Process Operation Costing

10
Process & Operation Costing
Question 1
Distinguish between job costing and process costing. (November,1996, 4 marks)
Answer
The main points of distinction between job costing and process costing are as below:
Job Costing Process Costing
1. Job costing is a specific order costing Process costing is a method of costing
used to ascertain the cost of a product at
each stage of manufacture
2. Cost here is determined on job basis Costs are accumulated for each process
separately for a given period of time.
3. Each job needs special treatment and no Finished product of one process becomes
two jobs are alike the raw material for the next process.
4. The cost of each job is compiled The unit cost here is the average cost of
separately by adding materials, labour and the process for a given period. Its correct
overhead costs computation requires the measurement of
production at various stages of
manufacture.
5. Costs are computed when job is Costs are computed for each process at
completed the end of each period.
6. As each job is distinct or is of different As the process operations are
nature, more detailed supervision and standardised accumulation of costs and
control are necessary supervision and control are comparatively
easier.
Question 2
Write a short note on unit costing method for ascertaining product cost
(November, 1995, 6 marks)
10.2 Cost Accounting
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 process or operation is produced. Under this
system 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 are prepared periodically and usually contain information on the under
mentioned points:
(i) Cost of materials consumed with details.
(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 process account."
Do you agree with this statement? Give reasons. (November, 1995, 2 marks)
Answer
This statement is not correct The value of scrap (as normal loss) received from its sale is
credited to the process account. But the value of scrap received from its sale under abnormal
conditions 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)
Answer
Normal wastage: It is defined as the loss of material which is inherent in the nature of
work. Such wastage can be estimated in advance on the basis of past experience or technical
specifications. If the wastage is within the specified limit, it is considered as normal. Suppose
a company states that the normal wastage 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 of good production is increased
Process & Operation Costing 10.3
accordingly. If the normal wastage realises some value, the value is credited to the process
account to arrive at normal cost of normal output.
Abnormal wastage: It is defined as the wastage which is not inherent to manufacturing
operations. This type of wastage may occur to the carelessness of workers, a bad plant,
design etc. Such a wastage cannot be estimated in advance.
The units representing abnormal wastage are valued like good, units produced and
debited to the separate account which is known as abnormal wastage account. If the abnormal
wastage 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 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 figure of abnormal gain amount. Abnormal gain
being 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 by way of reduction in the scrap realisation
attributable to abnormal effectives. This loss is set off against abnormal effectives by debiting,
the account. The- balance; of this account becomes abnormal gain and is transferred to;
costing profit and loss account.
Question 5
Write short note on Abnormal gain in Process Costing (May, 1995,4 marks)
Answer
Abnormal Gain in Process Costing: If in a process the actual process loss (which is
inherent in a process) is less than the estimated normal loss, the difference is considered as
abnormal gain. Abnormal gain is accounted for in the same way as abnormal process loss.
The concerned process account is debited 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 (November, 1998, 4 marks)
Answer
Job costing and process costing are the two methods of cost accounting. Job costing is
applied where production is 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.
Process costing is applied in cases where the identity of individual orders is lost in the
general flow of production. Industries to which process costing is applied produce uniform
products without reference to the specific requirements of customers.
The main points of comparison between job costing and process costing are as follows:
(i) Job costing is applicable to goods produced/ manufactured to customers specifications.
However, process costing is applicable to production consisting of succession of
continuous operations or processes.
(ii) Costs are accumulated by a job or work order irrespective 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 process costing costs are accumulated by processes for a particular
period regardless of the number of units produced.
(iii) Each job will be .different from the other under job costing whereas in the case of
process costing units of product are homogenous and indistinguishable, because goods
are produced on a mass scale.
(iv) Job is 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 parts
are not yet completed. In the case of process 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. Where as in the
case of process costing 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 process costing costs are ascertained at the
end of the accounting period and not when the process is complete, since production is a
continuous flow constituting itself into cycle.
(vii) Since each job may be different from other therefore they will not involve the use of
identical material and labour, costs of jobs cannot be ascertained by averaging. In the
case of process costing since units of production are uniform and are at the same stage
of production therefore, costs are computed by averaging the total cost of each stage of
production.
(viii) Control becomes difficult in the case of job costing because each job is different from the
other. Whereas control over production and costs is easier in the case of process costing
since production is a standardised one.
Question 7
A company within the food industry mixes powdered ingredients 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 the information given below, you are required to open accounts for Process 1,
Process 2, abnormal loss and packing 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 430 hours at Rs.2 per hour
Normal Loss 5% of weight input, disposed off at 16 paise per kilogram
Output 9,200 kilograms.
No work in process at the beginning or end of the week.
Process 2
Input
Material C 6,600 kilograms at Rs. 1.25 per kilogram
Material D 4,200 kilograms at Re. 0.75 per kilogram
Flavouring Essence Rs. 330
Mixing Labour 370 hours at Rs. 2 per hour
Normal Waste 5% of weight input with no disposal value
Output 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.
Overhead of Rs. 3,200 incurred by the two processes to be absorbed on the basis of
mixing labour hours.
Answer
Process 1 Account
Kg. Per kg. Kg. Per kg.
Rs. Rs. Rs. Ps.
To Material A 6,000 0.50 3,000 By Normal Loss 500 0.16 80
To Material B 4,000 1.00 4,000 By Abnormal 300 1.00 300
Loss (See Note 2)
To Mixing Labour 860
(430 hours @ To Transfer to 9,200 1.00 9,200
Rs.2.00 per Process 2
hour)
To Overhead _____ 1,720 _____ _____
10,000 9,580 10,000 9,580
Process 2 Account
Kg. Per Kg. Kg. Per kg.
Rs. Rs. Rs. Rs.
To Process 1 9,200 1.00 9,200 By Normal Waste 1,000
To Material C 6,600 1.25 8,250 To Work 1,000 1,160
To Material D 4,200 0.75 3,150 in-process
To Flavouring Essence 300 (See Note 3)
To Mixing Labour 740 To Packing Deptt. 18,000 1.22 21,690
(370 hours @
2.00 per hour)
To Overhead 1,480
(See Note 1) _____ _____ _____ _____
20,000 23,120 20,000 23,120
Abnormal Loss Account

Rs. Rs. Rs. Rs.
To Process A/c 300 1.00 300 By Sale A/c 300 0.16 48
___ By Balance to P/L A/c 252
300 300
Packing Department Account

Rs. Rs. Rs. Rs.
To Process 2 A/c 18,000 1.22 21,960 By Balance 21.960
21,960 21,960
Notes:
1. Total overhead expenses : Rs. 3,200
Total labour hours in Process 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. Cost of 9,500 Kg. of output is = (Rs. 9,580 – Rs. 80) i.e., Rs. 9,500
Hence cost per kg. of output is Re. 1.00
3. Equivalent Units Statement of Output
Output Units Equivalent Units
Material Labour Overhead
Completed 18,000 18,000 18,000 18,000
WIP 1,000 1,000 500 550
(100% Material
50% Labour and
Overhead)
Normal Waste 1,000 _____ _____ _____
20,000 19,000 18,500 18,500
Cost Statement for the week ending 11 th May 1985

Rs.
Material (Process 1) 9,200
Material C 8,250
Material D 3,150
Flavouring Essence 300
Total Material Cost 20,900
Total Mixing Labour Cost 740
Total Overhead Cost 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 × Rs. 1.10 = Rs. 1,100
Labour = 500 × 0.04 P = Rs. 20
Overhead = 500 × 0.08 P = Rs. 40
Rs. 1,160
Question 8
In a manufacturing unit, raw material passes through four 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 product at
the end of the process IV is 40,000 kg, what is the quantity of raw material required to be fed
at the beginning 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. Input Kg. Loss Percentage Loss Kg. Output Kg.
I 100 25 25 75
II 75 20 15 60
III 60 20 12 48
IV 48 162/3 8 40
Quantity of Raw Material required for 40,000 kg. of output
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 1 kg of output require 2.5 kg. of raw material to be fed at the beginning of the
process I.
Hence 40,000 kg. of output will require 1,00,000 kg. of 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 increase or decrease of
Re.1, in the cost of raw material, 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 is manufacturing building bricks and fire bricks. Both the products require two
processes:
Brick-forming
Heat treating
Time requirements for the two bricks are:
Building Fire
Bricks Bricks
Forming per 100 Bricks 3 Hrs. 2 Hrs.
Heat – treatment per 100 Bricks 2 Hrs. 5 Hrs.
Total costs of the two departments in one month were

Forming Rs. 21,200
Heat treatment Rs. 48,800
Production during the month was:

Building bricks 1,30,000 Nos.
Fire Bricks 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 brick forming and heat
treating by using the rte per 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.
Rs.21,200
Cost of forming Building bricks : × 39 = Rs. 15,600
53
Rs.21,200
Cost of forming Fire bricks : × 14 = Rs. 5,600
53
Cost of giving heat treatment to Building and Fire Bricks are determined by dividing the
total cost of heat treatment i.e., Rs. 48,800 in the ratio 26:35
Rs..48,800
Cost of heat treatment to Building Bricks × 26 = Rs. 20,800
61
Rs.48,800
Cost of heat treatment to Fire Bricks : × 35 = Rs. 28,000
61
Manufacturing Cost Statement
(for two varieties of bricks)
Process & Operation Costing

