Rs. 4 0,0 00 Rs. 3 0,0 00 Rs. 40,25 0,250 0 5% 1 7,4 00 3 .00

The company's policy is to fix the Selling price of end product is such a way as to yield a Profit of 20% on Selling price. Required (i) Prep Prepare are the the Pro Proce cess ss Acco Account unts s (ii) (ii) Det Determ ermine ine the the Sell Sellin ing g pric price e per per unit unit of the the end prod produc uct. t. (November,2002, 9 marks) Answer (i )

Process I Account

Dr. Cr. K gs.

To Raw material To Direct Dire ct material To Direct Dire ct labour

20,0 00

Rat Amo e / unt Kg.

Particulars

Rs. Rs. 10 2,00,0 By Normal 00 loss 60,00 By 0 Abnorm al loss 40,00 (Refer 0 to working

Kg s .

1,60 0 400

Rat Amoun e/ t. Kg. Rs. 2.0 0 1 8. 25

Rs. 3,200 7,300


To Production overhea ds

notes 1 & 2) By 39,0 Transfer to 00 Process II

_____

20,0 00

3,39,0 00

18,0 00

18. 25

20,0 00

3,28,5 00 3,39,0 00

Process II Account

Dr. Cr. K gs.

Rat Amou e / nt Kg. Rs.

To Pr ocess I Account Acc ount

Par ticu lar s

R at ate / Kg.

Rs.

40,000 40,0 00

Amoun t Rs.

Rs.

18,0 00 18.2 3,28,5 By Normal 5 00 loss

To Direct Di rect mater ials

Kgs.

By Trans T ransfer fer to

900

3 .0 0

2 .7 0 0

17,40 0

2 5 .5 0

4 , 43 , 7 00

warehou se To Direct Di rect labou r

30,000 30,0 00

To Pr oduction oduct ion overheads

40,250

To Ab norm al gain ga in

(Refer to working notes 3 & 4)

300 25.5 0 1 8 ,3 0 0

7,65 0

____ _

______ ____ __

4 4 6 40 0

18 3 0 0

44640 0

Working notes 1. Abnormal loss in Process I: Required production (20,000 kgs. – 1,600 kgs.) 18,400 Actual production (in kgs.) Abnormal loss (in kgs.) 2. Value of abnormal loss in Process I: =

 Normal cost of normal outpu    × Abnormal loss. Normal output  

18,000 400


=

 Rs.3,35,800   Rs. 18.25 × 400 kgs. = 7,300  × 400 kgs. = Rs.  18,400kgs. 

3. Abnormal gain in Process II: Required production (18,000 kgs. – 900 kgs.) 17,100 Actual production Abnormal gain (in kgs.)

17,400 300

(4) Value of abnormal gain in Process I: =

 Rs.4,36,050   300 Kgs. gs. = Rs. Rs. 25.50 × 3,000 kgs kgs.  × 300 17 , 100 kgs  

=

Rs.7,650.00 (ii) Determination of selling price of the end product: product: If the cost price of end product is Rs. 80 the units S.P. is Rs. 100 If the cost price of end product is Re.1, the unit S.P. is

10 80

If the cost price is Rs. 25.50, then the S.P. of the end product is 100 × 25.5 80 = Rs. 31.875

Question 22

RST Ltd. manufactures plastic moulded chairs. Three models of mould moulded ed chair chairs, s, all varia variatio tion n of the the same same desig design n are Standa Standard, rd, Delux Deluxe e and and Exec Executi utive ve.. The comp company any uses uses an operat operation ion-co -cost sting ing system. RST Ltd. has extrusion, form, trim and finish operations. Plastic sheets are produced by the extrusion operation. During the forming operation, the plastic sheets are moulded into chair seats and the legs are added. The standard model is sold after this operation. During the trim operation, the arms are added to the Deluxe and Exec Executi utive ve mode models ls and and the the chair chair edges edges are smoo smoothe thed. d. Only Only the the execut executive ive model enters enters the finish operation, operation, in which which padding padding is added. All of the units produced receive the same steps within each operation. In April, 2003 units of production and direct material cost incurred are as follows:


Units Produc ed

Extrusi on Materia ls (Rs.)

Form Materia ls (Rs.)

Trim Materia ls (Rs.)

Finish Materia ls (Rs.)

Standard Model

1 0,5 0 0

42 ,00 0

0

0

Deluxe Model E x e c u t i ve M o d e l

5,2 5 0 3,5 0 0

1 ,26 ,00 0 6 3,0 00 4 2,0 00

21 ,00 0 14 ,00 0

1 5 ,75 0 1 0 ,50 0

0 2 1,0 00

2 ,31 ,00 0

77 ,00 0

2 6 ,25 0

2 1,0 00

1 9,2 5 0

The total conversion costs for the month of April, 2003 are:

Tota Totall costs

conv conver ersi sion on

Extrusion Operation

Form Operation

Trim Operation

Finish Operation s

Rs. 6,06,375

Rs. 2.97,000

Rs. 1,55,250

Rs. 94,500

Required: (i)

For each each product product produce produced d by RST Ltd. during during April.200 April.2003, 3, determine the unit cost and the total cost

(i)

Now consider the following information for May. All unit costs in May are identical to the . April unit costs calculated as above in (i). At the end of May, 1,500 units of the Deluxe model remain in work work-i -inn-pr prog ogre ress ss.. Thes These e unit units s are are 100% 100% comp comple lete te as to materials and 65 % complete in the trim operation. Determine the cost of the Deluxe model work-in-process inventory at the end of May. (Ma y,20 03 , 6 +3 =9 mar ks)

Answer Working notes: 1. Statem Statement ent of equiva equivalen lentt produc production tion units units of Extrusi Extrusion, on, Form, Trim and Finish materials for Standard, Deluxe and Executive model of chairs.


