Normal Process Loss

It is the loss whic~1 is unavoida ble on a~count of inher~nt nature of production processes. Such
an be estimated m advance on the basis of past expenence or data. The normal process loss is
recorcded only
Joss · in items of quantity and th.e l cost per unitd of usable production is increased
1
d"ngly. W11ere scrap possesses some va ue as a waste pro uct or as raw material for an earlier
roces , the
accors
P value thereof
dby usa ble um·tsto
is credited . the cost of normal output;
the process account. This reduces
~ess .l oss is share .
.... --~~UST RATIO N 2. Bengal Chemical Co. Ltd. produced three chemicals during the month of
7'• 2()06 by three consecutive processes. In each process 2% of the total weight put in is lost and
i~J'.\s scrap which from processes (1) and (2) realises Rs. 100 a ton and from process (3) Rs. 20 a

ton. The products of three processes are d~alt with as follows:

Process 1 Process 2 Process 3
Passed on to t~e next process 75% 50%
Sent to warehou se for sale 25% .· 50% 100%
Exp.e nses incurred :
Process 1 Process 2 Process3
Rs. Tons Rs. Tons
Rs. Tons
Raw materials 1,20,000 1,000 28,000 140
1,07,840 1,348
Man~fac turing wages 20,500 18,520 15,000
Gener~l expenses 10,300 7,240 3,100
·
Prepare P rocess Cost Accounts showing the cost per ton of each product.
SOLUTION
PROCESS 1
Tons Rs. Tons Rs.
'i'o Raw Materials 1,000 1,20,000 By Loss of weight
" Mfg .. Wages 20,500 (2% of 1,000 tons) 20
To General Expenses 10,300 By Sale of Scrap
(10% of 1,000 tons) 100 10,000
II
Transfer to Warehouse 220 35,200
II
Transfer to Process 2
(cost per ton Rs. 160) 660 1,05,600
1,000 . 1,50,800 1,000 1,50,800

PROCESS 2
Tons Rs. Tons Rs. --

To Transfer from Process 1 660 1,05,600 By Loss of Weight

,,
Raw Materials 140 28,000 (2% of 800 tons) 16 -
To Mfg. Wages 18,520 By Sale of Scrap
,, 7,240 (10% of 800 tons) 80 8,000
General Expenses 75,680
II
Transfer to Warehouse 352
,,
Transfer to Process 3
(cost per ton Rs. 215) 352 75,680
,-
800 1,59,360
800 1,59,360
- - - - -- - - - - - - - - -- - - - - - -- - -- -··«s
PROCESS 3
Tons
Tons Rs. Rs-:--
To Transfer from Process 2 352 75,680 By Loss of Weight
To Raw Material
" Mfg. Wages
1,348 1,07,840
15,000
(2% of 1,700 tons)
By Sale of Scrap
34

170
-
" General Expenses 3,100 (10% of 1,700 tons) 3,400
" Transfer to Warehouse
(cost per ton Rs. 132.50) 1,496 1,98,220

1,700 2,01,620 1,700 2,00i20

Abnormal Process Loss

Af:Y loss caused by unexpected or abnormal conditions such a~ plan~ ~reak down, sub-standard
matenals, carelessness, accident etc. or loss in excess of the margm anticipated for normal process
loss should be regarded as abnormal process loss. The units of abnormal loss are calculated as
under:
Abnormal Loss= Actual loss - Normal loss.
The valuation of abnormal process loss should be done with the help of the following formula:
Value of Abno 1L - Normal CoSt of Normal Output x Units of Abnormal Loss
rma oss - Norma10 ut pu t
All cases of abnormal process loss ·should be thoroughly investigated and steps taken to
prevent their recurrence in future. Abnormal process loss should not be allowed to affect the cost of
produ~tion as it is caused by abnormal or unexpected conditions. Such loss representing the cost of
materials, labour and overhead incurred on the wastage should be transferred to an abnormal loss
account. If this abnormal loss has got any scrap value, it should be credited to abnormal loss
~cc unt and the balance is ultimately written off to Costing Profit and Loss Account.
.1.Dll!,,Q~·RATION 3. In process A 100 units of raw materials were ·introduced at a cost of.
Rs. i,ooo. T ther expenditure incurred by the process was Rs. 602. Of the units introd~ced 10%
are normally lost in the course of manufacture and they possess a scrap value of Rs. 3 each. The
output of Process A was only 75 units. Prepare Process A Account and abnormal loss account.
SOLUTION
PROCESS A ACCOUNT
-
Units Rs. Units Rs.
To Raw Material 100 1,000 By Normal Loss
" Other Expenses 602 10% of 100 units I

@Rs. 3 each 10 30
" Abnormal Loss 15 *262
" Process B (output) 75 1,310
100 1,602 100 1,602
*Units entered 100
Less : N nrmal Loss 10
Normal Output 90 units
Actual Output 75"
Units of Abnormal Loss 15 units
Value ofAbnormal Loss
Normal Cost of Normal Output · ·t fAb Rs. 1572
= Normal Output x 0 ms o norma11088 = 90 ~ 5 =Rs. 262.
ABNORMAL LOSS ACCOUNT
Units Rs. Units ~
To Process A 15 262 By Cash (scrap value
ofloss@ Rs. 3) 15 45
" Costing Profit and Loss Ale 217
15 262 . .:!:~-··---~ ;