Processes Building Bricks Fire Bricks
Total Total Total Total
time Cost (for time Cost (for
(Hrs.) 1,30,000 (Hrs.) 1,30,000
Nos.) Nos.)
Time Rate Cost Time Rate Cost
per per per per per per
100 Hr. 100 100 Hr. 100
Nos. Nos. Nos. Nos.
(Hrs.)` (Hrs.)
Rs. Rs. Rs. Rs. Rs. Rs.
Brick 3 3,900 4.00 15,600 12.00 2 1,400 4.00 5,600 8.00
forming
Heat 2 2,600 8.00 20,800 16.00 5 3,500 8.00 28,000 40.00
treating
Total 6,500 36,400 28.00 4,900 33,600 48.00
442
Working Notes:
Computation of rate per hour
Rs.21,200
Brick forming : = = Rs. 4.00
5,300
(Total cost / Total hours)
Rs.48,800
Heat treating: = = Rs. 8.00
6,100
Question 10
An article passes through three successive operations from the raw material to the
finished product stage. The 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 60,000 20,000 40,000
2 66,000 6,000 60,000
3 48,000 8,000 40,000
(i) Determine the input required to be introduced in the first operation in number of pieces in
order to obtain finished output of 100 pieces after the last operation.
(ii) Calculate the cost of raw material required to produce one 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)
Input Rejections Output
Operations Total Total % Total
No. No. No. Rejection No.
to output
1 60,000 20,000 50% 40,000
2. 66,000 6,000 10% 60,000
3. 48,000 8,000 20% 40,000
Input required for final output of 100 units:
No. of Pcs.
Output of process 3 100
Loss in process, 20% 20
Input to process 3 or output of process 2 120
Loss in process 2, 10% 12
Input to process 2 or output of process 1 132
Loss in process 1, 50% 66
Input in process 1 198
(iii) To produce 100 pieces of final output 198 pieces of initial 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 0.198 kg. The rate being Rs.20, the cost of materials for producing 1 piece is
Rs.3.96
198
i.e., × 0.10
100
Question 11
A Ltd. produces product 'AXE' which passes through two processes before it is
completed and transferred to finished stock. The following data relate to October 1981.
Process Finished stock
Particulars I II
Rs. Rs. Rs.
Opening stock 7,500 9,000 22,500
Direct materials 15,000 15,750
Direct wages 11,200 11,250
Factory overheads 10,500 4,500
Closing stock 3,700 4,500 11,250
Inter-process profit
Included in opening stock 1,500 8,250
Output of process I is transferred to process II.
at 25% profit on the transfer price.
Output of process II is 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 II. Sales during the period are Rs. 1,40,000.
Required:
Process cost accounts and finished goods account showing the profit element at each
stage.
Answer
Process I Account
Total Cost Profit Total Cost Profit
Opening stock 7,500 7,500 — Transfer 54,000 40,500 13,500
Direct materials 15,000 15,000 — to process
Direct Wages 11,200 11,200 II Account
33,700 33,700
Less: Closing Stock 3,700 3,700 —
Prime cost 30,000 30,000 —
Overheads 10,500 10,500 —
Process cost 40,500 40,500
Profit 33 /3%
1
of total cost 13,500 — 13,500

(See working note 1) _____ _____ _____ _____ _____ _____
54,000 40,500 13,500 54,000 40,500 13,500
Process II Account
Opening stock 9,000 7,500 1,500 Transfer to
Transferred from Finished
Process I Stock A/c
54,000 40,500 — 112,500 75,750 36,750
Direct materials 15,750 15,750 —
Direct wages 11,250 11,250 —
90,000 75,000 15,000
Less: Closing 4,500 3,750 750
Stock
Prime cost 85,500 71,250 14,250
Overheads 4,500 4,500 —
Process cost 90,000 75,750
Profit 25% 22,500 — 22,500
on total cost
(See working note 1) ______ ______ ______ ______ ______ ______
1,12,500 75,750 36,750 1,12,500 75,750 36,750
Finished Stock Account

Opening stock 22,500 14,250 8,250 Sales 1,40,000 82,500 57,500
Transferred from
Process II 1,12,500 75,750 36,750
1,35,000 90,000 45,000
Less: Closing Stock 11,250 7,500 3,750
Finished Stock at
cost 1,23,750 82,500 41,250

Profit 16,250 — 12,250 ______ _____ _____
1,40,000 82,500 57,500 1,40,000 82,500 57,500
Working Notes
Let the transfer price, be 100 then profit is 25; i.e. cost price is 75
1. If cost is Rs. 75 then profit is Rs. 25
25
If cost is Rs. 40,500 then profit is × 40,500 = Rs. 13,500
75
2. If cost is Rs. 80 then profit is Rs. 20
20
If cost is Rs. 90,000 then profit is × 90,000 = Rs. 22,500
80
3. Out of Rs. 90,000 total cost, the profit is Rs. 15,000
15,000
If the cost is Rs. 4,500, the profit is × Rs. 4,500 = Rs. 750
90,000
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
1
Materials 100% ; Labour and Overheads 33 3 %
Input of Materials 18,500 Units at Rs. 52,000
Direct Labour Rs. 14,000
Overheads Rs. 28,000
Closing Work in Progress 5,000 units
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 units of production.
(b) Compute cost per equivalent unit for each cost element i.e., materials,
labour and overheads.
(c) Compute the cost of finished output and closing work in progress.
(d) Prepare the process and other Accounts.
Assume: (I) FIFO Method is used by the Company.
(ii) The cost of opening work in progress is fully transferred to
the next process.
Answer
(a) Statement of Equivalent Units of Production
INPUT OUTPUT EQUIVALENT PRODUCTION
Material Labour &
Overhead
Particulars Units Particulars Units % Units % Units
Op. WIP 1,500 Work on Op. WIP 1,500 — — 66 2
3
1,000
Introduced 18,500 Introduced and 13,500 100 13,500 100 13,500

completed in the
period
Transferred to next 15,000
process
Normal Loss 2,000 — — — —
Closing WIP 5,000 90 4,500 30 1,500
22,000 18,000 16,000
Less: Abnormal 2,000 100 2,000 100 2,000
Gain
_____ _____ _____ _____
20,000 22,000 16,000 14,000
(b) Statement of Cost per Equivalent Unit for Each Cost Element
Cost Equivalent Units Cost per
Equivalent Unit
Rs. Rs. Rs.
Material 52,000
Less: Scrap Value 4,000 48,000 16,000 3
Labour 14,000 14,000 1
Overheads 28,000 14,000 2
(c) Statement of Cost of Finished Output and Closing Work in Progress

Particulars Elements Equivalent Cost per Cost of Total
Units Units Equivalent
Units
Rs. Rs. Rs.
Opening WIP — — — 15,000
(1,500 units)
Opening WIP Material NIL — —
Opening WIP Labour 1,000 1 1,000
Opening WIP Overhead 1,000 2 2,000 3,000
Units introduced and Material 13,500 3 40,500
completed during the
period
" Labour 13,500 1 13,500
" Overhead 13,500 2 27,000 81,000
Total Cost of 15,000 Units of finished output 99,000
Closing WIP Material 4,500 3 13,500
(5,000 units) Labour 1,500 1 1,500
Overhead 1,500 2 3,000
Total cost of closing 18,000
WIP (5,000 units)
(d) Process Account – I
Units Rs. Units Rs.
To Opening WIP 1,500 15,000 By Normal Loss 2,000 4,000
To Units introduced 18,500 52,000 By Transfer to next 15,000 99,000
(Direct Material) process
To Direct Labour — 14,000 By Closing WIP 5,000 18,000
To Overhead — 28,000
To Abnormal Gain 2,000 12,000
(See working
note) _____ _______ _____ _______
22,000 1,21,000 22,000 1,21,000
Abnormal Gain Account

Units Rs. Units Rs.
To Process A/c I 2,000 4,000 By Process I 2,000 12,000
To Profit & Loss A/c — 8,000 _____
12,000 12,000
Working Note
Total cost of Abnormal Gain:
(2,000 Units) @ Rs. 6/- p.u. = Rs. 12,000
Question 13
The following data are available in respect of Process 1 for February 1990 :
(1) Opening stock of work in process : 800 units at a total cost of Rs. 4,000.
(2) Degree of completion of opening work in process:
Material 100%
Labour 60%
Overheads 60%
(3) Input of materials at a total cost of Rs. 36,800 for 9,200 units.
(4) Direct wages incurred Rs. 16,740
(5) Production overhead Rs. 8,370.
(6) Units scrapped 1,200 units. The stage of completion of these units was:
Materials 100%
Labour 80%
Overheads 80%
(7) Closing work in process; 900 units. The stage of completion of these units was:
Material 100%
Labour 70%
Overheads 70%
(8) 7,900 units were completed and transferred to the next process.
(9) Normal loss is 8% of the total input (opening stock plus units put in)
(10) Scrap value is Rs. 4 per unit.
You are required to :
(a) Compute equivalent production,
(b) Calculate the cost per equivalent unit for each element.
(c) Calculate the cost of abnormal loss (or gain), closing work in process and the units
transferred to the next process using the FIFO method,
(d) Show the Process Account for February 1990
Answer
(a) Statement of Equivalent Production (FIFO Method)
Material Labour Overheads
Input Output Unit % Units % Units % Units
(Units) Com Compl Compl
pletio etion etion
n
800 Opening stock of 800 — — 40 320 40 320
WIP
9,200 Finished 7,100 100 7,100 100 7,100 100 7,100
Closing WIP 900 100 900 70 630 70 630
Normal Loss 800 — — — — — —
Abnormal Loss 400 100 400 80 320 80 320
8,400 8,370 8,370
(b) Statement of Cost per equivalent units
Elements Cost Equivalent Cost per
production equivalent Unit
(Units)
Rs. Rs. Rs.
Material Cost 36,800
Less: Scrap realisation 3,200 33,600 8,400 4/-
800 units
@ Rs. 4/- p.u.
Labour cost 16,740 8,370 2/-
Overhead Cost 8,370 8,370 1/-
Total Cost
(c) Cost of Abnormal Loss – 400 Units
Rs.
Material cost of 400 equivalent units @ Rs. 4/- p.u. 1,600
Labour cost of 320 equivalent units @ Rs. 2/- p.u. 640
Overhead cost of 320 equivalent units @ Rs. 1/- p.u. 320
2,560
Cost of closing WIP – 900 Units
Material cost of 900 equivalent units @ Rs. 4/- p.u. 3,600

Labour cost of 630 equivalent units @ Rs.2/- p.u. 1,260
Overhead cost of 630 equivalent @ Rs. 1/- p.u. 630
5,490
Cost of 7,900 units transferred to next process
(i) Cost of opening WIP Stock b/f – 800 units 4,000
(ii) Cost incurred on opening WIP stock
Material cost —
Labour cost 320 equivalent units @ Rs. 2/- p.u. 640
Overhead cost 320 equivalent units @ Rs. 1/- p.u. 320
960
(iii) Cost of 7,100 completed units
7,100 units @ Rs.7/- p.u. 49,700
Total cost [(i) + (ii) + (iii))] 54,660
(d) Process Account for February, 1990