Extrusion materials uni ts Equi Equiva vale lent nt units nits of 19,250 materials materials required to produce three brands of plas lastic moulded ded chairs

Form materials uni ts 19,250

Trim materials uni ts 8, 7 5 0

Finish materials uni t s 3,500

2. Statement of material and conversion cost per equivalent unit: Equivalent units: (A) (Refer to working note 1) Mate Ma teri rial al cost costs s (Rs. (Rs.): ): (B) Conv Co nver ersi sion on cost costs s of diffe differe rent nt oper operat ation ions s performed on material (Rs.) : (C) Material c os t per equivalent equivalent unit (Rs.): (Rs.): (B/A) Conversion cost per equivalent unit (Rs.): (C/A) (i) wise

Extrusion 19,250

Fo rm 19,250

Tr i m 8, 7 5 0

Fin i sh 3,500

2,31,000

77,000

2 6, 2 5 0

21,000

6,06,375

2,97,000

1, 5 5, 2 5 0

94,500

12

4

3

6

3 1. 5 0

1 5. 4 3

17.74

27

Statement Statement of Unit and Total cost ModelModel-

(Refer to working notes 1 & 2)

Extrusion material Form material Trim material mat erial Finish material Extrusion conversion F or m c o n v e r si o n

Standard Model cost Rs. 12.00 4.00 – 3 1. 5 0

Deluxe Model Cost R s. 1 2. 0 0 4. 0 0 3.00 3 1. 5 0

Executive Model Rs. 1 2. 0 0 4.00 3.00 6..00 31.50

1 5. 4 3

1 5. 4 3

1 5. 4 3


Trim conversi co nversion on Finish conversion Total unit cost Total Cost

(ii) ii)

– – 62.93 6,60,765 (10,500 units×Rs.62.9 3)

17.74 – 83.67 4,39,267.5 (5,250 units × Rs.83.67)

17.74 27 116.67 4,08,345 (3,500 units × Rs.116.67)

Stat State ement ment of of cos cost of 1,5 1,500 00 un units its of th the Delu Deluxe xe Mod Model el of the chairs lying in Work-in-progress inventory at the end of May 2003

Equivalen t units

Extrusion materials Form materials Trim material mat erials s Extrusion materials conversion Form materials conversion Trim material mat erials s conversati con versation on (1,500 units × 65%) Total cost of 1,500 units u nits of

( 1)

Unit cost (Refer to working note 2) Rs. (2 )

1,500 1,500 1,500 1,500 1,500 975

12 4 3 31.50 1 5. 4 3 17.74

Total Cost

(3 )=(1 ) × (2) 18,000 6,000 4,500 47,250 23,145 17,296.50 _________ _____ ____ 1,16,191. 1,16,191 . 50

Delux Model of chairs lying in WIP Question 23

Process 2 receives units from Process I and after carrying out work on the units transfers them to Process 3. For the accounting period peri od the th e relevant rel evant data were as a s follows: fol lows: Opening WIP 200 units (25% complete) valued at

Rs. 5,000

800 Units received from Process I valued at Rs. 8,600 840 units were transferred to Process 3 Closing WIP 160 units (50% complete)


The costs of the period were Rs. 33.160 and no units were scrapped. Required: Prepare the process Account for Process 2 using the Average Cost method of valuation. (November,1995, 6 marks) Answer Process 2 Account

To Opening Ope ning WIP To Process Proce ss 1 A/c A /c To Process Proce ss Cost

Unit s 200 800

____ 1,00 0

Rs.

U ni ts

5,000 8,600 33,160

By Transfer to Process 3 (Refer to W. note No.3) By Closing WIP (Refer to W. _____ note No.3) 46,760

Rs.

840 42,694

160

4,066

____ _____ 1,000 46,700

Working Notes 1.

Units In

1000

1000

Computation of Equivalent Units

Particul ars

Units out

Equivalent Production M ater i al

Lab ou r an d

% Comp letion

U ni ts

% Com pletio n

U ni ts

Overh ead % Com pletio n

Units

Comple ted units

840

100

840

100

840

100

840

WIP

160

50

80

50

80

50

80

1000

920

920

2. Aver Averag age e cost cost per per com comple plete ted d units units

Rs.

920


Cost of 200 opening WIP units

5,000

Cost of 800 units received from Process I 8,600 Cost of the period Total cost

33,160 46,760

Equivalent units = 920

(Refer to Working Note No.1) Average cost per completed unit =

Rs.46,76 = Rs. 50.826 920unit

Rs. 3. Cost Cost of 840 comple completed ted units units trans transfer ferred red to Proc Process ess 342,694 342,694

(840 units × Rs. 50,826) Cost of 160 WIP units which are 50% complete 4,066

(80 units × Rs. 50,826)


Question 24

The The inpu inputt to a puri purify fyin ing g proc proces ess s was was 16,0 16,000 00 kgs. kgs. of basi basic c material purchased @ Rs. 1.20 per kg. Process wages amounted to Rs.7 Rs.720 20 and and over overhe head ad was was appl applie ied d @ 240% 240% of the the labo labour ur cost cost.. Indir Indirect ect mater material ials s of negli negligib gible le weigh weightt were were intro introduc duced ed into into the process proce ss at a cost of Rs. 336. The actual actua l output outpu t from the process proc ess weighed 15,000 kgs. The normal yield of the process is 92%. Any difference difference in weight between between the input of basic material and output of purified material (product) is sold @ Re. 0.50 per kg. The process is operated under a licence which provides for the payment paymen t of royalty royal ty @ Re.0.15 Re.0. 15 per kg. of the purified puri fied material mater ial produced. prod uced. Prepare: (i) Purifyi Purifying ng Proces Process s Account Account

(3 marks) marks)

(ii) Normal Normal Wastage Wastage Account Account

(3 marks) marks)

(iii) Abnormal Wastage / Yield Account

(May, 1996, 2 marks)

(iv) Royalty Payable Account

(1 marks)

Answer (i)

Purifying Process Account

Dr. Qty.

To

Basic material

To Wages To Overheads Overh eads 240% of Rs. 720 To Indirect Indi rect materials

Ra Amou te nt per kg. kg. Rs. Rs. 16,0 1.2 19,20 00 0 00

720 1,728

336

By Normal wastage 8% of 1,60,000 Kg. By Purified stock

Cr. Qty. Rat Amo e unt per kg. kg. Rs. Rs. 1,28 0.5 640. 0 0 00

15,0 00

1.6 0

24,0 00


To Royalty Royal ty payable on normal yield 14,720 kg × 0.15 To Abnormal Abn ormal yield

2,208

28 0 16,2 80

448 1.6 ______ _____ _ 0 24,64 0

(ii)

_____ _ 16,2 80

Normal Wastage Account

Dr. Qty .

To Purifyin Puri fying g process (Normal wastage)

Ra te per kg. kg. Rs. 1,2 0.5 80 0

____ 1,2 80

Amo unt

Particulars

Rs. 640

By Pu Purifying Process (Ab. Yield) reduction By Cash sale ___ of wastage 640

(iii)

Cr. Qty Rat Amo . e unt per kg. Kg. Rs. Rs. 280 0.5 140 0

1,0 00 1,2 80

0.5 0

500 640

Abnormal Yield Account

Dr. Qty .

To Normal Wastage A/c

_____ _ 24,6 40

Ra te per kg. kg. Rs. 280 0.5 0

Amo unt Rs. 140

Particulars

By Pu Purifying Process A/c

Cr. Qty Rat Amo . e unt per kg. kg. Rs. Rs. 280 1.6 448 0


To Royalty payable (on abnormal yield) To Balance (Profit & Loss A/c

0.1 5

42

___

266

___

280

448

280

(iv)

___ 448

Royalty Payable Account

Dr. Qty.

