PROCESS COSTING – PART 2

Double Entry for Manufacturing Expenses:

Dr. Manufacturing Expenses Account
(E.g.: Raw Material, Labour, Direct Expenses, and Production Overheads)
Cr. Payables / Cash / Bank Account
Transfer of Manufacturing Expenses to Profit and Loss Account
Dr. Profit and Loss Account
Cr. Manufacturing Expenses Account
In Process Costing Follow the similar pattern but, Profit and Loss Account is
replaced by Process Account.
Double Entry for Cost Incurred during Individual Process;
Dr. Process Account
Cr. Raw Material Expenses (Input Units to the Process)
Cr. Direct Labour Expenses
Cr. Direct Expenses
Cr. Production Overheads
Note: Conversion Cost can be used as combined term for Direct Labour
Cost + Direct Expenses + Production Overheads.

CASE 1: Input Units = Output Units.

Following are the Details related to Process 1 Account
Input = 1000.00 Units @ $24.00 per Unit
Labour Cost = $9,000.00
Overhead Cost = $3,000.00
Output = 1000.00 Units
Complete Process 1 Account.
STEP 1 : Debit All the Process Related Expenses to Process Account.
** In Ledger Includes Details for Quantity and Amount
** Only Mention Quantity for Input Units of Main Materials as
Added Materials, Labour, Expenses, and Overheads doesn’t
impact the Level of Output.
STEP 2 : Calculate the Cost per Unit / Rate per Unit Using the Below
Formula
Cost Per Unit / Rate per Unit = Cost of Inputs /Output
STEP 3 : Calculate the Value of Actual Output @ Cost per Unit in STEP
3.
STEP 4 : Transfer the Output of Process Account and Close the Process
Account
Dr. Process 2 Account (Receiving Process Account)
Cr. Process 1 Account (Sending Process Account)

CASE 2: EXPECTED OUTPUT=ACTUAL OUTPUT

CASE OF NORMAL LOSS -> Which Give Rise to Expected Output
Expected Output = Input – Normal Loss**
** Loss Expected Form the Process which is generally expressed as % of Input
Units.
Following are the Details related to Process 1 Account
Input = 1000.00 Units @ $50.00 per Unit
Labour Cost = $30,000.00
Overhead Cost = 200% of Labour Cost
Normal Loss = 10% of Input
Output = 900.00 Units
Complete Process 1 Account.
STEP 1 : Debit All the Process Related Expenses to Process Account.
** In Ledger Includes Details for Quantity and Amount
** Only Mention Quantity for Input Units of Main Materials as
Added Materials, Labour, Expenses, and Overheads doesn’t
impact the Level of Output.
STEP 2 : Credit the Quantity of Normal Loss to Process Account
Dr. Normal Loss Account
Cr. Process 1 Account
** Note: with Nil Cost as Good Units Will Bear the Cost of
Normal Loss [Which will always happen due to Evaporation,
Shrinkage and other Wastage]
STEP 3 : Calculate the Cost per Unit / Rate per Unit Using the Below
Formula
Cost Per Unit / Rate per Unit = Cost of Inputs /Output**
** Here Output becomes
Expected Output = Input Units – Normal Loss Units
STEP 4 : Calculate the Value of Actual Output@ Cost per Unit in STEP 3.
STEP 5 : Transfer the Output of Process Account and Close the Process
Account
Dr. Process 2 Account (Receiving Process Account)
Cr. Process 1 Account (Sending Process Account)
STEP 6 : Complete Normal Loss Account also.