Units Rs. Units Rs.
To Opening WIP 800 4,000 By Cost of Finished 7,900 54,660
Stock goods
To Materials 9,200 36,800
To Labour 16,740 By Closing WIP 900 5,490
To Overhead 8,370 By Abnormal Loss 400 2,560
_____ _____ By Normal Loss 800 3200
10,000 65,910 10,000 65.,910
Question 14
A company manufactures a product which involves two consecutive processes, viz.
Pressing and Polishing. For the month of October, 1991, the following information is available:
Pressing Polishing
Opening Stock — —
Input of units in process 1,200 1,000
Units completed 1,000 500
Units under process 200 500
Materials Cost Rs., 96,000 Rs. 8,000
Conversion Cost Rs. 3,36,000 Rs. 54,000
For incomplete units in process, charge materials cost at 100 percent and conversion
cost at 60 percent in the Pressing Process 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
on sale price.
Answer
Statement of Cost
(i) Pressing process:
Elements of cost Cost Equivalent Production Units Cost per
(Refer to Working Note 1) unit
Rs. (Rs.)
Material cost 96,000 1,200 80
Conversion cost 3,36,000 1,120 300
Total 380
Cost of 1,000 completed units @ Rs. 380/- p.u. = Rs. 3,80,000
Cost of 200 units under Work-in-Process:
Material cost = 200× Rs. 80 = Rs. 16,000
Conversion cost = 120 × Rs. 300 = Rs. 36,000
Total = Rs. 52,000
(ii) Polishing Process
Element of cost Cost Equivalent Production Units Cost per
(Refer to Working Note 1) unit
Rs. (Rs.)
Cost of units
introduced (Rs.) 3,80,000
Material cost (Rs.) 8,000 3,88,000 1,000 388
Conversion cost 54,000 750 72
460
Total Cost of 500 completed units @ Rs. 460 p.u. = Rs. 2,30,000
Material cost = 500 × Rs. 388 = Rs. 1,94,000
Conversion cost = 250 × Rs. 72 = Rs. 18,000
Total = Rs. 2,12,000
Selling price per unit

Cost per unit Rs. 460.00
Profit @ 25% on sale price Rs. 153.33
1
Or 33 3 % on cost
Selling price (p.u.) Rs. 613.33
Working Note
1. Statement of equivalent production of pressing process:
Input Output Units Equivalent units
(Units)
Material Conversion
Qty. % Qty. %
(Units) (Units)
1,200 Completed 1,000 1,000 100 1,000 100
Work in process 200 200 100 120 60
1,200 1,200 1,200 1,120
2. Statement of equivalent production of polishing process
Input Output Units Equivalent units
(Units)
Material Conversion
Qty. (units) % Qty. (units) %
1,000 Completed 500 500 100 500 100
Work in process 500 500 100 250 50
1,000 1,000 1,000 750
Question 15
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:
Process A B C
Units issued / introduced 10,000
cost per unit Rs. 100
Rs. Rs. Rs.
Sundry Materials 10,000 15,000 5,000
Labour 30,000 80,000 65,000
Direct Expenses 6,000 18,150 27,200
Selling price per unit of output 120 165 250
Management expenses during the year were Rs. 80,000 and selling expenses were Rs.
50,000 These are not allocable to the processes.
Actual output of the three processes was:
A – 9,300 units, B-5, 400 units and C-2, 100 units. Two third of the output of Process A
and one half of the output of Process B was passed on to the next process and the balance
was sold. The entire 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.
Answer
Process A Account
Dr. Cr.
Particulars Units Rs. Particulars Units Rs.
To Units brought in 10,000 10,00,000 By Normal Loss 500 1,000
(Rs.100×10,000) (5% of 10,000 units
To Sundry Materials 10,000 @ Rs. 2/- p.u.)
To Labour 30,000 By Abnormal loss 200 22,000
To Direct expenses 6,000 (Working note 1)
Process B A/c 6,200 6,82,000
(Output to be
transferred
Rs. 110 × 6,200)
(Working Note 1)
By Profit & Loss A/c 3,100 3,41,000
(Rs. 100 × 3,100
units)
(Working Note 1)
_____ _______ _____ _______
10,000 10,46,000 10,000 10,46,000
Process B Account
Dr. Cr.
To Process A A/c 6,200 6,82,000 By Normal Loss 930 4,650
To Sundry Materials 15,000 (15% of 6,200 Units
To Labour 80,000 = 930 units
To Direct expenses 18,150 @ Rs. 5/- p.u.)

To Abnormal gain 130 19,500 By Process C A/c 2,700 4,05,000
(Working Note 2) (Output to be
transferred)
Rs. 150 × 2,700
(Working Note 2)
____ _______ (Rs. 150 × 2,700) ____ _______
6,330 8,14,650 6,330 8,14,650
Process C Account
Dr. Cr.
To Process B A/c 2,700 4,05,000 By Normal Loss 540 5,400
To Sundry Materials 5,000 (20% of 2,700
To Labour 65,000 units = 540 units
@ Rs. 10/- p.u.)
To Direct expenses 27,200
By Abnormal Loss 60 13,800
(Working Note 3)
(Rs.230 × 2,100
units) (Working
Note 3)
_____ _______ ____ _______
2,700 5,02,200 2,700 5,02,200
Profit & Loss Account
Dr. Cr.
To Process A A/c 3,100 3,41,000 By Sale 3,100 3,72,000
To Process B A/c 2,700 4,05,000 (Process A's Output
To Process C A/c 2,100 4,83,000 @ Rs. 120/- p.m.)
To Management By Sale 2,700 4,45,500
Expenses 80,000 (Process B's Output
To Selling Expenses 50,000 @ Rs. 165/- p.u.)
To Abnormal Loss A/c 34,800 By Sale 2,100 5,25,000
(Working Note 4) (Process C's Output

@ Rs. 250/- p.u.)
By Abnormal gain A/c 18,850
(Working Note 5)
____ ________ By Net Loss ____ 32,450
7,900 13,93,800 7,900 13,93,800
Working Notes
1. (i) Per unit cost of normal production under process A:
Normal cos t of normal output

Normal production output
Rs.10,46,000 – Rs.1,000
= = Rs. 110
9,500 units
(ii) Value of Abnormal loss under process A:

Abnormal loss units = Normal production – Actual production
= 9,500 – 9,300 = 200 units
Value of Abnormal Loss
= Per unit cost of normal production × Abnormal loss units
= Rs. 110 × 200 – Rs. 22,000.
2. (i) Per unit cost of normal production under process B:
(Rs.7,95,150 – Rs.4,659) Rs.7,90,500
=   Rs.150
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 of normal production × Abnormal gain units
= Rs. 150 × 130 units = Rs. 19,500.
3. (i) Per unit cost of normal production under process C:
(Rs.5,02,200 – Rs.5,400) Rs.4,96,800
=   Rs.230
2,160 units 2,160 units
(ii) Value of Abnormal loss under process C:

Abnormal loss units
= Normal production – Actual production
= 2,160 units – 2,100 units = 60 units
= Rs. 230 × 60 units = Rs. 13,800
4. Abnormal Loss Account

Dr. Cr.
Unit Cost Amoun Particulars Units Cost Amoun
s p.u. t Rs. p.u. t Rs.
Rs. Rs.
To Process A A/c 200 110 22,000 By Sale 200 2 400
proceeds of
Process A Loss
To Process C A/c 60 230 13,800 By Sale 60 10 600
proceeds of
Process C loss
____ _____ By Profit & Loss A/c ___ 34,800
260 35,800 260 35,800
5. Abnormal Gain Account
Dr. Cr.
Unit Cos Amoun Particulars Units Cost Amoun
s t t p.u. t
p.u.
Rs. Rs. Rs. Rs.
To Normal loss 130 5 650 By Process B 130 150 19,500
shortfall
To Profit & Loss A/c 18,850 _____
19,500 19,500
Question 16
Following data are available for a product for the month of July, 1993.
Process I Process II
Opening work-in-progress NIL NIL
Rs. Rs.
Cost Incurred during the month:
Direct materials 60,000 –
Labour 12,000 16,000
Factory overheads 24,000 20,000

Units of production:
Received in Process 40,000 36,000
Completed and transferred 36,000 32,000
Closing work-in-progress 2,000 ?
Normal loss in process 2,000 1,500
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 Units Equivalent Production
Introduce Out Material Labour and Overhead
d % Units % Units
Completio Completio
n n
Units in 40,000
Units completed 36,000 100 36,000 100 36,000
and transferred to
Process-II
Normal loss 2,000 — — — —
Closing work-in- 2,000 100 2,000 50 1,000
progress
Total 40,000 40,000 38,000 37,000
Computation of cost per equivalent unit for each cost element
TABLE 2
Total Cost Equivalent Cost per
Units Equivalent Unit
Rs. Rs.
Direct materials 60,000 38,000 1.5780
Labour 12,000 37,000 0.3243
Factory overheads 24,000 37,000 0.6487

Total 2.5519
Process –1 Account
Units Rs. Units Rs.
To Units introduced 40,000 60,000 By Normal Loss 2,000 NIL
(Direct materials)
To Labour 12,000 By Process – III 36,000 91,869
transferred (Refer to
Working Note-1)
To Factory overheads 24,000 By Work in-process 2,000 4,131
(Refer to Working
_____ _____ Note 2) _____ _____
40,000 96,000 40,000 96,000
Statement of equivalent production units (Process – II)
TABLE 3
Particulars Units Units Equivalent Production
Introduced Out Material Labour and Overheads
% Units % Units
Completion Completion
Units transferred 36,000 32,000 100 32,000 100 32,000
from process-I
Normal loss – 1,500 – – – –
Closing work-in- – 2,500 100 2,500 50 1,250
process
36,000 36,000 34,500 33,250
Computation of cost per equivalent unit for each cost element
TABLE 4
Total Cost Equivalent Cost per Equivalent
Units Units
Rs. Rs.
Cost of 36,000 units transferred 91,869 34,500 2.6629
from Process – I
Labour 16,000 33,250 0.4812
Factory overheads 20,000 33,250 0.6015
Total 3.7456
Process-II Account
Units Rs. Units Rs.
To Units introduced 36,000 91,869 By Normal Loss 1,500 –
(Transferred By Finished stock
from Process-I) transferred 32,000 1,19,859
To Labour 16,000 (Refer to Working
Note 3)
To Factory overheads 20,000 By Work-in-process 2,500 8,010
(Refer to Working
_____ _____ Note 4) _____ _____
36,000 1,27,860 36,000 1,27,869
Working Notes:
1. Cost of 36,000 completed units in Process – I:
= 36,000 × Cost per unit (Refer to Table 2)
= 36,000 × Rs. 2.5519 = Rs. 91,869.
2. Cost of 2,000 units under work-in-process in Process-I:
= Cost of 2,000 equivalent units of material + Cost of 1,000 equivalent units of labour
and overheads (Refer to Tables 1 and 2).
= 2,000 × Rs. 1.5789 + 1,000 × Rs.0.3243 + 1,000 × Rs. 0.6487
= Rs. 4,131
3. Cost of 32,000 units of finished stock in Process-II:
= 32,000 × Cost per unit (Refer to Table 3)
= 32,000 × Rs. 3.7456 = Rs. 1,19,589
4. Cost of 2,500 units under work-in-process in Process-II:
= Cost of 2,500 equivalent units of material + Cost of 1,250 equivalent units of labour
and overhead (Refer to Tables 3 and 4)
= 2,500 × Rs. 2.6629 + 1,250 × Rs. 0.4812 + 1,250 × Rs. 0.6015
= Rs. 6657.25 + Rs. 601.50 + Rs. 751.88
= Rs. 8,010.63.
Question 17
In a manufacturing company, a product passes through 5 operations. The output of the
5th operation becomes the finished product. The input, rejection, output and labour and
overheads of each operation for a period are as under:
Operation Input Rejection Output Labour and

