Lecture-07

CASES

A NO WIP END , NO LOSS, NO WIP-OPENING OUTPUT =INPUT

B WIP END ,NO LOSS, NO WIP-OPENING

C WIP END ,NORMAL LOSS,NO WIP OPENING

D WIP END ,NORMAL LOSS , ABNORMAL LOSS,NO WIP OPENING

E WIP END ,NORMAL LOSS , ABNORMAL LOSS, WIP OPENING

 UNITS LOST/SPOILAGE

UNITS WHICH ARE NOT MEETING THE QUALITY STANDARDS

F.GOODS
AQL=ACCEPTED QUALITY LEVEL

PASSED GOOD UNITS

REJECTED
UNITS LOST
END
START WIP INSPECTION POINT
NORMAL ABNORMAL
 NORMAL LOSS

INHERENT OR BUILTIN IN THE PROCESS

UNCONTROLLABLE
PRODUCT COST INDIRECT COST FOH

CHARGE TO ?
FINISHED GOODS/Units Completed WIP

CHARGED TO GOOD UNITS

UNITS PASSED THROUGH INSPECTION POINT

FINISHED GOODS/UNITS COMPLETED CHARGED TO F.GOODS (UNITS COMPLETED) N.LOSS INCLUDED IN EPU

WIP +F.GOODS (UNITS COMPLETED) CHARGED TO BOTH N.LOSS NOT INCLUDED IN EPU
 AQL=ACCEPTED QUALITY LEVEL F.GOODS

PASSED GOOD UNITS

REJECTED UNITS LOST

START INSPECTION POINT NORMAL END
WIP 60% AT 70%
AQL=ACCEPTED QUALITY LEVEL
F.GOODS

PASSED GOOD UNITS

REJECTED UNITS LOST

START
NORMAL WIP 80%
INSPECTION POINT END
AT 60%
 ABNORMAL LOSS

DUE TO PRDOUCTION INEFFICIENCIES

CONTROLLABLE

PERIOD COST

EXPENSED IN THE INCOME STATEMENT

ALWAYS INCLUDED IN EPU

EXCESS OF LOSS OVER NORMAL LOSS

 NORMAL LOSS ABNORMAL LOSS

INHERENT OR BUILT IN IN THE PROCESS DUE TO PRDOUCTION INEFFICIENCIES

UNCONTROLLABLE CONTROLLABLE

PRODUCT COST PERIOD COST

FINISHED GOODS WIP

EXPENSED IN THE
GOOD UNITS INCOME STATEMENT

UNITS PASSED THROUGH INSPECTION POINT ALWAYS INCLUDED IN EPU

N.LOSS INCLUDED IN EPU

FINISHED GOODS (CHARGED TO F.GOODS)
EXCESS OF LOSS OVER
N.LOSS NOT INCLUDED NORMAL LOSS
WIP +F.GOODS IN EPU
(CHARGED TO BOTH)
 Read Inc EPU
Case-(C) WIP-End ,Normal loss, No WIP-beg
Dept -01 Physical Potential
Cost of Production report
Quantity Schedule For the month ended October D/M Conversion
Units Started ............................................................. 10,000 Units Units compl 7,000 7,000 7,000
Transferred to dept B .................................... 7,000 Units WIP end 2,000 2,000 *100% 2,000 *50%
WIP end .......... .................................... 2,000 Units
2,000 1,000
Normal loss........................................... 1,000 Units 10,000
Cost charged to department Total cost Unit cost 9,000 9,000 8,000
Cost Added by dept
D/M........................................... 27,000 ÷ 9,000 2.7 3.0 Normal loss included in EPU or not ???
Conversion.................................... 40,000 ÷ 8,000
4.4 5.0 As no inspection point is given we assume WIP has passed
Total cost added......................... 67,000 8.0 through the Inspection point so Normal Loss will not be
Total cost to be accounted for 67,000 8.0 included in EPU i.e charged to both Units completed and WIP
Cost Accounted for as follows For understanding D/M Conversion
Tranf to dept B (7,000 * 8)................................. 56,000 Units compl 7,000 7,000 7,000
WIP end 2,000 *50%
WIP end 2,000 2,000 *100%
D/M (2,000 *3)........................ 6,000
2,000 1,000
Conver (1,000 *5 )........................ 5,000 11,000 Normal Loss 1,000 1,000
1,000
Total cost accounted for............................................. 67,000 10,000 10,000 9,000
 Primakoff Inc WIP 2/3=66% Material
Case ( C) WIP-End ,Normal loss,No WIP-beg Insp point
Dept -02
Cost of Production report
Quantity Schedule For the month ended October
End
Units received .......................................................... 2,500 Units Start N.loss F.goods
Transferred to F.goods .................................... 2,000 Units EPU