Rat Amo e unt per kg. kg. Rs. Rs. 15,0 0.1 2,250 00 5

To Balance Balan ce

_____ 15,0 00

Particulars

By Pu Purifying Process A/c By Abnormal _____ yield A/c

2,250

Cr. Qty. Rat Amo e unt per kg. kg. Rs. Rs. 14,7 0.1 2,208 20 5

28 0 15,0 00

0.1 5

42 2,250

Question 25

The following data relate to Process Q (i) Opening Opening work-in work-in-pro -proces cess s 4,000 4,000 units units Degree of completion: M ater i al s

10 0%

Rs. 24 ,00 0

Lab ou r

60%

Rs. 14 ,40 0

Overheads

60%

Rs. 7,2 00

(ii) Received Received during the the month month of April, April, 1998 from from process process P. 4 0,0 0 0 U ni ts.

Rs. 1,7 1,0 0 0

(iii) Expenses Expenses incurred in Process Process Q during the month: Material

Rs. 79,000

Labour

Rs. 1,38,230


Overheads

Rs. 69 ,12 0

(iv) Closing work-in-process

3 ,00 0 un i ts

Degree of completion: Material

100%

Labour & Overheads

50%

(v) Units Units scrappe scrapped d

4,000 4,000 units units

Degree of completion: Materials

100%

Labour & Overheads

80%

(vi) Normal loss: loss: 5% of current current input. (vii (vii))

Spoi Spoile led d goo goods ds real realis ised ed Rs. Rs. 1.5 1.50 0 eac each h on on sal sale. e.

(viii (viii))

Comp Complet leted ed units units are transf transfer erred red to ware warehou house se;;

Required Prepare: (i) Equiv Equivale alent nt unit units s stat statem ement ent (ii) Statement Statement of cost cost per equivalent equivalent unit and total costs. (iii) Process Q Account Account (iv) Any other account necessary necessary

(May, 1998,12 marks)

Answer (i)

Equivalent units Statement (using FIFO method)

Unit Particula s in rs

4,00 0

Opening work inprogress units, complete d and

Units out

4,00 0

Equivalent Production Ma teri a l s Lab ou r O verhead s % Unit % U ni ts % Units compl s comp comp e-tion leletion tion — — 40 1,60 40 1,60 0 0


40,0 00

(ii) cost

transferr ed to warehou se Units complete d and transferr ed to warehou se Closing work-in progress Normal loss Abnormal loss

33,0 00

100

3 3, 0 00

100

3 3, 0 00

100

33,0 00

3,00 0

100

3,00 0

50

1,50 0

50

1,50 0

2,00 0 2,0 00

—

—

—

—

—

—

100

2,00 0 38,0 00

80

1,60 0 37,7 00

80

1,60 0 37,7 00

Statement of Cost per equivalent unit and total

Previous Process P

Costs (Rs.) Less: Recovery from the sale of 2,000 units @ Rs.1.50 p.u. of normal loss (Rs.)

1, 7 1, 0 0 0

1, 7 1, 0 0 0 Equivalent units: Cost per equivalent unit (Rs.)

Current process Q M ater i al Lab ou r and overhead s 79,000 2,07,350 –3,000

76,000 38,000 6.50

 Rs.1,71,000+ Rs.76,000   38,000  

To tal

2,07,350 37.700 5.50 Rs.2,07,35 37,700

Total cost of 37,000 comple c ompleted ted units u nits transferred transf erred to warehouse. wareh ouse.

1 2. 0 0


Cost of 4,000 completed opening units (Rs.)

54,400

(Rs. 45,600 + Rs. 8,800) (1,600 units × Rs. 5.50) Cost of 33,000 completed units (Rs.)

3,96,000

(33,000 units × Rs. 12) Total cost of 37,000 comple c ompleted ted units u nits (Rs.)

4,50,400

Cost of 3,000 Closing W.I.P. Units (Rs.)

27,750

(Rs. 19,500 + Rs. 8,250) { (3,000 units × Rs. Rs. 6.50) + (1,500 units × Rs. 5.50) } Cost of 2,000 abnormal loss unit (Rs.)

21,800

(Rs. 13,000 + Rs. 8,800)

Rs. 4,99,950

(iii)

Dr. Particulars To Op. W.I.P. To

Units received

Process Q Account

Un i ts 4,000

Rs. 45,600

Par ti cul a rs By Normal Norma l loss lo ss

40,00 0

1,71,0 00

By Completed units (Refer to (ii) Part) By Cl. W.I.P. (Refer to (ii) part) part ) By Abnormal Loss (Refer to (ii) part) part )

To Expenses Expe nses incurred Materials Labour Overheads

(iv) loss account:

79,000

____ __

1,38,2 30 69,120

44,00 0

5,02,9 50

Cr. Rs. 3,000

Uni ts 2,00 0 37,0 00

4,50,4 00

3,00 0

27,75 0

2,00 0 _____ 44,0 00

21,80 0 ______ _____ _ _ 5,02,9 50

Any other account necessary is abnormal Abnormal Loss Account

Dr. Part articul icula ars To Process Proce ss Q Account

Unit Un its s 2,000

Amou Amoun n t Rs. 21,800

Particulars Particulars B y S al e

Units 2, 0 0 0

Cr. Amou nt Rs. 3,000


By Balance _____ (To Profit & Loss A/c) 21,800

18,80 0 _____ 2 1, 8 0 0

Question 26

Following information is available regarding process A for the month of February, 1999: Production Record. U ni t s i n p r o c e s s a s o n 1 . 2 . 1 9 9 9 4 ,0 00 (All materials used, 25% complete for labour and overhead) New units introduced 16,000 Units completed 14,000 U ni t s i n p r o c e s s a s o n 2 8 . 2 . 1 9 9 9 6 ,0 00 (All materials used, 33-1/3% complete for labour and overhead) Cost Records Wor k- in -p r ocess as on 1.2 .1 99 9 Rs. Materials 6,000 Labour 1,000 Overhead 1,000 8,000 Cost during the month Materials 25,600 Labour 15,000 Overhead 15,000 55,600 Presuming that average method of inventory is used, prepare: (i) Stateme Statement nt of equival equivalent ent producti production. on. (ii) Statement Statement showing showing cost for each each element. element. (iii) Statement Statement of apportionment apportionment of cost. cost. (iv) Process cost account for process A.