(units) (units) (units) Overhead
(Rs.)
1 21,600 5,400 16,200 1,94,400
2 20,250 1,350 18,900 1,41,750
3 18,900 1,350 17,550 2,45,700
4 23,400 1,800 21,600 1,40,400
5 17,280 2,880 14,400 86,400
You are required to:
(i) Determine the input required in each operation for one unit of final output.
(ii) Calculate the labour and overhead cost at each operation 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 Input required in each operation for one unit of final output:
(Refer to Working Note)
Operation Output Rejection of Input
(Units) output in % required
5 1 20 1.20
120
1
100
4 1.20 8.33 1.30
108.33
1.20 
100
3 1.30 7.69 1.40
107.69
1.30 
100
2 1.40 7.14 1.50
107.14
1.40 
100
1 1.50 33.33 2.00
133.33
1.50 
100
Working Note:
Input required for final output
Operation Input Rejection Output Rejection Input
(units) (units) (units) as % required for
of output final output
1 21,600 5,400 16,200 33.33 2.00
2 20,250 1,350 18,900 7.14 1.50
3 18,900 1,350 17,550 7,69 1.40
4 23,400 1,800 21,600 8.33 1.30
5 17,280 2,880 14,400 20.00 1.20
(ii) Statement of labour and overhead cost

at each operation for one unit of final output
Operation Input Labour & Labour & Input units Labour and
(Units) Overheads) Overhead required for Overhead
per unit of one unit of cost per unit
input final output of final
output
(Rs.) (Rs.) (Rs.) (Rs.)
(a) (b) (c) (d) = (c)/(b) (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 and overhead cost of all operations for one unit of final output is Rs. 60.50
Question 18
From the following information for the month of October, 2003, prepare Process III cost
accounts:
Opening WIP in Process III 1,800 units at Rs. 27,000
Transfer from Process II 47,700 units at Rs. 5,36,625
Transferred to Warehouse 43,200 units
Closing WIP of Process III 4,500 units

Units scrapped 1,800 units
Direct material added in Process III Rs. 1,77,840
Direct Wages Rs.87,840
Production overheads Rs. 43,920
Degree of completion:
Opening Stock Closing Stock Scrap
Material 80% 70% 100%
Labour 60% 50% 70%
Overheads 60% 50% 70%
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 Quantity Quantity Quantity % Quantity % Quantity %
Units units units units units
Op WIP 1,800 Work on 1,800 – – 360 20 720 40
Op. WIP
Process II 47,700 Introduced 41,400 41,400 100 41,400 100 41,400 100
Transfer &
completed
during the
month
Normal loss 2,250 – – – – – –
(5% of
45,000
units)
Cl. WIP 4,500 4,500 100 3,150 70 2,250 50
49,950 45,900 44,910 44,370
Abnormal –450 –450 100 –450 100 –450 100
gain
49,500 49,500 45,450 44,460 43,920
Working note
Production units:
Production units = Opening units + Units transferred from process II – Closing units
= 1,800 units + 47,700 units – 4,500 units = 45,000 units
Statement of cost
Cost Equivalent Cost per
equivalent
units
Rs. Rs.
(a) (b) (a) / (b)
Material A 5,36,625
(Transfer from previous process)
Less: Scrap value of normal loss 15,187
(2,250 units × Rs 6.75)
5,21,438 45,450 11.4728
Material B 1,77,840 44,460 4.0000
Labour 87,840 43,920 2.0000
Overheads 43,920 43,920 1.0000
8,31,037.50 18.4728
Statement of apportionment of process cost
Rs.
Opening WIP Material A 27,000
Completed opening WIP units – Material B 360 units × Rs.4 = Rs. 1,440
1,800
Wages 720 units × Rs.2 = Rs. 1,440
Overheads 720 units × Re. 1 = Rs. 720 3,600
Introduced & completed – 41,400 units × Rs. 18.4728 7,64,773
41,400 units ______
Total cost of 43,200 finished 7,95,373
goods units
Closing WIP Units – 4,500 Material A 4,500 units × Rs. 11.4728 51,628
Material B 3,150 units × Rs.4 12,600
Wages 2,250 units × Rs.2 4,500
Overheads 2,250 units × Re.1 2,250
70,978
Abnormal gain units – 450 450 units × Rs. 18.4728 8313
Process III A/c

Units Rs. Units Rs.
To Balance b/d 1,800 27,000 By Normal Loss 2,250 15,187
To Process II A/c 47,700 5,36,625 By Finished goods 43,200 7,95,373
stock
To Direct material 1,77,840
To Direct Wages 87,840
To Production overheads 43,920 By Closing WIP 4,500 70,978
To Abnormal gain 450 8,313 _____ _______
49,950 8,81,538 49,950 8,81,538
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
Direct Materials – II Rs. 13,200
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
Scrap 1,000 units – Direct Materials 100%, Direct Labour 60%. Overheads 40%. Normal
loss 10% of production.
Scrapped units realised Rs. 4 per unit.
Closing Stock: 4,000 units – Degree of completion: Direct Materials 80%, Direct Labour
60% and overheads 40%.
Prepare Process No.3 Account using average price method, alongwith necessary
supporting statements. (May,2001, 10 marks)
Answer
(Average cost method)
Particulars Total Material I Material II Labour Overhead
Unit
% Units % Units % Units % Units
Units 17,000 100 17,000 100 17,000 100 17,000 100 17,000
completely
processed
Normal Loss 1,800 — — — — — — — —
10% of
(2,000 units
+ 20,000
units – 4,000
units) (Refer
to working
note)
Abnormal gain -800 100 -800 100 -800 100 -800 100 -800
Closing stock 4,000 100 4,000 80 3,200 60 2,400 40 1,600
22,000 20,200 19,400 18,600 17,800
Statement of Cost
Cost Equivalent Rate/Equivalent (Unit)
Rs. Units (Rs.)
Material I:
Opening balance 12,350
2,000 units
Cost of 20,000 units 1,20,000
@ Rs. 6/- per unit
Less: Scrap realized (7,200)
(1,800 units × Rs. 4) ______ _____ _____
1,25,150 20,200 6,1955
Material II:
Opening Stock 13,200
In Process II 30,000 _____ _____
43,200 19,400 2.2268
Labour
Opening labour 17,500
In Process II 60,000 _____ _____
77,500 18,600 4.1667
Overhead:
Opening stock 11,000
In Process II 60,000 _____ _____
71,000 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 4,000 closing work-in-progress units 48,289.92 or 48,290 (say)
Rs.
Material I 4,000 units × Rs. 6.1955 = 24,782.00
Material II 3,200 units × Rs. 2.2268 = 7,125.76
Labour 2,400 units × Rs. 4.1667 = 10,000.08
Overhead 1,600 units × Rs. 3,988 = 6,382.08
48,289.92
Process 3 A/c
Dr. Cr.
To Opening WIP 2,000 54,050 By Normal Loss 1,800 7,200
To Process 2 20,000 1,20,000 By Finished goods units 17,000 2,81,822
By Closing balance 4,000 48,290
To Direct Material II 30,000
To Direct Labour 60,000
To Overhead 60,000
To Abnormal gain 800 13,262 _____ _______
22,800 3,37,312 22,800 3,37,312
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 produces two products – J and K together with a by-product L from a single
main process (process I). Product J is sold at the point of separation for Rs. 55 per kg.
Whereas product K is sold for Rs. 77 per kg. After further processing into product K2. By-
product L is sold without further processing for Rs. 19.25 per kg.
Process I is closely monitored by a team of chemists, who planned the output per 1,000
kg of input materials to be as follows:
Product J 500 kg
Product K 350 kg.
Product L 100 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 K2, has the
following cost structure:
Fixed costs Rs. 2,64,000 per week
Variable cost Rs. 16.50 per kg. processed
The following actual date relate to the first week of the month:
Process I
Opening work-in-progress NIL
Material input 40,000 kg costing Rs. 6,60,000
Direct Labour Rs.4,40,000
Variable overheads Rs. 1,76,000
Fixed overheads Rs. 2,64,000
Outputs:
Product J 19,200 kg.
Product K 14,400 kg.
Product L 4,000 kg.
Toxic waste 2,400 kg.
Closing work-in-progress NIL
Process II
Opening work-in-progress 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 Process I account for the first week of the month using the final sales value
method of attribute the pre-separation costs to join products.
(ii) Prepare the toxic waste account and Process II account for the first week of the month.
(iii) Comment on the method used by the JKL Limited to attribute the pre-separation costs to
joint products.
(iv) Advise the management of JKL Limited whether or not, on purely financial grounds it
should continue to process product K into product K2.
(a) If product K could be sold at the point of separation for Rs. 47.30 per kg; and
(b) If the 60% of the weekly fixed costs of Process II were avoided by not processing
product K further. (May,2004, 10 marks)
Answer
(i) Process I account
Particulars Qty in Rate / Amount Particulars Qty in Rate/ Amount
Kg. Kg. Rs. Rs. Kg. Kg.Rs. Rs.
To Material input 40,000 16.50 6,60,000 By Product L sales 4,000 19.25 77,000
To Direct Labour 4,40,000 By Normal loss 2,000 (-) (-) 33,000
16.50
To Variable 1,76,000 By Abnormal Loss* 400 44 17,600
overheads
To Fixed 2,64,000 By Joint Product J (Refer 19,200 7,21,171
overheads to working note 2)
By Joint product K (Refer 14,400 7,67,229
_____ _______ to working note 2) _____ _______
40,000 15,40,000 40,000 15,40,000
Valuation of abnormal loss per kg. =

Rs.15,40,000 – Rs.77,000  Rs.33,000
40,000 Kgs.  0.85
(Using physical measure method) = Rs. 14,96,000 / 34,000 kgs.