WIP end .......... .................................... 300 Units Physical Potential
Normal loss........................................... 200 Units 2,500 units
Cost charged to department Total cost Unit cost D/M Conversion
Cost from Preced dept 50,000 ÷ 2,500 20.0 Units compl 2,000 2,000 2,000
Cost Added by dept
D/M........................................... 8,000 ÷ 2,000 4.0 WIP end 300 --- 300 *2/3
Conversion.................................... 36,000 ÷ 2,400 15.0 200
Total cost added......................... 44,000 19.0 Normal loss 200 --- 200
Total cost to be accounted for 94,000 39.0
7,000 2,500 2,000 2,400
Cost Accounted for as follows
Tranf to F.Goods (2,000 * 39)+ N.loss (200*20) + (200*15)... 85,000
Normal loss included in EPU or not ???
WIP end
Cost from Preced (300*20) 6,000 As inspection point is at end of the process and units
Conver (200 *15 )........................ 3,000 9,000 in WIP are 66% completed means WIP has not passed
94,000 through inspection so Normal Loss will be included in
Total cost accounted for............................................. EPU i.e charged only to Units completed
 ABC Inc Insp point 50% 2/3 or 66%
Case ( C) WIP-End ,Normal loss,No WIP-beg
Assembly dept
Cost of Production report
Quantity Schedule
For the Period ended N.Loss WIP end
Units received .......................................................... 60,000 Units
Transferred out ............................................... 50,000 Units
WIP end .......... ................................................ 9,000 Units Start EPU End

Normal loss........................................... 1000 Units 60,000 units Physical Potential

Cost charged to department Total cost Unit cost
Cost from Preced dept 212,400 ÷ 60,000 3.54 D/M Conversion
Cost Added by dept Units compl 50,000 50,000 50,000
D/M........................................... 41,650 ÷ 59,000 0.7059
WIP end 9,000 9,000 9000 *2/3
D/L.................................... 101,700 ÷ 56,000 1.8160
6000
FOH.................................... 56,500 ÷ 56,000 1.0089
Total cost added......................... 199,850 3.5308
59,000 59,000 56,000
Adjustment to lost units *............................................... 0.06
Total cost to be accounted for 412,250 7.1308
Normal loss included in EPU or not ???
Cost Accounted for as follows
356,540 Dept 2 onwards Inspection point is given as the
Tranf to F.Goods (50,000 * 7.1308)
WIP end N.Loss not included in EPU status of loss is actually the status
Cost from Preced dept (9000*3.60)32,400 of inspection point .As WIP has
D/M (9000 *0.7059 )........................6,353.1 **Preced cost/unit recv-N.loss passed through inspection point
D/L (6000 *1.8160)........................ 10,896 55,702.5 * 212,400/60,000-1000 so N.loss will not be included in
FoH (6000 *1.0089)........................ 6,053.4 412,242.50 =3.6-3.54= 0.06 EPU
 Normal Loss (Summary)

Not Included in EPU (When WIP is a good unit) Included in EPU (When WIP is not a good unit)

 When WIP has Passed through the inspection point  When WIP has not Passed through the inspection point
 Inspection point is given
 No Inspection point is given

 Normal loss will be charged to both WIP & F.Goods  Normal loss will be charged only to F.Goods / units completed

 Normal Loss Will be added to units completed / F.goods

 Dept -02 (Concept of Adjustments to lost units) in the heading Cost Accounted for as follows of
Cost of Prod report.
Example : Example :
 Read Incorporation  Primakoff Incorporation
 ABC Assembly dept