(May, 1999,10 marks)

Answer (i)

Particulars Outp ut

Statement of equivalent production (Average cost method)

U ni ts

Equivalent Production Ma teri a l s Lab ou r O verhead s


% compl e-tion

Inpu t (Unit s) 20,0 00 _____

Complet ed WIP

20,0 00

14,0 00 6,00 0 20,0 00

(ii)

100 100

Equi % Equicomp vale vale lent nt tion units unit s 1 4, 0 100 1 4, 0 00 00 6,00 332,00 0 1/3 0 20,0 16,0 00 00

% comp letion

Equivale nt units

100

14,0 00 2,00 0 16,0 00

331/3

Statement showing cost for each element

Particulars

Materia ls

Lab ou r

Overhe ad

Cost of opening work-inprogress (Rs.)

6,000

1,000

1,000

8,000

Cost incurred during the month (Rs.)

25,600

15,000

15,000

55,600

31,600

16,000

16,000

63,600

20,000

16,000

16,000

1.58

1

1

Total cost (Rs.) ( Rs.) : (A) Equivalent units : (B) Cost per equivalent unit (Rs.) : C=(A/B) (iii)

3.58

Statement of apportionment of cost

Rs. Value of output transferred: (a)

Total

14,000 units @ Rs. 3.58

Rs. 50,120

Value of closing work-in-progress: (b) Material Labour Overhead

6,000 units @ Rs. 1.58 2,000 units @ Re. 1

9,480 2,000 2,000

13,480

2,000 units @ Re. 1 Total cost : (a+b)

63,600


(iv)

Process cost account for process A: Process A Cost Account

Unit s

Rs.

To Opening Ope ning WIP

4,00 0

8,000

To Materials Mater ials

16,0 00

25,600

To Labour Labou r To Overhead Overh ead

U ni ts

Rs.

By Co Completed units

14,00 50,120 0

By Closing WIP

6,000 13,480

15,000 _____

15,000

20,0 00

63,600

_____

_____

20,00 63,600 0

Quotation 27

Expl Explai ain n brie briefl fly y the the proc proced edur ure e for for the the valu valuat atio ion n of Work Work-i -inn process. proce ss. (November,2002, 2 marks)


Answer Valuation of Work-in process: The valuation valuat ion of work-in-proce work-in -process ss can be made in the following follow ing three ways, depending upon the assumptions made regarding the flow of costs. –

Firs Firstt-in in-f -fir irst st out out (FIF (FIFO) O) meth method od

–

Last Last-in -in-f -fir irst st out out (LIF (LIFO) O) meth method od

-

Average co cost me method

A brief account of the procedure followed for the valuation of work-in-process under the above three methods is as follows;

FIFO method: According to this method the units first entering the process are completed first. Thus the units completed during a period would consist partly of the units which were incomplete at the beginning of the period and partly of the units introduced during the period. The cost of completed compl eted units is affected affecte d by the value of the opening inventory, which is based on the cost of the previous period. The closing cl osing inventory inven tory of work-in-proc work-i n-process ess is i s valued valu ed at its current cu rrent cost.

LIFO method: According to this method units last entering the process are to be completed first. The completed units will be shown at their current cost and the closing-work closing-work in process process will continue continue to appear appear at the cost cost of the opening opening invent inventory ory of work-in work-in-pro -progre gress ss along with current cost of work in progress if any. Average Avera ge cost method: method : Acco Accord rdin ing g to this this meth method od open openin ing g inven invento tory ry of work work-in -in-pr -proc oces ess s and and its cost costs s are are merg merged ed with with the the production and cost of the current period, respectively. An average cost per unit is determined by dividing the total cost by the total equivalent units, to ascertain the value of the units completed and units in process. Question 28

Explain equivalent units

(May, 2002, 2 marks)

Answer When opening and closing stocks of work-in-process exist, unit costs cannot be computed by simply dividing the total cost by total number of units still in process. We can convert convert the work-in-process work-in-process units into finished units called equivalent units so that the unit cost of these units can be obtained.


E q u i v al e n t Actual number of Percentage of completed units = un u nits in the process × work completed of manufacture It consists of balance of work done on opening work-in-process, current production done fully and part of work done on closing WIP with regard to different elements of costs viz., material, labour and overhead. Question 29

From the following Information for the month ending October, 2005, prepare Process Cost accounts for Process III. Use First-in-fistout (FIFO) method to value equivalent production. Direct Direct mate materials rials added added in Proce Process ss (Opening WIP) Transfer from Process II

III

Transferred to Process IV Closing stock of Process III Uni ts scr app ed Direct material added in Process III Direct wages Production Overheads Degree of completion: Opening Stock

2,000 units at Rs. 25,750 53 ,0 00 uni ts at Rs. 4,11,500 4 8 , 0 0 0 u ni t s 5 , 0 0 0 u ni t s 2 , 0 0 0 u ni t s R s. 1 , 9 7 , 6 0 0 Rs. 97 ,6 00 Rs. 48 ,8 00

Closing Scrap Stock Mat eri al s 80% 70 % 10 0 % Labour 60% 50 % 70% Ov e r h e a d s 60% 50 % 70% The normal loss in the process was 5% of production and scrap was sold at Rs. 3 per unit. (14 Marks) Answer Process III Period……..

Process Cost Sheet (FIFO Method)

Op. Stock : 2000 units


Introduced : 53000 units Statement of Equivalent Production In put I t em

Ou tput

Unit s

Op stock Proce ss I I transf er

2,00 0

53,0 00

Item

Equivalent production Unit s

W or k on op WI P Introduced & completed during during the the period (48,0 48,000 00 – 2000)

Material A

Material B

Labour & OHs.

2,00 0

-

-

400

20

800

40

46,0 00

46,0 00

10 0

46,0 00

10 0

46,0 00

10 0

2,50 0

-

-

-

-

-

-

5,00 0

5,00 0

10 0

3,50 0

70

2,50 0

50

55,5 00

51,0 00

500

500

55,0 00

50,5 00

48,0 00 Normal Loss (2000+53 000 – 5000) x 5% 55,0 00

Cl W I P

Ab. Gain

49,9 00 10 0

500 49,4 00

49,3 00 10 0

500

10 0

48,8 00

Statement of Cost for each Element Eleme nt of cost

Cost (Rs.)

Materia lA Transfer Process

Less:

from

Scrap

previous. previ ous. v al u e

of

4,11,5 00

Equivale nt Producti on.

Cost per unit Rs.


Normal Loss 2500 × Rs. 3

7,500 4,04,0 00

50,500

8

Materia lB

1,97,6 00

49,400

4

Wages

97,60 0

48,800

2

Overhe ads

48,80 0

48,800

1

7,48,0 00 Process Cost Sheet (in Rs) Op WIP (for completion)

Mat B

15

400×Rs. 4 =

1,600

Wages

800× Rs. = 2

1,600

OHs.

