COURSE INSTRUCTOR OF COST & MANAGEMENT

ACCOUNTING

SARFRAZ NAWAZ KHATRI

Hello: 0300-2651202
A.C.M.A., I.C.S.P—QUALIFIED, FPFA, M.A.
(ECONOMICS), M.A. (INTERNTAIONAL
RELATIONS), MSMS IN FINANCE (SZABIST) &
Ph.D. SCHOLAR (SZABIST) (MAJOR IN FINANCE) –
PRESENTLY ON DISSERTATION STAGE – 4.5/5 STAGE
COMPLETED
Joyce Ltd. operates a factory involving two production
Processes. The output of process 1 is transferred to process
2. The information of production for January 2005 is as
follows:

• Cost for Process 1

Materials: 3000 units at $5 per unit
Labour $2400
• Cost for Process 2
Materials: 2000 unit at $8 per
unit Labour $1680
• No opening and closing work in progress
• Output for January 2005
Process 1: 2300 units
Process 2 4000 units
•General overhead, for January 2005 amounted to $17340,
are absorbed into the process cost at a rate of 375% of
direct labour costs in process 1 and 496.4% of direct labour
cost in process 2.

•The normal output of process 1 and process 2 is 80% and

90% of input respectively

•Waste matters from process 1 and sold for $4 per unit

and those from process 2 for $6 per unit
Required:
(a) Process 1
(b) Process 2
(c) Scrap
(d) Abnormal loss
(e) Abnormal gain
 Process 1 account
Units $ $
Materials 3000 15000 Scrap: normal loss Units
($5 *3000) (4*600) 600
Process 2
Labour 2400 2400
Overhead 2300 23000
($10*2300)
9000 Abnormal loss
(2400*375%)
($10 *100) 100 1000
3000 264000 3000 26400

Cost per unit

= Total expected
cost Total expected
output
= $26400-$2400
3000-600
= $10 per unit
 Process 2 account
Units $ $
Process 1 Units
2300 23000 Scrap: normal loss 430
($6*430)
2000 16000 2580
Materials 1680 Finished goods
Labour
Overhead 8340 ($12*4000) 4000 48000
(1680*496.4%)

4300 49020
Abnormal gain
($12 *130) 130 1560
4430 4430 50580
50580
Cost per unit
= = $49020-$2580
4300-430
= $12 per unit
 Abnormal loss account
Units $ Units $
Process 1 100 1000 Scrap 100 400
Profit and loss 600
100 1000 100 1000

Abnormal Gain account

Units $ Units $
Scrap: value of Process 2 130 1560
abnormal gain 130 780
Profit and loss 780
130 1560 130 1560

Loss on scrap value due to abnormal gain

 Scrap account
Units $ Units $
Normal loss 600 2400 Abnormal gain
(Process 1) (Process 2) 130
Normal 430 2580 (130*$6) 780
loss
(Process 2) Cash –process 1
Abnormal loss 100 400 (600+100)*$4 700 2800
(Process 1) Cash – process 2
(100*$4) (430-130)*$6 300 1800
1130 5380 1130 5380
Wk 1:
Determining the output and loss:
Process 1
Input 3000
units
Expected output 2400 units
Less: normal loss (20%) 600
Actual output 2300 units
units
Abnormal loss 100
Wk 2: units
Determining the output and loss:
Process 2
Input (2300+2000) 4300 units
Less: normal loss (10%) 430 units
Expected output 3870 units
Actual output 4000 units
Abnormal gain 130
Back 1 Back 2
units