Advanced Costing · Preface We are happy to present the book “Advanced Costing and Auditing” to the students of Semester IV of S.Y. BMS, to the teachers and the readers. This

Advanced Costingand

Auditing(As per the Revised Syllabus of Mumbai University for S.Y. BMS, Semester IV, 2015-16)

Suraj AgarwalaM.Com., SET, PGDFM,Assistant Professor,

Birla College of Arts, Science & Commerce,Kalyan, (W), Dist. Thane.

Rinky R. RajwaniM.Com., B.Ed., PGDFM, NET,

Assistant Professor,Birla College of Arts, Science & Commerce,

Kalyan (W), Dist. Thane.

Dr. Shraddha M. BhomeM.Com., M.Phil. (Gold Medalist),

MBA (Finance), Ph.D. in Commerce,Research Supervisor (Guide), Shri JJT University, Rajasthan,

Visiting Faculty, Gurunanak Khalsa College, Matunga, Mumbai.Assistant Professor,

S.M. Shetty College, Powai.

MUMBAI NEW DELHI NAGPUR BENGALURU HYDERABAD CHENNAI PUNE LUCKNOW AHMEDABAD ERNAKULAM BHUBANESWAR INDORE KOLKATA GUWAHATI

© AuthorsNo part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by anymeans, electronic, mechanical, photocopying, recording and/or otherwise without the prior written permission of thepublisher.

First Edition : 2016

Published by : Mrs. Meena Pandey for Himalaya Publishing House Pvt. Ltd.,“Ramdoot”, Dr. Bhalerao Marg, Girgaon, Mumbai - 400 004.Phone: 022-23860170/23863863, Fax: 022-23877178E-mail: [email protected]; Website: www.himpub.com

Branch Offices :New Delhi : “Pooja Apartments”, 4-B, Murari Lal Street, Ansari Road, Darya Ganj,

New Delhi - 110 002. Phone: 011-23270392, 23278631; Fax: 011-23256286Nagpur : Kundanlal Chandak Industrial Estate, Ghat Road, Nagpur - 440 018.

Phone: 0712-2738731, 3296733; Telefax: 0712-2721216Bengaluru : No. 16/1 (Old 12/1), 1st Floor, Next to Hotel Highlands, Madhava Nagar,

Race Course Road, Bengaluru - 560 001.Phone: 080-22286611, 22385461, 4113 8821, 22281541

Hyderabad : No. 3-4-184, Lingampally, Besides Raghavendra Swamy Matham, Kachiguda,Hyderabad - 500 027. Phone: 040-27560041, 27550139

Chennai : New-20, Old-59, Thirumalai Pillai Road, T. Nagar, Chennai - 600 017.Mobile: 9380460419

Pune : First Floor, "Laksha" Apartment, No. 527, Mehunpura, Shaniwarpeth(Near Prabhat Theatre), Pune - 411 030. Phone: 020-24496323/24496333;Mobile: 09370579333

Lucknow : House No 731, Shekhupura Colony, Near B.D. Convent School, Aliganj,Lucknow - 226 022. Phone: 0522-4012353; Mobile: 09307501549

Ahmedabad : 114, “SHAIL”, 1st Floor, Opp. Madhu Sudan House, C.G. Road, Navrang Pura,Ahmedabad - 380 009. Phone: 079-26560126; Mobile: 09377088847

Ernakulam : 39/176 (New No: 60/251) 1st Floor, Karikkamuri Road, Ernakulam,Kochi – 682011. Phone: 0484-2378012, 2378016 Mobile: 09387122121

Bhubaneswar : 5 Station Square, Bhubaneswar - 751 001 (Odisha).Phone: 0674-2532129, Mobile: 09338746007

Indore : Kesardeep Avenue Extension, 73, Narayan Bagh, Flat No. 302, IIIrd Floor,Near Humpty Dumpty School, Indore - 452 007 (M.P.). Mobile: 09303399304

Kolkata : 108/4, Beliaghata Main Road, Near ID Hospital, Opp. SBI Bank,Kolkata - 700 010, Phone: 033-32449649, Mobile: 7439040301

Guwahati : House No. 15, Behind Pragjyotish College, Near Sharma Printing Press,P.O. Bharalumukh, Guwahati - 781009, (Assam).Mobile: 09883055590, 08486355289, 7439040301

DTP by : SunandaPrinted at : Geetanjali Press Pvt. Ltd., Nagpur - 440 018. On behalf of HPH.