800× Re. = 1

800 4,000

Introd Introduce uced d and complet completely ely proces processed sed during the period

46000× Rs. 15 = Rs. 6,90,000

Cl o s i n g W I P

Mat A

5,000×8 = 40,000

Mat B

3,500×4 = 14,000

Wages

2,500×2 =

5,000

OHs

2,500×1 =

2,500 61,500

Abnormal Gain

500× Rs. = 15

7,500

Units

Amou nt

2, 5 0 0

7,500

48,00 0

7,19,7 50

5,000

61,50

Process III A/c Units

A mo u nt

To bal b/d

2,000

25,75 By Normal Loss 0

To Process II A/c

53,00 0

4,11,5 By process IV 00 A/c (6,90, (6,90,000 000 + 4000 + 25,750)

To

Direct

1,97,6 By bal C/d


Material

00

To Direct Wages

97,60 0

To OHs

48,80 0

Prodn.

To Abnormal Gain

500

7, 5 0 0

55,50 0

7,88,7 50

0

55,50 0

7,88,7 50

Question 30

A Company Compa ny produces prod uces a component, compo nent, which passes through thro ugh two processes. proce sses. During Durin g the month of April, Apri l, 2006, 2006 , materials materi als for 40,000 40,0 00 components were put into Process I of which 30,000 were completed and transfe transferred rred to Process Process II. Those Those not transferr transferred ed to Process Process II were 100% complete as to materials cost and 50% complete as to labour labour and overheads overheads cost. cost. The Proces Process s I costs costs incurred incurred were as follows: Direct Materials Direct Wages Facto ry Over hea ds

Rs.15,000 Rs.1 8,0 0 0 Rs.1 2,0 0 0

Of those transferred to Process II, 28,000 units were completed and transfe transferred rred to finished finished goods goods stores. stores. There There was a normal normal loss with no salvage salvage value of 200 units in Process Process II. There were were 1,800 1,800 units units,, remain remained ed unfin unfinish ished ed in the the proce process ss with with 100% 100% complete as to materials and 25% complete as regard to wages and overheads. No further process material costs occur after introduction at the firs firstt proc proces ess s unti untill the the end end of the the seco second nd proc proces ess, s, when hen protective prote ctive packing packi ng is i s applied ap plied to the t he complet co mpleted ed compone co mponents. nts. The process proce ss and packing packi ng costs incurred incur red at the end of the Process Proce ss II were: Packing Materials Di rect Wag es Factory Overheads Required:

Rs.4,000 R s. 3 , 5 0 0 R s. 4 , 5 0 0


(i) Prepa Prepare re State Stateme ment nt of Equiv Equivale alent nt Produc Productio tion, n, Cost Cost per unit unit and Process I A/c. (ii) (ii) Prepa Prepare re stat statem emen entt of Equiv Equivale alent nt Produ Product ction ion,, Cost Cost per unit unit and Process II A/c. Answer 30

Statement of Equivalent Production and Cost Materi al

Labour and Overheads

Units completed

30,000

30,000

Closing Inventory

10,000

5,000


40,000

35,000

Current Process cost

Rs 15,000

Rs 30,000

C os t / u n i t

0.375

0.8571

Closing inventory cost

3,750

4,286

Material Process II

transferred

Total

Rs 45 45,0 00 8,03 6

to

36,9 64

Process I Account Units

Unit s

Rs.

15,00 Process II A/c 0

30,000

36,9 64

Direct wages

18,00 Work-in-progress 0 inventory

10,000

8,03 6

Factory overheads

12,00 0 40,000

45,0 00

Direct material

40,00 0

40,00 0 (i i )

Rs.

45,00 0 Statement

of

Equivalent

Production

and Cost Material

Labour and Overheads

Total


Units completed

28,000

28,000

1,800

450


29,800

28,450

Process cost

36,964

8,000

1.24

0.2812

2,232

127

Cl o s i n g I n v e n t o r y

C os t / u n i t Closing inventory

44,964 2,359 42,605

Pack Packing ing cost

mate materi rial al

4,00 0 Rs. 46,605 Process II Account

T o

Material transferred from Process I

T o

Packing Material

T o

Dir e ct wage s

T o

Factory overheads

Unit s

Rs .

30,00 0

36,9 64

B y

4,00 0 3,5 00

30,00 0

Unit s

Rs .

Finished good goods s store stores s A/c

28,00 0

46,60 5

B y

WI P stock

1,800

2,359

B y

Normal loss

200

−

4,50 0

_____ ____ _ ______ ____ __ _

48,9 64

30,00 0

48,96 4

Question 31

A Chemical Chemic al Company Compan y carries carri es on productio prod uction n operatio oper ation n in two processes. proce sses. The material mater ial first pass through throu gh Process Proces s I, where Product Produ ct ‘A’ is produced. Following data are given for the month just ended: M a t e r i a l i n p u t qu a n t i t y Opening work-in-progress quantity (Material 100% and conversion complete)

2,00,000 kgs. 50%

40,000 kgs.


W o r k c o mp l e t e d q u a n t i t y Closing work-in-progress quantity (Mate (Materia riall 100% 100% and conve convers rsion ion two-t two-thir hird d complete) Material input cost Processing cost Opening work-in-progress cost M ater i al cost Processing cost

1,60,000 kgs. 30,000 kgs. Rs. 75 ,0 00 Rs. 1,02,000 Rs. 20 ,0 00 Rs. 12 ,0 00

Norm Normal al proces process s loss loss in quanti quantity ty may be assume assumed d to be 20% of material input. It has no realisable value. Any quant q uantity ity of o f Product Pro duct ‘A’ can c an be sold for Rs. R s. 1.60 1. 60 per pe r kg. kg . Alternati Alter natively, vely, it can be transferr tran sferred ed to Process Proces s II for further furth er processing proce ssing and then sold as Product Prod uct ‘AX’ for Rs. 2 per kg. Further Furt her materials are added in Process II, which yield two kgs. of product ‘AX’ for every kg. of Product ‘A’ of Process I. Of the 1,60,000 kgs. per month of work completed in Process I, 40,000 kgs are sold as Product ‘A’ and 1,20,000 kgs. are passed through Process Process II for sale sale as Product Product ‘AX’. Process Process II has facilities facilities to handle upto 1,60,000 kgs. of Product ‘A’ per month, if required. The monthly costs incurred in Process II (other than the cost of Product ‘A’) are:

Materials Cost Processing Costs

1,20,000 kgs. of Product 1,60,000 kgs. of Product ‘A’ input ‘A’ input Rs. Rs. 1 ,32 ,00 0 1 ,76 ,00 0 1 ,20 ,00 0

1 ,40 ,00 0

Required: (i) Dete Determ rmine ine,, using using the the weigh weighte ted d avera average ge cost cost method, method, the cost per kg. of Product Produ ct ‘A’ in Process Proces s I and value valu e of both work comp complet leted ed and closin closing g workwork-inin-pro progre gress ss for for the the mont month h just just ended. (ii) Is it worthwhile worthwhile processing processing 1,20,000 1,20,000 kgs. kgs. of Product Product ‘A’ further? further? (iii) (iii) Calc Calcul ulat ate e the the minim minimum um acce accept ptab able le sell selling ing price price per per kg., kg., if a


potential buyer could be found for additional output of Product ‘AX’ that could be produced with the remaining Product ‘A’ quantity. (6 + 4 + 4 = 14 marks) Answer (i)

Process I Statement of equivalent production Inputs Particula Units rs Kg.