CASE 3: EXPECTED OUTPUT=ACTUAL OUTPUT

** With Scrap Value of Normal Loss Units
CASE OF NORMAL LOSS Units with Scrap Value -> Which Give Rise to Net
Cost of Inputs.
Net Cost of Inputs = Cost of Input – Scrap Value of Normal Loss**
** Scrap Value of Normal Loss = Normal Loss Units * Scrap Rate per Unit.
** Don’t Treat Scrap Value of Normal Loss as Miscellaneous Income
** If Normal Loss has no scrap value it was charged to the Cost of Good Units.
So, if Normal Loss Has Scrap Value it should be deducted from the cost of
Good Units.
Following are the Details related to Process 1 Account
Input = 1000.00 Units @ $50.00 per Unit
Labour Cost = $30,000.00
Overhead Cost = 200% of Labour Cost
Normal Loss = 10% of Input @ $10 per Unit
Output = 900.00 Units
Complete Process 1 Account.
STEP 1 : Debit All the Process Related Expenses to Process Account.
** In Ledger Includes Details for Quantity and Amount
** Only Mention Quantity for Input Units of Main Materials as
Added Materials, Labour, Expenses, and Overheads doesn’t
impact the Level of Output.
STEP 2 : Credit the Quantity of Normal Loss to Process Account
Dr. Normal Loss Account
Cr. Process 1 Account
** Note: with the Scrap Value of Normal Loss
STEP 3 : Calculate the Cost per Unit / Rate per Unit Using the Below
Formula
Cost Per Unit / Rate per Unit = Cost of Inputs* /Output**
Here
 Input Becomes Net Cost of Inputs
 * Net Cost of Inputs= Cost of Inputs – Scrap Value of Normal
Loss
  Here Output becomes Expected Output
 ** Expected Output = Input Units – Normal Loss Units
STEP 4 : Calculate the Value of Actual Output@ Cost per Unit in STEP 3.
STEP 5 : Transfer the Output of Process Account and Close the Process
Account
Dr. Process 2 Account (Receiving Process Account)
Cr. Process 1 Account (Sending Process Account)
STEP 6 : Complete Normal Loss Account also.

CASE 4: EXPECTED OUTPUT=ACTUAL OUTPUT

** With Disposal Cost of Normal Loss Units generally for Toxic
Wastage.
CASE OF NORMAL LOSS Units with Disposal Cost -> Which Give Rise to
Net Cost of Inputs.
Net Cost of Inputs = Cost of Input + Disposal Cost of Normal Loss**
** Disposal Cost of Normal Loss = Normal Loss Units * Disposal Rate per
Unit.
** Don’t Treat Disposal Cost of Normal Loss as Miscellaneous Expenses
** So, if Normal Loss Has Disposal Cost it should be added to the cost of
Good Units.
Following are the Details related to Process 1 Account
Input = 1000.00 Units @ $50.00 per Unit
Labour Cost = $30,000.00
Overhead Cost = 200% of Labour Cost
Normal Loss = 10% of Input @ $10 per Unit as Disposal Cost/ Removal
Cost Due to Toxic Nature of Waste.
Output = 900.00 Units
Complete Process 1 Account.
STEP 1 : Debit All the Process Related Expenses to Process Account.
** In Ledger Includes Details for Quantity and Amount
** Only Mention Quantity for Input Units of Main Materials as
Added Materials, Labour, Expenses, and Overheads doesn’t
impact the Level of Output.
STEP 2 : Credit the Quantity of Normal Loss to Process Account
Dr. Normal Loss Account
Cr. Process 1 Account
** Note: with the Disposal Cost of Normal Loss
OR
Credit the Quantity of Normal Loss to Process Account
Dr. Normal Loss Account
Cr. Process 1 Account
** Note: with Nil Cost and Charge only the Cost Associated with
Disposal on Debit Side of Process Account.
STEP 3 : Calculate the Cost per Unit / Rate per Unit Using the Below
Formula
Cost Per Unit / Rate per Unit = Cost of Inputs* /Output**
Here
 Input Becomes Net Cost of Inputs
 * Net Cost of Inputs= Cost of Inputs + Disposal Cost of
Normal Loss
 Here Output becomes Expected Output
 ** Expected Output = Input Units – Normal Loss Units
STEP 4 : Calculate the Value of Actual Output@ Cost per Unit in STEP 3.
STEP 5 : Transfer the Output of Process Account and Close the Process
Account
Dr. Process 2 Account (Receiving Process Account)
 Cr. Process 1 Account (Sending Process Account)
STEP 6 : Complete Normal Loss Account also.
CASE 5: ACTUAL OUTPUT is less than EXPECTED OUTPUT
**Abnormal Loss Arises
If the Actual loss is greater than the Normal loss then the excess
loss is referred to as an abnormal loss.
As, Abnormal Loss is loss greater than what we have expected in the normal
circumstances which cannot be charged to the cost of Good Units. So, Any
Units in excess of Normal Loss is Cost/Extra Expenses to the Company which
will allocated the Share of process Costs.
Following are the Details related to Process 1 Account
Input = 1000.00 Units @ $50.00 per Unit
Labour Cost = $30,000.00
Overhead Cost = 200% of Labour Cost
Normal Loss = 10% of Input @ $20 per Unit
Output = 850.00 Units
Complete Process 1 Account.
STEP 1 : Debit All the Process Related Expenses to Process Account.
** In Ledger Includes Details for Quantity and Amount
** Only Mention Quantity for Input Units of Main Materials as
Added Materials, Labour, Expenses, and Overheads doesn’t
impact the Level of Output.
STEP 2 : Credit the Quantity of Normal Loss to Process Account
Dr. Normal Loss Account
Cr. Process 1 Account
** Note: with Nil Cost as Good Units Will Bear the Cost of
Normal Loss [Which will always happen due to Evaporation,
Shrinkage and other Wastage]
STEP 3 : Calculate the Cost per Unit / Rate per Unit Using the Below
Formula
Cost Per Unit / Rate per Unit = Cost of Inputs* /Output**
Here
 Input Becomes Net Cost of Inputs
 * Net Cost of Inputs= Cost of Inputs + Disposal Cost of
Normal Loss
 Here Output becomes Expected Output
 ** Expected Output = Input Units – Normal Loss Units
STEP 4 : If Actual Output is less than Expected Output, Case of Abnormal
Loss Arises.
**Abnormal Loss = Expected Output – Actual Output
** Value of Abnormal Loss = Abnormal Loss Units * Cost Per
Unit Calculated in STEP 3.
Dr. Abnormal Loss Account
Cr. Process 1 Account
** With Value of Abnormal Loss
STEP 4 : Calculate the Value of Actual Output@ Cost per Unit in STEP 3.
STEP 5 : Transfer the Output of Process Account and Close the Process
Account
Dr. Process 2 Account (Receiving Process Account)
Cr. Process 1 Account (Sending Process Account)
STEP 6 : Complete Normal Loss Account and Abnormal Loss Account
also.