= Rs. 44 per kg.
(ii) Toxic Waste Account
Particulars Qty. Rate Amount Particulars Qty. in Rate/ Amount
in / Kg. Rs. Kg. Kg. Rs. Rs.
Kg. Rs.
To Process I A/c 2,000 16.50 (-)33,000 By Balance 16.50 (-)33,000
Process II Account
Particulars Qty. inRate / Amount Particulars Qty. in Rate/ Amount .
Kg. Kg. Kg. Kg.
Rs. Rs. Rs. Rs.
To Process I 14,400 52,585 7,57,236 By Product 13,200 11,73,924
A/c (Product K) K2 account
To Variable 16.50 2,37,600 By Closing 1,200 84,912
overheads WIP (Refer
To Fixed 2,64,000 to working
overheads note 3) ________
12,58,836 12,58,836
Working notes:
1. Calculation of joint cost of the output:
= Rs. 15,40,000 – Rs. 77,000 – Rs. (-) 33,000 – Rs. 17,600
= Rs. 14,78,400
2. Allocation of joint cost over joint products J & K
(By using final sales value method)
Products Quantity Sales Value Joint Cost
(Kgs.) Rs. Rs.
J 19,200 10,56,000 7,21,171
(19,200 kg × Rs. 55)
K 14,400 11,08,800 7,57,229
(14,400 kgs x Rs.77)
Total 21,64,800 14,78,400
3. Valuation of 1,200 Kgs. of Closing WIP :

Material I 100% complete Rs.
(1200 kgs x Rs.52.5858) 63,103
 Rs. 5,01,600 
Fixed & variable overheads 
 13,800 units 
 x 600 units21,809
 
Total valuation of 1,200 kgs of closing WIP 84,912
(iii) 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., used the basis of
final sales value. This is one of the popular method used in the industry.
Other methods can also be used for the purpose. Some of these are as follows:
– Physical Measure Method (if both the products are equally complex).
– Constant Gross Margin Percentage method.
– Net Realization Value Method.
(iv) Advise to the management of JKL Ltd.:
Rs.
Incremental sales revenue per kg. from further processing 29.70
Less: Incremental variable cost per kg. of further processing 16.50
Incremental contribution per kg from further processing 13.20
At an output of 14,400 kgs the incremental contribution is: 1,90,080
Less: Avoidable fixed cost 1,58,400
(60% x Rs. 2,64,000) _____
Net benefit (Rs.) 31,680
Avoidable fixed costs Rs..1,58,400
Break-even point = =
Incremental contribution per kg. Rs.13.20
= 12,000 kgs.
Hence further processing should be undertaken if output is expected to exceed 12 :000
kgs. per week.
Question 21
A product passes through two processes. The output of Process 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:
Process I Process II
Direct Materials Rs. 60,000 Rs. 40,000
Direct Labour Rs. 40,000 Rs. 30,000
Production overheads Rs. 39,000 Rs. 40,250
Normal Loss 8% 5%
Output 18,000 17,400
Loss realisation of Rs. / Unit 2.00 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) Prepare the Process Accounts
(ii) Determine the Selling price per unit of the end product. (November,2002, 9 marks)
Answer
(i) Process I Account
Dr. Cr.
Kgs. Rate Amount Particulars Kgs. Rate/ Amount.
/ Kg. Kg.
Rs. Rs. Rs. Rs.
To Raw material 20,000 10 2,00,000 By Normal loss 1,600 2.00 3,200
To Direct material 60,000 By Abnormal 400 18.25 7,300
To Direct labour 40,000 loss (Refer
to working
notes 1 &
2)
To Production By Transfer to
overheads _____ 39,000 Process II 18,000 18.25 3,28,500
20,000 3,39,000 20,000 3,39,000
Process II Account
Dr. Cr.
Kgs. Rate Amount Particulars Kgs. Rate/ Amount
/ Kg. Kg. Rs.
Rs. Rs. Rs.
To Process I Account 18,000 18.25 3,28,500 By Normal loss 900 3.00 2.700
To Direct materials 40,000 By Transfer to 17,400 25.50 4,43,700
warehouse
To Direct labour 30,000

To Production overheads 40,250
To Abnormal gain 300 25.50 7,650 _____ ______
(Refer to working notes 3 & 4) 18,300 446400 18300 446400
Working notes
1. Abnormal loss in Process I:
Required production (20,000 kgs. – 1,600 kgs.) 18,400
Actual production (in kgs.) 18,000
Abnormal loss (in kgs.) 400
2. Value of abnormal loss in Process I:
 Normal cos t of normal output 
= 
 
 × Abnormal loss.
 Normal output 
 Rs.3,35,800 
= 
 18,400 kgs. 
 × 400 kgs. = Rs. 18.25 × 400 kgs. = 7,300
 
3. Abnormal gain in Process II:
Required production (18,000 kgs. – 900 kgs.) 17,100
Actual production 17,400
Abnormal gain (in kgs.) 300
(4) Value of abnormal gain in Process I:
 Rs.4,36,050 
= 
 17,100 kgs  × 300 Kgs. = Rs. 25.50 × 3,000 kgs. =Rs.7,650.00
 
(ii) Determination of selling price of the end product:
If the cost price of end product is Rs. 80 the units S.P. is Rs. 100
100
If the cost price of end product is Re.1, the unit S.P. is
80
100
If the cost price is Rs. 25.50, then the S.P. of the end product is  25.50
80
= Rs. 31.875
Question 22
RST Ltd. manufactures plastic moulded chairs. Three models of moulded chairs, all
variation of the same design are Standard, Deluxe and Executive. The company uses an
operation-costing 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 Executive models and the chair edges
are smoothed. Only the executive model enters the finish operation, in which 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 Extrusion Form Trim Finish
Produced Materials Materials Materials Materials
(Rs.) (Rs.)
(Rs.) (Rs.)
Standard Model 10,500 1,26,000 42,000 0 0
Deluxe Model 5,250 63,000 21,000 15,750 0
Executive Model 3,500 42,000 14,000 10,500 21,000
19,250 2,31,000 77,000 26,250 21,000
The total conversion costs for the month of April, 2003 are:
Extrusion Form Trim Finish
Operation Operation Operation Operations
Total conversion costs Rs. 6,06,375 Rs. 2.97,000 Rs. 1,55,250 Rs. 94,500
Required:
(i) For each product produced by RST Ltd. during April.2003, 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-in-progress. These units are 100% complete as to materials and
65 % complete in the trim operation. Determine the cost of the Deluxe model work-in-
process inventory at the end o f May. (May,2003, 6+3=9 marks)
Answer
Working notes:
1. Statement of equivalent production units of Extrusion, Form, Trim and Finish
materials for Standard, Deluxe and Executive model of chairs.

materials materials materials materials
units units units units
Equivalent units of materials 19,250 19,250 8,750 3,500
required to produce three
brands of plastic moulded
chairs
2. Statement of material and conversion cost per equivalent unit:
Equivalent units: (A) 19,250 19,250 8,750 3,500
(Refer to working note 1)
Material costs (Rs.): (B) 2,31,000 77,000 26,250 21,000
Conversion costs of different 6,06,375 2,97,000 1,55,250 94,500
operations performed on
material (Rs.) : (C)
Material cost per equivalent 12 4 3 6
unit (Rs.): (B/A)
Conversion cost per 31.50 15.43 17.74 27
equivalent unit (Rs.): (C/A)
(i) Statement of Unit and Total cost Model-wise
(Refer to working notes 1 & 2)
Standard Deluxe Executive
Model cost Model Cost Model
Rs. Rs. Rs.
Extrusion material 12.00 12.00 12.00
Form material 4.00 4.00 4.00
Trim material – 3.00 3.00
Finish material - - 6..00
Extrusion conversion 31.50 31.50 31.50
Form conversion 15.43 15.43 15.43
Trim conversion – 17.74 17.74
Finish conversion – – 27
Total unit cost 62.93 83.67 116.67
Total Cost 6,60,765 4,39,267.5 4,08,345
(10,500 (5,250 units × (3,500 units ×
units×Rs.62.93) Rs.83.67) Rs.116.67)
(ii) Statement of cost of 1,500 units of the Deluxe Model of the chairs lying in
Work-in-progress inventory at the end of May 2003
Equivalent Unit cost Total Cost

units (Refer to
working note
2)
Rs.
(1) (2) (3)=(1) × (2)
Extrusion materials 1,500 12 18,000
Form materials 1,500 4 6,000
Trim materials 1,500 3 4,500
Extrusion materials conversion 1,500 31.50 47,250
Form materials conversion 1,500 15.43 23,145
Trim materials conversation 975 17.74 17,296.50
(1,500 units × 65%) _________
Total cost of 1,500 units of 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 the relevant data were as follows:
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
Units Rs. Units Rs.
To Opening WIP 200 5,000 By Transfer to 840 42,694
To Process 1 A/c 800 8,600 Process 3
To Process Cost 33,160 (Refer to W.
note No.3)
By Closing WIP 160 4,066
(Refer to W. note
____ _____ No.3) ____ _____

1,000 46,760 1,000 46,700
Working Notes
1. Computation of Equivalent Units
Units In Particular Units Equivalent Production
s out
Material Labour and Overhead
% Units % Units % Units
Comp- Comp- Comp-
letion letion letion
1000 Completed 840 100 840 100 840 100 840
units
WIP 160 50 80 50 80 50 80
1000 1000 920 920 920
2. Average cost per completed units