Dedicated to

God, Our Parents, Our Gurus&

Our Relatives

Preface

We are happy to present the book “Advanced Costing and Auditing” to the studentsof Semester IV of S.Y. BMS, to the teachers and the readers. This book is written accordingto the syllabus prescribed by the University of Mumbai.

Outstanding Features:

1. As per the guidelines of University of Mumbai

2. Simple and lucid language

3. Bird’s eye view boxes given in the text provides a snapshot of the subject mattercovered

4. Diagrammatic representation of the content

5. Sufficient examples

6. Followed a method of simple to complex

7. Question paper pattern.

Authors

Acknowledgement

Adding on to our efforts, this book would not have been in existence without thesupport put forward by many people. We wish to thank first and foremost to our parents andfamily members for their valuable support, belief, motivation to write this book and makingthis attempt a success. We express our special thanks to Mrs. Harsha Rajwani, Mrs. JyotsnaAgarwala, Ms. Rajeshwari Agarwala, Ms. Diya Rajwani, Ms. Juhi Rajwani and Mr. JeetJoshi for their valuable support throughout.

Heartfelt thanks to the Principal Dr. Naresh Chandra of Birla College. We also takethis opportunity to thank Vice Principal of Birla College Dr. Avinash Patil.

We are also thankful to the Professors of Birla College, Mr. Anil Tiwari, Mr. AnandDharmadhikari, Mrs. Madhu Shukrey, Mrs. Sheetal Kejriwal, Dr. Chandra Iyer,Mrs. Akansha Thakur and Mr. Ganesh Kumawat.

It is with immense gratitude that we acknowledge the support, help and inspiration ofProfessor Dr. Renuka Shewkani, CA Kishore Peshori, Mrs. Lakshita Soni andMr. Shrichand Hinduja.

We are thankful to Mr. Kailash Tharwani, Ms. Archana Rao, Mrs. Laksha Ailani,Mr. Manoj Bhatia, Mrs. Jyoti Jangir, Mrs. Kajal Bhojwani, Mr. Durgesh Kumar Dubey andMs. Fluer Dsouza for their continuous motivation and inspiration.

We are thankful to the staff members of Himalaya Publishing House Pvt. Ltd.,especially Mr. S.K. Srivastava, Ms. Archana and Ms. Lalita for their continuous support andbelieve in us.

Last but not the least, thanking to all those who have helped directly or indirectly inmaking this book a success.

Please feel free to provide us with your valuable suggestions for the furtherimprovement of the book.

Authors

SyllabusLearning Objectives:

1. The objective of this subject is to familiarize students with the various concepts and elementsof cost.

2. The course allows intends to develop auditing skills among learners.

Units Name of the Topic No. ofLectures

Unit - 1 Process Costing and Contract CostingProcess Costing: Objectives, Process Cost Accounting Procedure, Basic Stepsfor Solution of Problems in Process Costing, Normal Loss, Abnormal Loss,Abnormal Gain. Typical Examples.Contract Costing: Learning Objectives, Features, Subcontracting, Cost PlusContract, Profit on Incomplete Contract, Work Certified and Work Uncertified,Typical Examples.

15

Unit - 2 Standard CostingStandard Cost, Standard Costing, Variance Analysis Material, LabourVariances.Material Variance: Material Cost Variance, Material Price Variance, MaterialUsage Variance, Material Mix Variance, Material Yield Variance.Labour Variance: Direct Wages Variance, Direct Rate Variance, DirectEfficiency Variance, Direct Time Variance, Direct Yield Variance.