Output Particula Units rs Kg.

Opening W.I.P. New material introduced

Normal loss Units introduce d& complete d Abnormal loss Closing WIP

40,00 0 2,00,0 00

______ _ 2,40,0 00

Equivalent output Material Conversion

%

Unit kg.

%

Units kg.

40,00 0

−

−

−

−

1,60,0 00

100 %

1,60,0 00

100 %

1,60,0 00

10,00 0 30,00 0 2,40,0 00

100 % 100 %

10,00 0 30,00 0 2,00,0 00

100 % 2/3rd

10,00 0 20,00 0 1,90,0 00

Process I Statement of cost for each element Elements of cost

Material Conversion cost

Costs Costs of in openin proce g WIP ss

Rs. 20,000

Rs. 75,00 0 12,000 1,02,0 00 32,000 1,77,0 00

Total Equivalent cost units

Cost/Uni t (Kg.)

Rs. 95,000

Kg. 2,00,000

Rs. 0.475

1,14,0 00

1,90,000

0.600

2,09,0 00

Statement of apportionment of cost

1.075


Units completed Work completed

Closing WIP

Elemen ts

Equivalent units

Material

1,60,000

Cost/u nit Rs. .475

Convers ion Material

1,60,000

.600

30,000

.475

Convers ion

20,000

.600

Cost

Total cost Rs.

Rs. 76,00 0 96,00 0 14,25 0 12,00 0

1,72,00 0

26,250

(ii) Statement Statement showing comparative comparative data to decide whether 1,20,000 kg. of product ‘A’ should be processed further into ‘AX’. ‘AX’. Alternativ Alter native e I – To sell product prod uct ‘A’ ‘A ’ after af ter Proces P rocess s– I

Rs. Sales 1,20,000

× 1.60

1,92,000

Less: Cost from Process I 1,20,000 × 1.075

,29,000

Gain 63,000 Alternativ Alter native e II – Process Pr ocess further furt her into i nto ‘AX’

Sales 2,40,000

× 2.00

4,80,000

Less:Cost from Process I 1,20,000 × 1.075 = Rs. 1,29,000 Mate Ma teri ria al in Proce rocess ss II

= Rs. Rs. 1,3 1,32,00 2,000 0

Processing cost in Process II

= Rs. 1,20,000

Gai n

3,81,000 99,000

Hence company should process further It will increase profit by 99,000 – 63,000 = Rs. 36,000 (iii (iii))

Calc Calcul ulati ation on of mini minimu mum m sellin selling g price price/k /kg: g:

Cost of processing remaining 40,000 kg. further Rs. Material 1,76,000

− 1,32,000

Processing cost 1,40,000 – 1,20,000

44,000 20,000

Cost from process I relating to 40,000 kg. ‘A’ (40,000 43,000 Benefit foregone if 40,000 kg. ‘A’ are further processed

× 1.075)


40,000 (1.60 – 1.075) Total cost c ost

21,000 1,28,000

Additional quantity of product ‘AX’ (40,000

 1,28,000

∴ Minimum selling price   =  80,000 

× 2) 80,000 Rs. 1.60

Question 32

Following details are related to the work done in Process ‘A’ of XYZ Company during the month of March, 2007: O p e n i n g w o r k - i n - p r o g r e s s ( 2 , 0 0 0 un i t s )

Rs.

M ater i al s

80 ,00 0

Lab ou r

15 ,00 0

O verhead s

45 ,00 0

Mater Material ials s introd introduce uced d in Proc Proces ess s ‘A’ (38,00 (38,000 0 units) Di rect l ab ou r O verhead s

14,80,000 3 ,59 ,00 0 1 0 ,77 ,00 0

Units scrapped: 3,000 units Degree of completion: M ater i al s Lab ou r a nd overh ead s

100% 80%

Closing work-in-progress : 2,000 units Degree of Completion: M ater i al s Lab ou r a nd overh ead s Units finished and transferred to Process ‘B’ : 35,000 Normal Loss: 5% of total input including opening work-in progress prog ress

100% 80%


Scrapped units fetch Rs. 20 per piece. You are required to prepare: (i) Stateme Statement nt of equivale equivalent nt productio production; n; (ii) (ii) State Stateme ment nt of cos cost; t; (iii) Statement Statement of distribution distribution cost; and (iv) (iv) Process Process ‘A’ Account Account,, Normal Normal and Abnormal Abnormal Loss Loss Account Accounts. s. (May 2007, 10 Marks)


Answer (i )

Statement of Equivalent Production I np ut

Uni ts

Opening WIP

2,00 0

Units introduced

38,0 00

_____ ____ _

Ou tput

Uni ts

Completed and transfer to Process ‘B’ Normal loss (5% of 40,000) Abnormal loss Closing Closi ng WIP

35,0 00

40,0 00

(i i )

Equivalent production Material L abour & Overheads % Uni ts % Uni ts 100 35,0 100 35,000 00

−

2,00 0 1,00 0 2,0 00 40,0 00

100 100

1,00 0 2,0 00 38,0 00

− 80

800

80

1,600 37,400

Statement of Cost

Details

Material Less: Value of normal loss

Cost at Cost the added beginnin g of process proce ss Rs. Rs. 80,000 14,80,0 00

Labour

15,000

Overheads

45,000

3 , 5 9, 0 0 0 10,77,0 00

Total co cost

Rs. 15,60,000 (20 × 2,000 = 40,000) 15,20,000 3 , 7 4, 0 0 0 1 1, 2 2, 0 0 0

Equi Cos vale t nt per Units unit R s.

Rs.

38,0 00 3 7, 4 00 3 7, 4 00

40 10 30 80

(i i i )

Statement of distribution of cost:

(a) (a) Compl Complet eted ed and and tran transf sfer erre red d to proce process ss ‘B’ ‘B’ = 35,0 35,000 00 units units @Rs. 80 = Rs. 28,00,000. (b) Abnorma Abnormall loss : 1,000 1,000 units: units: Materials 1,000 units @ 40

= Rs. 40,000


Labour and Overheads 800 units @ 40 32,000

=

Rs .