Rs.
Cost of 200 opening WIP units 5,000
Cost of 800 units received from Process I 8,600
Cost of the period 33,160
Total cost 46,760
Equivalent units = 920
(Refer to Working Note No.1)
Rs.46,760
Average cost per completed unit = 920 units = Rs. 50.826
Rs.
3. Cost of 840 completed units transferred to Process 3 42,694
(840 units × Rs. 50,826)
Cost of 160 WIP units which are 50% complete 4,066
(80 units × Rs. 50,826)
Question 24
The input to a purifying process was 16,000 kgs. of basic material purchased @ Rs. 1.20
per kg. Process wages amounted to Rs.720 and overhead was applied @ 240% of the labour
cost. Indirect materials of negligible weight were introduced into the process at a cost of Rs.
336. The actual output from the process weighed 15,000 kgs. The normal yield of the process
is 92%. Any difference in weight 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 of royalty @
Re.0.15 per kg. of the purified material produced.
Prepare:
(i) Purifying Process Account (3 marks)
(ii) Normal Wastage Account (3 marks)
(iii) Abnormal Wastage / Yield Account (May, 1996, 2 marks)
(iv) Royalty Payable Account (1 marks)
Answer
(i) Purifying Process Account
Dr. Cr.
Qty. Rat Amount Qty. Rate Amoun
e per t
per kg.
kg. kg. Rs. kg. Rs.
Rs. Rs.
To Basic material 16,000 1.20 19,2000 By Normal 1,280 0.50 640.00
wastage 8%
of 1,60,000 Kg.
To Wages 720
To Overheads 1,728 By Purified 15,000 1.60 24,000
240% of Rs. 720 stock
To Indirect 336
materials
To Royalty 2,208
payable on
normal yield
14,720 kg × 0.15
To Abnormal 448
yield 280 1.60 ______ ______ ______
16,280 24,640 16,280 24,640
(ii) Normal Wastage Account

Dr. Cr.
Qty. Rat Amoun Particulars Qty. Rate Amoun
e t per t
per kg.
kg. kg. Kg. Rs.
Rs. Rs. Rs.
To Purifying 1,280 0.50 640 By Purifying 280 0.50 140
process (Normal Process (Ab.
wastage) Yield) reduction
By Cash sale of
____ ___ wastage 1,000 0.50 500
1,280 640 1,280 640
(iii) Abnormal Yield Account
Dr. Cr.
Qty. Rat Amoun Particulars Qty. Rate Amoun
e t per t
per kg.
kg. kg. kg. Rs.
Rs. Rs. Rs.
To Normal 280 0.50 140 By Purifying 280 1.60 448
Wastage A/c Process A/c
To Royalty payable 0.15 42
(on abnormal
yield)
To Balance (Profit
& Loss A/c ___ 266 ___ ___
280 448 280 448
(iv) Royalty Payable Account
Dr. Cr.
Qty. Rate Amoun Particulars Qty. Rate Amoun
per t per t
kg. kg.
kg. Rs. kg. Rs.
Rs. Rs.
To Balance 15,000 0.15 2,250 By Purifying 14,720 0.15 2,208
Process A/c
By Abnormal
_____ _____ yield A/c 280 0.15 42
15,000 2,250 15,000 2,250
Question 25
The following data relate to Process Q
(i) Opening work-in-process 4,000 units
Materials 100% Rs. 24,000
Labour 60% Rs. 14,400
Overheads 60% Rs. 7,200
(ii) Received during the month of April, 1998 from process P.
40,000 Units. Rs. 1,71,000
(iii) Expenses incurred in Process Q during the month:
Material Rs. 79,000
Labour Rs. 1,38,230
(iv) Closing work-in-process 3,000 units
Material 100%
Labour & Overheads 50%
(v) Units scrapped 4,000 units
Materials 100%
Labour & Overheads 80%
(vi) Normal loss: 5% of current input.
(vii) Spoiled goods realised Rs. 1.50 each on sale.
(viii) Completed units are transferred to warehouse;
Required
Prepare:
(i) Equivalent units statement
(ii) Statement of cost per equivalent unit and total costs.
(iii) Process Q Account
(iv) Any other account necessary (May, 1998,12 marks)
Answer
(i) Equivalent units Statement
(using FIFO method)
Units Particulars Units Equivalent Production
in out Materials Labour Overheads
% Units % Units % Units
comple- comple comple
tion -tion -tion
4,000 Opening 4,000 — — 40 1,600 40 1,600
work in-
progress
units,
completed
and
transferred
to
warehouse
40,000 Units 33,000 100 33,000 100 33,000 100 33,000
completed
and
transferred
to
warehouse
Closing 3,000 100 3,000 50 1,500 50 1,500
work-in
progress
Normal loss 2,000 — — — — — —
Abnormal loss 2,000 100 2,000 80 1,600 80 1,600
38,000 37,700 37,700
(ii) Statement of Cost per equivalent unit and total cost
Previous Current process Q Total
Process P Material Labour and
overheads
Costs (Rs.) 1,71,000 79,000 2,07,350
Less: Recovery from the sale –3,000
of 2,000 units @
Rs.1.50 p.u. of normal

loss (Rs.)
1,71,000 76,000 2,07,350
Equivalent units: 38,000 37.700
Cost per equivalent unit (Rs.) 6.50 5.50 12.00
Rs
 Rs.1,71,000  Rs. 76,000 .2,07,350
 
 38,000 37,700
Total cost of 37,000 completed units transferred to warehouse.

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 completed units (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. 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) Process Q Account

Dr. Cr.
To Op. W.I.P. 4,000 45,600 By Normal loss 2,000 3,000
To Units received 40,000 1,71,000 By Completed units 37,000 4,50,400
(Refer to (ii) Part)
To Expenses incurred By Cl. W.I.P. 3,000 27,750
Materials 79,000 (Refer to (ii) part)
Labour 1,38,230 By Abnormal Loss 2,000 21,800
Overheads ______ 69,120 (Refer to (ii) part) _____ _______
44,000 5,02,950 44,000 5,02,950
(iv) Any other account necessary is abnormal loss account:
Dr. Cr.
Particulars Units Amount Particulars Units Amount
Rs. Rs.
To Process Q 2,000 21,800 By Sale 2,000 3,000

Account
By Balance 18,800
_____ (To Profit & Loss A/c) _____
21,800 21,800
Question 26
Following information is available regarding process A for the month of February, 1999:
Production Record.
Units in process as on 1.2.1999 4,000
(All materials used, 25% complete for labour and overhead)
New units introduced 16,000
Units completed 14,000
Units in process as on 28.2.1999 6,000
(All materials used, 33-1/3% complete for labour and overhead)
Cost Records
Work-in-process as on 1.2.1999 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) Statement of equivalent production.
(ii) Statement showing cost for each element.
(iii) Statement of apportionment of cost.
(iv) Process cost account for process A. (May, 1999,10 marks)
Answer
(i) Statement of equivalent production
(Average cost method)
Particulars Equivalent Production
Output Units Materials Labour Overheads
Input % Equi- % Equi- % Equi-

(Units) comple- valent comple valent comple valent
tion units -tion units -tion units
20,000 Completed 14,000 100 14,000 100 14,000 100 14,000
_____ WIP 6,000 100 6,000 33-1/3 2,000 33-1/3 2,000
20,000 20,000 20,000 16,000 16,000
(ii) Statement showing cost for each element

Particulars Materials Labour Overhead Total
Cost of opening work-in-progress (Rs.) 6,000 1,000 1,000 8,000
Cost incurred during the month (Rs.) 25,600 15,000 15,000 55,600
Total cost (Rs.) : (A) 31,600 16,000 16,000 63,600
Equivalent units : (B) 20,000 16,000 16,000
Cost per equivalent unit (Rs.) : C=(A/B) 1.58 1 1 3.58
(iii) Statement of apportionment of cost

Rs. Rs.
Value of output transferred: (a) 14,000 units @ Rs. 3.58 50,120
Value of closing work-in-progress: (b)
Material 6,000 units @ Rs. 1.58 9,480
Labour 2,000 units @ Re. 1 2,000
Overhead 2,000 units @ Re. 1 2,000 13,480
Total cost : (a+b) 63,600
(iv) Process cost account for process A:
Process A Cost Account

Units Rs. Units Rs.
To Opening WIP 4,000 8,000 By Completed units 14,000 50,120
To Materials 16,000 25,600 By Closing WIP 6,000 13,480
To Labour 15,000
To Overhead _____ 15,000 _____ _____
20,000 63,600 20,000 63,600
Quotation 27
Explain briefly the procedure for the valuation of Work-in-process.
(November,2002, 2 marks)
Answer
Valuation of Work-in process:
The valuation of work-in-process can be made in the following three ways, depending
upon the assumptions made regarding the flow of costs.
– First-in-first out (FIFO) method
– Last-in-first out (LIFO) method
- Average cost 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 units is affected by the value of the opening inventory, which is
based on the cost of the previous period. The closing inventory of work-in-process is valued at
its current 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 in
process will continue to appear at the cost of the opening inventory of work-in-progress along
with current cost of work in progress if any.
Average cost method: According to this method opening inventory of work-in-process and
its costs are merged with 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 the work-in-process units into finished units called equivalent units so that the unit
cost of these units can be obtained.
Equivalent Actual number of Percentage of
completed units = units 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-fist-out (FIFO) method to value equivalent
production.
Direct materials added in Process III (Opening WIP) 2,000 units at Rs. 25,750
Transfer from Process II 53,000 units at Rs.
4,11,500
Transferred to Process IV 48,000 units
Closing stock of Process III 5,000 units
Units scrapped 2,000 units
Direct material added in Process III Rs. 1,97,600
Direct wages Rs. 97,600
Production Overheads Rs. 48,800
Opening Stock Closing Stock Scrap
Materials 80% 70% 100%
Labour 60% 50% 70%
Overheads 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 Process Cost Sheet Period……..
(FIFO Method)
Op. Stock : 2000 units
Introduced : 53000 units
Input Output Equivalent production
Item Units Item Units Material A Material B Labour &
OHs.
Op Work on op
stock 2,000 WIP 2,000 - - 400 20 800 40
Process Introduced &
II completed
transfer 53,000 during the
period (48,000
– 2000) 46,000 46,000 100 46,000 100 46,000 100
48,000
Normal Loss
(2000+53000 –
5000) x 5% 2,500 - - - - - -
55,000 Cl WIP 5,000 5,000 100 3,500 70 2,500 50
55,500 51,000 49,900 49,300
Ab. Gain 500 500 100 500 100 500 100
55,000 50,500 49,400 48,800
Statement of Cost for each Element

