Process Accounts : Normal/Abnormal Loss, Abnormal Gain : Problems and Solutions
Problem 7
Process I: 5%; Process II: 6%; and Process III: 10%.
The percentage of normal wastage in each case is computed on the basis of the number of units entering the process concerned. The wastage of Process I is sold @ 25 paise per unit, that of Process II is sold @ 50 paise per unit and that of Process III is sold @ 1 per unit, The other expenses are:
Process I | Process II | Process III | |
Material Consumed Direct Labour Manufacturing expenses | 1,500 7,500 1,575 | 2,250 12,000 1,425 | 750 9,750 3,015 |
15,000 units were input into the first process at a cost of 7725.
The output of each process has been as follows:
Process Process Process | I II III | — — — | 14,250 13,650 12,012 |
Prepare process cost accounts and abnormal wastage and abnormal effective accounts.
Solution » General Workings
Since no mention is made regarding the sale or insurance realisation of abnormal loss units, it is assumed that they are not disposed off or realised as yet.
The normal loss arising from the processes is sold (The wastage of Process I is sold) and that is the rate at which they have been valued. As such there wou
Solution » Process I
Dr Cr | |||||||
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Particulars | Quantity (in Units) | Amount | Particulars | Quantity (in Units) | Amount | ||
To Primary Material introduced To Material Consumed To Direct Labour To Manufacturing Expenses | 15,000 | 7,725 1,500 7,500 1,575 | By Normal Loss a/c By Process II a/c | 750 14,250 | 188 18,112 | ||
15,000 | 18,300 | 15,000 | 18,300 | ||||
Working Notes »
• Gross/Total Input [GI/TI]
» Value of input introduced [VII]
• Normal Loss [NL]
• Normal Output [AO]
• Actual Output [AO]
• Abnormal Loss/Gain [AL/AG]Since AO = NO, there is neither abnormal loss nor abnormal gain. • Total Cost [TC]
• Normal Loss Realisation [NLR]
• Normal Cost [NC]
• Normal Cost of Normal Output per unit [NCNO/Unit]
Valuation »Normal loss is valued at market price and all others are valued at the "Normal Cost of Normal Output per unit". • Actual Output [VAO]
• Normal Loss [VNL]
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Solution » Process II
Dr Cr | |||||||
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Particulars | Quantity (in Units) | Amount | Particulars | Quantity (in Units) | Amount | ||
To Process I a/c To Materials Consumed To DirectLabour To Manufacturing Expenses To Abnormal Gain | 14,250 255 | 18,112 2,250 12,000 1,425 635 | By Normal Loss a/c By Process III a/c | 855 13,650 | 428 33,994 | ||
14,505 | 34,422 | 14,505 | 34,422 | ||||
Working Notes »
• Gross/Total Input [GI/TI]
• Normal Loss [NL]
• Normal Output [NO]
• Actual Output [AO]
• Abnormal Loss/Gain [AL/AG]Since AO > NO, there is abnormal Gain. • Abnormal Gain [AG]
• Total Cost [TC]
• Normal Loss Realisation [NLR]
• Normal Cost [NC]
• Normal Cost of Normal Output per unit [NCNO/Unit]
Valuation »Normal loss is valued at market price and all others are valued at the "Normal Cost of Normal Output per unit". • Actual Output [VAO]
• Abnormal Gain [VAG]
• Normal Loss [VNL]
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Solution » Process III
Dr Cr | |||||||
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Particulars | Quantity (in Units) | Amount | Particulars | Quantity (in Units) | Amount | ||
To Process II a/c To Material Consumed To Direct Labour To Manufacturing Expenses | 13,650 | 33,994 750 9,750 3,015 | By Normal Loss a/c By Abnormal Loss a/c By Finished Stock a/c | 1,365 273 12,012 | 1,365 1,025 45,119 | ||
13,650 | 47,509 | 13,650 | 47,509 | ||||
Working Notes »
• Gross/Total Input [GI/TI]
• Normal Loss [NL]
• Normal Output [NO]
• Actual Output [AO]
• Abnormal Loss/Gain [AL/AG]Since AO < NO, there is abnormal Loss. • Abnormal Loss [AL]
• Total Cost [TC]
• Normal Loss Realisation [NLR]
• Normal Cost [NC]
• Normal Cost of Normal Output per unit [NCNO/Unit]
Valuation »Normal loss is valued at market price and all others are valued at the "Normal Cost of Normal Output per unit". • Actual Output [VAO]
• Abnormal Loss [VAL]
• Normal Loss [VNL]
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Solution » Normal Loss
Dr Cr | |||||||
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Particulars | Quantity (in Units) | Amount | Particulars | Quantity (in Units) | Amount | ||
To Process I a/c To Process II a/c To Process III a/c | 750 855 1,365 | 188 428 1,365 | By Abnormal Gain a/c By Cash/Bank/Drs a/c | 255 2,715 | 128 1,853 | ||
2,970 | 1,981 | 2,970 | 1,981 | ||||
Solution » Abnormal Loss
Dr Cr | |||||||
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Particulars | Quantity (in Units) | Amount | Particulars | Quantity (in Units) | Amount | ||
To Process III a/c | 273 | 1,025 | |||||
Solution » Abnormal Gain
Dr Cr | |||||||
---|---|---|---|---|---|---|---|
Particulars | Quantity (in Units) | Amount | Particulars | Quantity (in Units) | Amount | ||
To Normal Loss a/c (II) To Costing P & L a/c | 255 – | 128 507 | By Process II a/c | 255 | 635 | ||
275 | 635 | 275 | 635 | ||||
Solution » Other Accounts
Dr Cr | |||||||
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Particulars | Quantity (in Units) | Amount | Particulars | Quantity (in Units) | Amount | ||
To Process III a/c | 12,012 | 45,120 | |||||
Dr Cr | |||||||
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Particulars | Quantity (in Units) | Amount | Particulars | Quantity (in Units) | Amount | ||
By Abnormal Gain a/c | – | 507 | |||||