Rs. 72,000 ( c ) C l os i n g W I P

:

2,000 units

Materials 2,000 units @ 40

= Rs. 80,000

Labour and Overheads 1,600 units @ 40

= Rs. 64,000

Rs. 1,44,000 (i v )

Process ‘A’ Account

Dr. P a r t i c u l ar s T o

Cr. P a r t i c u l ar s

Un its

Amoun t

Ope ni ng WI P

2,00 0

1,40,0 00*

B y

Material introduced

38,0 00

14,80, 000

B y

Direct labour 3,59,0 00

Overheads

B y

Un its

Amou n t

N or m a l L o s s

2,00 0

40,000

Abnormal loss

1,00 0

72,000

Process ‘B’ A/c transfer to next process

35,0 00

28,00, 000

10,77, 000 _____ ____ _ _______ ____ ___ B _ _ y 40,0 00

C l o si n g W I P

30,56, 000

2,0 00

1,44, 000

40,0 00

30,56, 000

*Materials + Labour + Overheads = Rs. (80,000 + 15,000 + 45,000) = Rs.1,40,000. Normal Loss Account Dr. T o

Process ‘A’ A/c

2,00 0

40,00 0

2,00 0

40,00 0

By

Cr. B y C ost Ledg er Control A/c

Abnormal Loss Account Dr. Cr.

2,00 0

40,0 00

2,00 0

40,0 00


T o

Process ‘A’ A/c

1,00 0

72,00 0

B y

By Cost Ledger Control A/c

____ ______ ____ __ _

B y

Costing Profit and Loss A/c

1,00 0

72,00 0

1,0 00

20,0 00

____

52,0 00

1,0 00

72,0 00

Question 33

RST Limite Limited d proce process sses es produc productt Z throug through h two two distin distinct ct proce process ss – Proc Process ess I and and Proce Process ss II. On comple completio tion, n, it is transf transfer erred red to finis finished hed stock stock.. From From the the follo followin wing g inform informat ation ion for the year year 2006-07, prepare Process I, Process II and Finished Stock A/c: Par tic ula rs

Pro c e ss I

Pro c ess II

R aw m a ter ia ls use d

7, 500 units

−

R aw m a ter ia ls cos t pe r unit

Rs . 60

−

Transfer Transfer to next process/f process/finis inished hed

7, 050 units

6,5 25 u nits

N or ma l loss (o n inputs)

5%

10%

Dir e ct wage s

Rs . 1, 35, 750

Rs. 1, 29, 250

Dir e ct ex pen se s

60% o f

65% of

direct wages

direct wages

20% o f

15% of

direct wages

direct wages

Rs . 12 .50

Rs. 37. 50

stock

Ma nu fa c tur ing ov er he ad s

R ea lis ab le va lue o f sc r ap pe r unit

6,000 units of finished goods were sold at a profit of 15% on cost cost.. Assum Assume e that there there was no open opening ing or closing closing stock stock of work-in-progress. (No vember 2007, 10 Marks) Answer Process I Account

Qty. Amoun Rate t To Raw material

7,500

Q ty. Rate

60 4,50,00 By Norm Normal al 0 Loss (5%

×

375 12.50

Amou n t 4,688


7,500) To Direct Dire ct wages

1,35,75 By Abno Abnorm rmal al 0 Loss

To Direct Dire ct expenses 60% of direct wages

81,4 81,450 50 By Proc Proces ess s II Account

75 96.79

7,260

7,0 96.7 96.79 9 6,82 6,82,4 ,40 0 50 2

To Manufactu Manuf actu ring Overheads (20% of direct wages)

_____ ____ _

27,15 0

7,50 0

6,94,35 0

____ _

_____ __

7,5 00

6,94,35 0

Planned output – Process I = 7,500 – 375 = 7,125 units Actual output = 7,050 units Abnormal loss = (7,125 units – 7,050 units) 75 units. Costperunit=

− 4,688 6,94,350 = Rs.96.7947.(96.80 appro 7,125 Process II Account

Qty .

R ate

Am o un t

7, 0 5 0

9 6. 7 9

6 ,8 2, 4 0 B 2 y

Normal Loss (10%)

1 ,2 9, 2 5 B 0 y

Finished Stock A/c

T o

Pr ocess I

T o

Dir ect w age s

T o

Direct expenses 65%

84,013

of direct wages T o

Manufacturin g Overheads (15% of direct wages)

19,38 7 9,15, 052

Qty .

R ate

Am ou nt

70 5

3 7 .5 0

26 , 43 8

6,5 25

140.0 5

9,13,82 3


T o

Abnormal gain 180

140.0 5

7 ,2 3 0

25,2 09

____

____ ___

9 , 40 , 2 61

7,2 30

9,40,26 1

Planned output of Process II = 7,050 – 705 = 6,345 units Costperunit=

− 26,438 9,15,052 = Rs.140.0 6,345

Abnormal gain

= Actual output – Planned output = 6,525 – 6,345 = 180 units. Finished Stock Account

Qty. To

Process Proce ss II

To

Profit Profi t and Loss Account

Rate

Amou nt

Qty. Rate

6,52 6,525 5 140. 140.0 0 9,13 9,13,8 ,823 23 By Sale Sales s 5 A/c By Bala Balanc nc e c/d 1,26,04 4 6,525

10,39,86 7

Amou nt

6,0 161.0 9,66,341 00 6 140.0 5 5 25 6,5 25

73,526

10,39,86 7

Question 34

A product prod uct passes passe s through throu gh three processes proc esses ‘X’, ‘Y’ and ‘Z’. The output of process ‘X’ and ‘Y’ is transferred to next process at cost plus 20 per cent each on transfer price and the output of process proce ss ‘Z’ is transferr tran sferred ed to finished finis hed stock at a profit prof it of 25 per cent on transfer transfer price. price. The following following informations informations are available available in respect of the year ending 31st March, 2008: Process

Pr oce ss

Process

Fi ni shed

X

Y

Z

Stock

Rs.

Rs.

Rs.

R s.

Openi ng stock

15 ,0 00

2 7 ,00 0

4 0,0 0 0

45 ,00 0

Mat eri al

80 ,0 00

6 5 ,00

5 0,0 0 0


0 Wag es

1 ,25 ,0 00

1 ,08 ,0 00

92,000

Manufacturing Overheads

96 ,0 00

7 2 ,00 0

66,500

Closing stock

20 ,0 00

3 2 ,00 0

3 9,0 0 0

50 ,00 0

N IL

4 ,0 00

1 0,0 0 0

20 ,00 0

Inter nter proc proces ess s included in

prof profit it

Opening stock Stock in processes is valued at prime cost. The finished stock is valued at the price at which it is received from process ‘Z’. Sales of the finished stock during the period was Rs. 14,00,000. You are required to prepare: (i)

Proc rocess acc account ounts s and and finis inish hed stock account unt show howing ing profit profi t element ele ment at a t each eac h stage. sta ge.