Element of Cost Equivalent Cost
cost (Rs.) Production. per unit
Rs.
Material A
Transfer from previous. Process 4,11,500
Less: Scrap value of Normal Loss
2500 × Rs. 3 7,500
4,04,000 50,500 8
Material B 1,97,600 49,400 4
Wages 97,600 48,800 2
Overheads 48,800 48,800 1
7,48,000 15
Process Cost Sheet (in Rs)
Op WIP (for completion) Mat B 400×Rs. 4 = 1,600
Wages 800× Rs. 2 = 1,600
OHs. 800× Re. 1 = 800
4,000
Introduced and completely processed during the period 46000× Rs. 15 = Rs. 6,90,000
Closing WIP 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

Process III A/c
Units Amount Units Amount
To bal b/d 2,000 25,750 By Normal Loss 2,500 7,500
To Process II A/c 53,000 4,11,500 By process IV A/c
(6,90,000 + 4000 +
25,750) 48,000 7,19,750
To Direct Material 1,97,600 By bal C/d 5,000 61,500
To Direct Wages 97,600
To Prodn. OHs 48,800
To Abnormal Gain 500 7,500
55,500 7,88,750 55,500 7,88,750
Question 30
A Company produces a component, which passes through two processes. During the
month of April, 2006, materials for 40,000 components were put into Process I of which 30,000
were completed and transferred to Process II. Those not transferred to Process II were 100%
complete as to materials cost and 50% complete as to labour and overheads cost. The
Process I costs incurred were as follows:
Direct Materials Rs.15,000

Factory Overheads Rs.12,000
Of those transferred to Process II, 28,000 units were completed and transferred to
finished goods stores. There was a normal loss with no salvage value of 200 units in
Process II. There were 1,800 units, remained unfinished in the process with 100%
complete as to materials and 25% complete as regard to wages and overheads.
No further process material costs occur after introduction at the first process until the end
of the second process, when protective packing is applied to the completed components.
The process and packing costs incurred at the end of the Process II were:
Packing Materials Rs.4,000

Factory Overheads Rs.4,500
Required:
(i) Prepare Statement of Equivalent Production, Cost per unit and Process I A/c.
(ii) Prepare statement of Equivalent Production, Cost per unit and Process II A/c.
Answer 30
Statement of Equivalent Production and Cost

Material Labour and Total
Overheads
Units completed 30,000 30,000
Closing Inventory 10,000 5,000
Equivalent Production 40,000 35,000
Rs Rs Rs
Current Process cost 15,000 30,000 45,000
Cost/unit 0.375 0.8571
Closing inventory cost 3,750 4,286 8,036
Material transferred to Process II 36,964
Process I Account
Units Rs. Units Rs.
Direct material 40,000 15,000 Process II A/c 30,000 36,964
Direct wages 18,000 Work-in-progress inventory 10,000 8,036
Factory 12,000
overheads
40,000 45,000 40,000 45,000
(ii) Statement of Equivalent Production and Cost

Material Labour and Overheads Total
Units completed 28,000 28,000
Closing Inventory 1,800 450
Equivalent Production 29,800 28,450
Process cost 36,964 8,000 44,964
Cost/unit 1.24 0.2812
Closing inventory 2,232 127 2,359
42,605
Packing material cost 4,000
Rs.
46,605
Process II Account
Units Rs. Units Rs.
T Material 30,000 36,96 By Finished goods
o transferred from 4 stores A/c 28,000 46,605
Process I
T Packing Material 4,000 By WIP stock 1,800 2,359
o
T Direct wages 3,50 By Normal loss 200 −
o 0
T Factory overheads 4,500 ______ ______
o
30,000 48,96 30,000 48,964
4
Question 31
A Chemical Company carries on production operation in two processes. The material
first pass through Process I, where Product ‘A’ is produced.
Following data are given for the month just ended:
Material input quantity 2,00,000 kgs.
Opening work-in-progress quantity
(Material 100% and conversion 50% complete) 40,000 kgs.
Work completed quantity 1,60,000 kgs.
Closing work-in-progress quantity
(Material 100% and conversion two-third complete) 30,000 kgs.
Material input cost Rs. 75,000
Processing cost Rs. 1,02,000
Opening work-in-progress cost
Material cost Rs. 20,000
Processing cost Rs. 12,000
Normal process loss in quantity may be assumed to be 20% of material input. It has no
realisable value.
Any quantity of Product ‘A’ can be sold for Rs. 1.60 per kg.
Alternatively, it can be transferred to Process II for further processing and then sold as
Product ‘AX’ for Rs. 2 per kg. Further 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 II for sale as Product ‘AX’.
Process II has 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:
1,20,000 kgs. of Product ‘A’ input 1,60,000 kgs. of Product ‘A’ input
Rs. Rs.
Materials Cost 1,32,000 1,76,000
Processing Costs 1,20,000 1,40,000
Required:
(i) Determine, using the weighted average cost method, the cost per kg. of Product ‘A’ in
Process I and value of both work completed and closing work-in-progress for the month
just ended.
(ii) Is it worthwhile processing 1,20,000 kgs. of Product ‘A’ further?
(iii) Calculate the minimum acceptable selling price per 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 Output Equivalent output
Particulars Units Particulars Units Material Conversion
Kg. Kg. % Unit kg. % Units kg.
Opening 40,000 Normal loss 40,000    
W.I.P.
New material Units
introduced 2,00,000 introduced &
completed 1,60,000 100% 1,60,000 100% 1,60,000
Abnormal loss 10,000 100% 10,000 100% 10,000
_______ Closing WIP 30,000 100% 30,000 2/3rd 20,000
2,40,000 2,40,000 2,00,000 1,90,000
Process I
Statement of cost for each element
Elements of Costs of Costs in Total cost Equivalent units Cost/Unit
cost opening process (Kg.)
WIP
Rs. Rs. Rs. Kg. Rs.
Material 20,000 75,000 95,000 2,00,000 0.475

Conversion cost 12,000 1,02,000 1,14,000 1,90,000 0.600
32,000 1,77,000 2,09,000 1.075
Statement of apportionment of cost

Units completed Elements Equivalent units Cost/unit Cost Total cost
Rs. Rs. Rs.
Work completed Material 1,60,000 .475 76,000
Conversion 1,60,000 .600 96,000 1,72,000
Closing WIP Material 30,000 .475 14,250
Conversion 20,000 .600 12,000 26,250
(ii) Statement showing comparative data to decide whether 1,20,000 kg. of product ‘A’
should be processed further into ‘AX’.
Alternative I – To sell product ‘A’ after Process – 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
Alternative II – Process further into ‘AX’

Sales 2,40,000  2.00 4,80,000
Less:Cost from Process I 1,20,000  1.075 = Rs. 1,29,000
Material in Process II = Rs. 1,32,000
Processing cost in Process II = Rs. 1,20,000 3,81,000
Gain 99,000
Hence company should process further
It will increase profit by 99,000 – 63,000 = Rs. 36,000
(iii) Calculation of minimum selling price/kg:
Cost of processing remaining 40,000 kg. further Rs.
Material 1,76,000  1,32,000 44,000
Processing cost 1,40,000 – 1,20,000 20,000
Cost from process I relating to 40,000 kg. ‘A’ (40,000  1.075) 43,000
Benefit foregone if 40,000 kg. ‘A’ are further processed
40,000 (1.60 – 1.075) 21,000
Total cost 1,28,000

Additional quantity of product ‘AX’ (40,000  2) 80,000
 1,28,000 
Minimum selling price  = Rs. 1.60
 80,000 
Question 32
Following details are related to the work done in Process ‘A’ of XYZ Company during the
month of March, 2007:
Opening work-in-progress (2,000 units) Rs.

Materials 80,000
Labour 15,000
Overheads 45,000
Materials introduced in Process ‘A’ (38,000 units) 14,80,000
Direct labour 3,59,000
Overheads 10,77,000
Units scrapped: 3,000 units
Materials 100%
Labour and overheads 80%
Closing work-in-progress : 2,000 units
Degree of Completion:
Materials 100%
Labour and overheads 80%
Units finished and transferred to Process ‘B’ : 35,000
Normal Loss:
5% of total input including opening work-in-progress
Scrapped units fetch Rs. 20 per piece.
You are required to prepare:
(i) Statement of equivalent production;
(ii) Statement of cost;

(iii) Statement of distribution cost; and
(iv) Process ‘A’ Account, Normal and Abnormal Loss Accounts. (May 2007, 10 Marks)
Answer
(i) Statement of Equivalent Production
Equivalent production
Input Units Output Units Material Labour &
Overheads
% Units % Units
Opening WIP 2,000 Completed and 35,000 100 35,000 100 35,000
transfer to
Process ‘B’
Units 38,000 Normal loss 2,000  
introduced (5% of 40,000)
Abnormal loss 1,000 100 1,000 80 800
_____ Closing WIP 2,000 100 2,000 80 1,600
40,000 40,000 38,000 37,400
(ii) Statement of Cost
Details Cost at the Cost Total cost Equiva Cost
beginning of added lent per
process Units unit
Rs. Rs. Rs. Rs. Rs.
Material 80,000 14,80,000 15,60,000
Less: Value of (20  2,000 =
normal loss 40,000) 38,000 40
15,20,000
Labour 15,000 3,59,000 3,74,000 37,400 10
Overheads 45,000 10,77,000 11,22,000 37,400 30
80
(iii) Statement of distribution of cost:

(a) Completed and transferred to process ‘B’ = 35,000 units @Rs. 80 = Rs. 28,00,000.
(b) Abnormal loss : 1,000 units:
Materials 1,000 units @ 40 = Rs. 40,000
Labour and Overheads 800 units @ 40 = Rs. 32,000
Rs. 72,000
(c) Closing WIP : 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
(iv) Process ‘A’ Account

Dr.
Cr.
Particulars Units Amount Particulars Units Amount
To Opening WIP 2,000 1,40,000* By Normal Loss 2,000 40,000
Material 38,000 14,80,000 By Abnormal loss 1,000 72,000
introduced By Process ‘B’ A/c
Direct labour 3,59,000 transfer to next 35,000 28,00,000
process
Overheads 10,77,000
______ ________ By Closing WIP 2,000 1,44,000
40,000 30,56,000 40,000 30,56,000
*Materials + Labour + Overheads = Rs. (80,000 + 15,000 + 45,000) = Rs.1,40,000.
Normal Loss Account