CASE 6: ACTUAL OUTPUT is more than EXPECTED OUTPUT

**Abnormal Gain Arises
If the Actual loss is less than the Normal loss then the difference is
referred to as an abnormal gain.
As, abnormal gain is less than the loss what we have expected in the normal
circumstances which cannot be charged to the cost of Good Units. So, Any
Units in difference of Normal Loss is benefit to the Company which will
allocated the Share of process Costs.
Following are the Details related to Process 1 Account
Input = 1000.00 Units @ $50.00 per Unit
Labour Cost = $30,000.00
Overhead Cost = 200% of Labour Cost
Normal Loss = 10% of Input @ $20 per Unit
Output = 920.00 Units
Complete Process 1 Account.
STEP 1 : Debit All the Process Related Expenses to Process Account.
** In Ledger Includes Details for Quantity and Amount
** Only Mention Quantity for Input Units of Main Materials as
Added Materials, Labour, Expenses, and Overheads doesn’t
impact the Level of Output.
STEP 2 : Credit the Quantity of Normal Loss to Process Account
Dr. Normal Loss Account
Cr. Process 1 Account
** Note: with Nil Cost as Good Units Will Bear the Cost of
Normal Loss [Which will always happen due to Evaporation,
Shrinkage and other Wastage]
STEP 3 : Calculate the Cost per Unit / Rate per Unit Using the Below
Formula
Cost Per Unit / Rate per Unit = Cost of Inputs* /Output**
Here
 Input Becomes Net Cost of Inputs
 * Net Cost of Inputs= Cost of Inputs + Disposal Cost of
Normal Loss
  Here Output becomes Expected Output
 ** Expected Output = Input Units – Normal Loss Units
STEP 4 : If Actual Output is more than Expected Output, Case of
Abnormal Gain Arises.
**Abnormal Gain = Actual Output – Expected Output
** Value of Abnormal Gain = Abnormal Gain Units * Cost Per
Unit Calculated in STEP 3.
Dr. Process 1 Account
Cr. Abnormal Gain Account
** With Value of Abnormal Gain
STEP 4 : Calculate the Value of Actual Output@ Cost per Unit in STEP 3.
STEP 5 : Transfer the Output of Process Account and Close the Process
Account
Dr. Process 2 Account (Receiving Process Account)
Cr. Process 1 Account (Sending Process Account)
STEP 6 : Complete Normal Loss Account and Abnormal Gain Account
also.