---·- 15 262
Abnormal Gain
We know that margin allowed for normal loss is an estimate (i .e. on the basis of t . .
roccss industries in normal conditions) and slight differences are bound to occu:r~c ation ~n
pctual output of a process and that anticipated . These differences will not alway e ween t e
~ncreosed loss, on occasions the actual loss will be less than that expected. Thus whens retpre1s1ent
. , ac ua oss
•n fl process 1•s sma11er t an was expecte , an abnormal gam results. The value of the g • .11 b
1 h d
~• ~ : .in similar monner to an abnormal loss, then posted to an Abnormal Gain Acco~':t w, e
Abnor'?al gain being the result of actual loss being less than the nor'?al. The scrap realisation
sh m normal loss gets reduced by the scrap value of abnormal gam. Consequently there is .
. . th 1· t · .b '
an apparent 1oss .by way of re uc ~on m ~ ~crap rea 1sa 10n attn utable to abnormal gain. This
d t
loss is set off agamst abnormal gam by deb1tmg the account. ~alance of this account becomes
normal gain and is transferred to Costing Profit & Loss Ace~
USTRATION 4. In process B, 75 units of a commodity were transferred from process A at
a cost . 1,310. The additional expenses incurred by the process were Rs. 190. 20% of the units
entered a normally lost and sold @ Rs. 4 per unit. The output of the Process was 70 units.
Prepare Process B Account and Abnormal Gain Account.
SOLUTION
PROCESS B ACCOUNT
Units Rs. Units Rs.
To Process A Ne 75 1,310 By ?:formal Loss Ne
" Additional Expenses 190 (20% i.e., 15 units sold @
" Abnormal Gain Ne 10 *240 Rs. 4/-) 15 60
By Process C Ne (Output) 70 1,680
85 1,740 85 1,740

*Normal Output. Units entered - Normal Loss

= (75 - 15) = 60 units
Actual Output = 70 units
Abnormal Gain 10 units
Value of Abnormal Gain
Normal Cost of Normal Output U ·t f Ab G . Rs. 1,440 10 Rs
= Normal Output x m so norma1 am= 60 x = . 240
ABNORMAL GAlN ACCOUNT
Units Rs. Units Rs.
To Normal Loss Ale By Process B Ne 10 240
(Loss of income) 10 40
To Costing Profit and Loss Ale - 200
10 240 10 240
.
~ USTRATION 5. A product is completed in three consecutive processes. Durin a
parti~ . ~o~nth the input to Process I of the basic raw material was 5,000 units at Rs. 2 per u!it.
Othe;i~fk~tion for the month was as follows :
" Process-I Process-II Process-III
Output (units) 4,700 4,300 4,050
Normal loss as % of input 5 10 5
Scrap value per unit (Rs.) 1 5 6
Direct wages (Rs.) 3,000 5,000 8,000
Direct expenses (Rs.) 9,750 9,910 15,560

Overhead, Rs. 32,000 total, chargeable as percentage of direct wages.

There were no opening or closing work-in-progress stocks. Compile three process accounts and
finished stock account with details of abnormal loss and gain, where applicable. (C.S. Inter)
~V!18~·!B_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _~_ _ _ _P_r o-=-c~

SOLUTION
PROCESS I ACCOUNT Units
Units Rs. Rs.
To Input By Normal Loss Ne 250
5,000 10,000 250
" Abnormal Loss Ne 50
To Direct Wages 3,000 300
To Direct Expenses 9,750 ( Rs. 281750 - Rs. 250 X 50)
To Overheads 5,000-250
( Rs. 31000 R ) 6,000 or Rs. 6 per unit
Rs. lG,OOO X s. 32,000
By Process 2 Ne
(Rs. 6 per unit) 4,700 28,200
5,000 28,750
5,000 28,750

PROCESS II ACCOUNT
Units Rs.
Units Rs.
To Process I Ne By Normal Loss Ne 470 2,3~0
4,700 28,200
To Direct Wages 5,000 By Process 3 Ne
To Direct Expenses 9,910 (Rs. 12 per unit) 4,300 51,600
To Overheads 10,000
To Abnormal Gain Ne .
( Rs. 53,110 - Rs. 2,350
4,700-470

or Rs. 12 per unit) 70 840 '

4,770 53,950 4,770 53,950

PROCESS III ACCOUNT

Units Rs. Units Rs.
To Process II Ne 4,300 51,600 By Normal Loss Ne 215 1,290
To Direct Wages 8,000 By Abnormal Loss Ne 35 770
To Direct Expenses 15,560
To Overheads 16,000 (Rs. 91!160 -Rs. 1!290)
4,300-215
or Rs. 22 per unit
By Furnished Stock Ne 4,050 89,100
4,300 91,160 4,300 91,160
FINISHED STOCK ACCOUNT
Units Rs. Units Rs.
To Process III Ne 4,050 89,100 By Balance c/d 4,050 89,100
NORMAL LOSS ACCOUNT
Units Rs. Units Rs.
To Process I Ne 250 250 By Abnormal Gain Ne 70 350
To Process II Ne 470 2,350 By Cash/Debtors Ne 865 3,540
To Process III Ne 215 1,290
935 3,890 935 3,890
ABNORMAL GAIN ACCOUNT
Units Rs. Units Rs.
To Normal Loss Ne By Process III Ne 70 840
<Scrap Value@ Rs. 5) 70 350
To Costing P/L Ne 490
70 840 70 840
~ 1/1&.9
ABNORMAL LOSS ACCOUNT
_. I
Units Rs.
, ,.
-
Units 1. Rs.
ro Pr-0cess I Ale . 50 300 By Cash Ale
ro Process Ill Ale 35 770 50@R e. 1 50 50
. ' 35@R s. 6
,, 35, . 210
Costi ng P/L Ale 810
85 . 1,070 ' 85 e
1,070
I l I
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