Dr.
Cr.
To Process ‘A’ A/c 2,000 40,000 By By Cost Ledger Control A/c 2,000 40,000
2,000 40,000 2,000 40,000

Dr.
Cr.
To Process ‘A’ A/c 1,000 72,000 By By Cost Ledger Control A/c 1,000 20,000
_____ ______ By Costing Profit and Loss A/c ____ 52,000
1,000 72,000 1,000 72,000
Question 33
RST Limited processes product Z through two distinct process – Process I and Process II. On
completion, it is transferred to finished stock. From the following information for the year
2006-07, prepare Process I, Process II and Finished Stock A/c:
Particulars Process I Process II
Raw materials used 7,500 units 
Raw materials cost per unit Rs. 60 
Transfer to next process/finished stock 7,050 units 6,525 units
Normal loss (on inputs) 5% 10%
Direct wages Rs. 1,35,750 Rs. 1,29,250
Direct expenses 60% of 65% of
direct wages direct wages

Manufacturing overheads 20% of 15% of
direct wages direct wages
Realisable value of scrap per unit Rs. 12.50 Rs. 37.50
6,000 units of finished goods were sold at a profit of 15% on cost. Assume that there
was no opening or closing stock of work-in-progress.
(November 2007, 10 Marks)
Answer
Process I Account
Qty. Rate Amount Qty. Rate Amount

To Raw material 7,500 60 4,50,000 By Normal Loss 375 12.50 4,688
(5%  7,500)
To Direct wages 1,35,750 By Abnormal Loss 75 96.79 7,260
To Direct 81,450 By Process II 7,050 96.79 6,82,402
expenses 60% Account
of direct wages
To Manufacturing
Overheads
(20% of direct
wages)
_____ 27,150 ____ _______
_
7,500 6,94,350 7,500 6,94,350
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.
6,94,350  4,688
Cost per unit   Rs. 96.7947. (96.80 approx.)
7,125
Process II Account

To Process I 7,050 96.79 6,82,402 By Normal Loss 705 37.50 26,438
(10%)
To Direct wages 1,29,250 By Finished 6,525 140.05 9,13,823
Stock A/c
To Direct expenses 65% 84,013

of direct wages
To Manufacturing 19,387
Overheads (15%
of direct wages) 9,15,052
To Abnormal gain 180 140.05 25,209 ____ _______
7,230 9,40,261 7,230 9,40,261
Planned output of Process II = 7,050 – 705 = 6,345 units

9,15,052  26,438
Cost per unit   Rs. 140.05.
6,345
Abnormal gain = Actual output – Planned output
= 6,525 – 6,345
= 180 units.

To Process II 6,525 140.05 9,13,823 By Sales A/c 6,000 161.06 9,66,341
To Profit and By Balance 140.05 73,526
Loss c/d 525
Account 1,26,044
6,525 10,39,867 6,525 10,39,867
Question 34
A product passes through three processes ‘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 ‘Z’ is transferred to finished stock at a profit of 25 per cent on transfer
price. The following informations are available in respect of the year ending 31st March,
2008:
Process Process Process Finished
X Y Z Stock
Rs. Rs. Rs. Rs.
Opening stock 15,000 27,000 40,000 45,000
Material 80,000 65,000 50,000
Wages 1,25,000 1,08,000 92,000
Manufacturing Overheads 96,000 72,000 66,500

Closing stock 20,000 32,000 39,000 50,000
Inter process profit included in
Opening stock NIL 4,000 10,000 20,000
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) Process accounts and finished stock account showing profit element at each
stage.
(ii) Profit and Loss account.
(iii) Show the relevant items in the Balance Sheet.
(November 2008, 12 Marks)

Answer
(i) Process ‘X’ Account
Dr.
Cr.
Particulars Cost Profit Total Particulars Cost Profit Total
To Opening Stock 15,000  15,000 By Process ‘Y’ 2,96,000 74,000 3,70,000

A/c (Transfer)
To Material 80,000  80,000
To Wages 1,25,000  1,25,000
Total 2,20,000  2,20,000
Less : Closing stock 20,000  20,000
Prime Cost 2,00,000 2,00,000
To Manufacturing
Overheads 96,000  96,000
Total cost 2,96,000  2,96,000
To Profit and Loss A/c

(20% on transfer Price
Or 25% on cost) _______ 74,000 74,000 _______ ______ _______
2,96,000 74,000 3,70,000 2,96,000 74,000 3,70,000
Process ‘Y’ Account

Dr. Cr.
To Opening Stock 23,000 4,000 27,000 By Process ‘Z’ A/c 5,36,379 2,26,121 7,62,500
(Transfer)
To Process ‘X’ A/c 2,96,000 74,000 3,70,000
To Material 65,000  65,000
To Wages 1,08,000  1,08,000
Total 4,92,000 78,000 5,70,000
Less : Closing stock 27,621 4,379 32,000
Prime Cost 4,64,379 73,621 5,38,000
To Manufacturing
Overheads 72,000  72,000
Total cost 5,36,379 73,621 6,10,000
To Profit and Loss  1,52,500 1,52,500

A/c
or 25% on cost) _______ _______ _______ _______ ______ _______
5,36,379 2,26,121 7,62,500 5,36,379 2,26,121 7,62,500
Process ‘Z’ Account

Dr. Cr.
To Opening Stock 30,000 10,000 40,000 By Finished Stock 7,45,629 5,50,371 12,96,000
A/c (Transfer)
To Process ‘Y’ A/c 5,36,379 2,26,121 7,62,500
To Material 50,000  50,000
To Wages 92,000  92,000

Total 7,08,379 2,36,121 9,44,500
Less : Closing stock 29,250 9,750 39,000
Prime Cost 6,79,129 2,26,371 9,05,500
To Manufacturing
Overheads 66,500  66,500
Total cost 7,45,629 2,26,371 9,72,000
To Profit and Loss  3,24,000 3,24,000

A/c
or 33 1/3% on
cost) ______ _______ _______ _______ _______ _______
7,45,629 5,50,371 12,96,000 7,45,629 5,50,371 12,96,000

Dr. Cr.
To Opening Stock 25,000 20,000 45,000 By Finished Stock 7,41,862 6,58,138 14,00,000
A/c (Transfer)
To Process ‘Z’ A/c 7,45,629 5,50,371 12,96,000
Total 7,70,629 5,70,371 13,41,000
Less: Closing stock 28,767 21,233 50,000
To Profit and Loss 7,41,862 5,49,138 12,91,000

A/c
_______ 1,09,000 1,09,000 _______ _______ ________
7,41,862 6,58,138 14,00,000 7,41,862 6,58,138 14,00,000
(ii) Profit and Loss Account

for the year ending 31 st March, 2008
Dr.
Cr.
Particulars Amount Particulars Amount

Rs. Rs.
To Provision for unrealized By Provision for unrealized profit
profit on closing stock on opening stock
(Rs. 4,379 + 9,750 + 21,233) 35,362 (Rs. 4,000 + 10,000 + 20,000) 34,000
To Net Profit 6,58,138 By Process X A/c 74,000
By Process Y A/c 1,52,500
By Process Z A/c 3,24,000
_______ By Finished Stock A/c 1,09,000
6,93,500 6,93,500
Workings:
Calculation of amount of unrealized profit on closing stock:
Process ‘X’ = Nil
Rs. 78,000
Process ' Y'   Rs. 32,000  Rs. 4,379.
Rs. 5,70,000
Rs. 2,36,121
Process ' Z'   Rs. 39,000  Rs. 9,750.
Rs. 9,44,500
Rs. 5,50,371
Finished stock   Rs. 50,000  Rs. 21,233.
Rs. 12,96,000
(iii) Balance Sheet as on 31st March, 2008 (Extract)
Liabilities Amount Assets Amount Amount
Rs. Rs. Rs.
Net profit 6,58,138 Closing stock
Process – X 20,000
Process – Y 32,000
Process – Z 39,000
Finished stock 50,000
1,41,000
Less: Provision for
unrealized profit 35,362 1,05,638

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10

Process & Operation Costing

Abnormal Loss Account

Packing Department Account

Cost Statement for the week ending 11 th May 1985

Cost per Equivalent Unit

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

Total costs of the two departments in one month were

Production during the month was:

Process & Operation Costing

No. Input Rejected Output

of total cost 13,500 — 13,500

Finished Stock Account

cost 1,23,750 82,500 41,250

Introduced 18,500 Introduced and 13,500 100 13,500 100 13,500

Overheads 28,000 14,000 2

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

Abnormal Gain Account

Material cost of 900 equivalent units @ Rs. 4/- p.u. 3,600

(d) Process Account for February, 1990

Selling price per unit

To Direct expenses 18,150 @ Rs. 5/- p.u.)

(Working Note 4) (Process C's Output

(ii) Value of Abnormal loss under process A:

(ii) Value of Abnormal loss under process C:

4. Abnormal Loss Account

Factory overheads 24,000 20,000

Factory overheads 24,000 37,000 0.6487

Operation Input Rejection Output Labour and

(ii) Statement of labour and overhead cost

Closing WIP of Process III 4,500 units

Process III A/c

Valuation of abnormal loss per kg. =

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

3. Valuation of 1,200 Kgs. of Closing WIP :

To Direct labour 30,000

Extrusion Form Trim Finish

Equivalent Unit cost Total Cost

____ _____ No.3) ____ _____

2. Average cost per completed units

(ii) Normal Wastage Account

15,000 2,250 15,000 2,250

(iv) Any other account necessary (May, 1998,12 marks)

Rs.1.50 p.u. of normal

Total cost of 37,000 completed units transferred to warehouse.

(iii) Process Q Account

To Process Q 2,000 21,800 By Sale 2,000 3,000

Input % Equi- % Equi- % Equi-

(ii) Statement showing cost for each element

(iii) Statement of apportionment of cost

(iv) Process cost account for process A:

Process A Cost Account

20,000 63,600 20,000 63,600

It consists of balance of work done on opening work-in-process, current production done

Statement of Cost for each Element

Abnormal Gain 500× Rs. 15 = 7,500

Direct Materials Rs.15,000

__ _ No.3) ___

Or 25% on cost) ___ 74,000 74,000 _ ___

or 25% on cost) ___ _ _ _ ___