(ii )

Profit an and Lo Loss ac account.

(iii) (iii)

Show Show the the relev relevant ant items items in the the Bala Balance nce Shee Sheet. t. (No

vember 2008, 12 Marks) Answer (i )

Process ‘X’ Account

Dr.

Cr. Par ticulars

Cost

Pr o fi t

Rs . To

Openin g Sto ck

15,00 0

Rs.

−

T o t al


Rs .

Rs.

15, 000 B y Pro cess ‘Y ‘Y ’ A/c (Transfer)

To

Materi al

To

Wages

80,00 0

−

80,000

1,25, 00

−

1,25,00

0

0

Cos t

Pr ofit

Rs.

T o t al

R s.

2,96,0

74,00

3,70,0

00

0

00


Total

−

2,20, 00

2,20,00

0

Less : Clos ing sto ck

−

20 ,00

Pri me Co st

To

0 20,00

0

0

2,0 0,00

2,00,00

0

0

Manufac turing

−

96,00

Overheads

96,00

0 Total cost

0

−

2,96, 00

2,96,00

0 To

0

Profi t and Loss A/c (20% on transfer Price Or 25 25% on on co cost)

_______

74, 00

74,0

______ ______

______

0

00

2,96,00

74,00

3,70,00

2,96,0

74,00

3,70,0

0

0

0

00

0

00

_

_

Process ‘Y’ Account Dr. Cr. P ar t i c u l a r s

Cos t

Pro fit

Rs. To

Openin g

23,00

Stock

Rs. 4 ,00 0

T o t al

P ar t i c u l a r s

Rs.

R s.

2 7 , 0 0 0 B y P r o ce s s

0

A/c (Transfer)

To

Proces s

‘X’

A/c To

2,96,0

74,00 3,70,000

00

Materi al

65,00

0

−

65,000

−

1,08,000

0 To

Wages

1,08, 0 00

Total

Less : stock

4,92, 0

Closin g

78,00 5,70,000

00

0

27,6

4,37

32,00

21

9

0

Co st

‘Z ’

Pro fit

R s.

T otal

Rs .

5,36,3

2,26,1

7,62,5

79

21

00


Pri me Co st

4 ,64, 3 79

To

1

Manufact urin g

72,0

Overheads Total cost

Profi t

−

72,00

00

0

5,36, 3

73,6 6,10,000

79 To

73,62 5,38,000

−

and

21 1,52,5

Loss A/c

1,52,500

00

(20% on transfer Price or

25%

on

cost)

______ ______ _

_______

______ ______

_

5,36,3

2,26,1

79

21

_ 7, 62, 500

______ _

5, 36, 3

2,26,1

7,62,5

79

21

00

Process ‘Z’ Account Dr.

Cr. P ar t i c u l a r s

To

Openin g

Cost

Pr ofit

Rs .

R s.

30, 000

T o t al

Part iculars

Rs .

10, 000

Rs.

40, 000 By F inis hed

Stock

Stoc Stock k

A/c A/c

(Transfer) To

Proces s

‘Y’

5,36 5,36,3 ,379 79 2,26 2,26,1 ,12 2 7,62,500

A/c

1

To

Materi al

50,00 0

−

50,000

To

Wages

92,000

−

92,000

Total

7,08, 379 2,36, 12 9,44,500 1

Less :

Clos ing

29 ,2 ,250

stock

9 ,7 ,75

39,000

0

Pri me Co st

6,79 ,12 9 2,26 ,37 9,05,500 1

To

Manufac turi ng Overheads

66,500

−

66,500

Cost

Pro fit

Rs.

T otal

Rs.

7,45,6

5,50,3

12,96,00

29

71

0


Total cost

7,45, 629 2,26, 37 9,72,000 1

To

Profi t

− 3,24,00 3,24,000

and

Loss A/c

0

(25% on transfer Price or 33 1/3% on cost)

______

_______

_______

_______ _______

7,45,62 5,50,37 12,96,00 9

1

0

_______

7,45,6

5,50,3

12,96,00

29

71

0

Finished Stock Account Dr.

Cr. P a r t i c u l ar s

Co st

R s. To

Openin g

Pr o fit

R s.

25, 000 20, 000

To tal


R s.

Rs.

45, 000 By F inis hed

Stock

Cost

S tock

7,41,8 A/c

62

Pr ofit

To tal

Rs.

Rs.

6,58,1 14,00,00 38

0

_______ _______

_______ _

(Transfer) To

Proce ss

‘Z’

A/c Total

L ess:

Clo sin g

stock To

Profi t Loss A/c

(ii)

and

7,45,6

5,50,3

12,96,00

29

71

0

7,70, 6

5,70,3

13,41,00

29

71

0

28,7

21,2

50,00

67

33

0

7,41,8

5,49,1

12,91,0

62

38

00

_______

1,09, 0

1,09,00

00

0

7,41,8

6,58,1

14,00,00

7,41,8

62

38

0

62

6,58,1 14,00,00 38

Profit and Loss Account for the year ending 31st March, 2008

Dr.

Cr.

0


Parti cul ar s

Amou nt

P ar t i c u l a r s

Amou nt

Rs. T o

Provision for unrealized profit on closing stock (Rs. 4,379 + 9,750 + 21,233)

T o

Ne t P r o f i t

Rs. By

35,36 2 6,58,1 38

Pr ovi sion for unrea unrealiz lized ed profit profit on opening stock

34,000

(Rs. (Rs. 4,00 4,000 0 + 10,0 10,000 00 + 20,000) By

Pr ocess X A/c

74,000

By

Pr ocess Y A/c

1,52,50 0

By

Pr ocess Z A/c

3,24,00 0

Fi ni she d Stock A/c

1,09,00 0

______ ____ __ By _ 6,93,5 00

6,93,50 0

Workings: Calculation of amount of unrealized profit on closing stock: Process ‘X’ = Nil Process Y' ' =

Rs.78,000 × Rs.32,000 = Rs.4,37 Rs.5,70,000

Process 'Z'=

Rs.2,36,121 × Rs.39,000 = Rs.9,75 Rs.9,44,500

= Finished stock (i i i ) (Extract) Liabili ties

Rs.5,50,371 × Rs.50,000 = Rs.21,23 Rs.12,96,000 Balance Sh S heet as a s on o n 31 3 1st Ma M arch, A mo u nt

Asset s

R s. N e t p r of i t

6,58,1 Closing stock 38

A m o u nt

R s.

Amount

Rs.

20 08


Process – X

20,000

Process – Y

32,000

Process – Z

39,000

Finished stock

50,000 1,41,000

Less: Prov Provis isio ion n for for unr unrea eali lize zed d profit

35,362

1,05,638

Process & Operation Costing

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