15

Unit - 3 Audit ConceptsBasic, Financial System, Users of Financial Information, Definition ofAuditing, Objectives of Auditing – Primary and Secondary, Expression ofOpinion, Detection of Frauds and Errors.Errors and Frauds, Definition, Reasons and Circumstances, Types of ErrorsCommission, Omission, Principle and Compensating, Types of Frauds, Risk ofFrauds and Error in Audit.Internet Limitations of Audit, Auditor’s Duties and Responsibilities in Respectto Fraud.Principle of Audit: Documentation, Planning, Audit Evidence AccountingSystem and Internal Control, Audit Conclusion and Reporting.Audit Concept: Materiality, Going Concern, True and Fair Independence.

17

Unit - 4 Vouching and VerificationVouching: Audit of Income and Audit of ExpenditureVerification: Audit of Asset and Audit of Liabilities.

13

Paper Pattern

Duration:212 Hours Maximum Marks: 75

Q.1. Unit 1 (Any 2 out of 3) (15 Marks)

(a) (7.5 Marks)

(b) (7.5 Marks)

(c) (7.5 Marks)

Q.2. Unit 2 (Any 2 out of 3) (15 Marks)(a) (7.5 Marks)

(b) (7.5 Marks)

(c) (7.5 Marks)

Q.3. Unit 3 (Any 2 out of 3) (15 Marks)

(a) (7.5 Marks)

(b) (7.5 Marks)

(c) (7.5 Marks)

Q.4. Unit 4 (Any 2 out of 3) (15 Marks)(a) (7.5 Marks)

(b) (7.5 Marks)

(c) (7.5 Marks)

Q.5. Practical Question (15 Marks)

Contents

1. Process Costing 1 – 52

2. Contract Costing 53 – 78

3. Standard Costing 79 – 112

4. Audit Concepts 113 – 130

5. Vouching and Verification 131 – 147

1CHAPTER

Process Costing

Introduction Definition Features Advantages Limitations Important Terms Format of Process A/c Solved Sums Theory Questions Unsolved Sums

IntroductionProcess costing is a method of allocating manufacturing cost to products to determine an average

cost per unit. It is used by companies which mass produce identical or similar products. Since everyunit is essentially the same, each unit receives the same manufacturing input as every other unit.Refineries, paper mills, and food processing companies are examples of businesses which use processcosting.

Process costing is a management accounting function. Business owners use this function toaccurately calculate and apply the business costs for producing specific types of goods. Processcosting provides a costing system for homogeneous goods, which usually have little differentiationfrom one item to the next. Paper, petroleum, chemical, textile, lumber and food processing industriescommonly use process costing. The weighted average method is the most common process costingsystem used in practice. This method includes a few basic steps when costing products.

Definition1. Method for determining the total unit cost of the output of a continuous production run (such

as in food processing, petroleum and textile industries) in which a product passes throughseveral processes (or cost centers).It involves the following steps:

(i) the ‘total cost per process’ is computed by estimating the number of products passingthrough each process in a given period;

2 Advanced Costing and Auditing

(ii) the ‘unit cost per process’ is computed by dividing the ‘total cost per process’ by thenumber of units passing through the process in the given period;

(iii) the ‘unit cost per process’ is charged to each unit as it passes through each process sothat, at the end of the production cycle, each product will have received an appropriatecharge for each process through which it has passed.

2. CIMA London defines process costing as “that form of operation costing which applies wherestandardized goods are produced”

Features of Process Costing Continuous in nature Homogeneous product Output of one process becomes raw material of another process The output of the last process is transferred to finished stock Both direct and indirect costs are accumulated in each process If there is a stock of semi-finished goods, it is expressed in terms of equivalent units The total cost of each process is divided by the normal output of that process to find out cost

per unit of that process. Standarised process Determination of cost process wise

Advantages of Process Costing Periodical determination of cost process wise It is simple and involves less clerical work than job costing It is easy to allocate the expenses to processes in order to have accurate costs. It is useful in preparation of tender quotations Since cost data is available for each process, operation and department, good managerial

control is possible.

Limitations Cost obtained at each process is historical cost It is based on average cost method, which is not suitable for performance analysis, evaluation

and managerial control. Work-in-progress is generally done on estimated basis which leads to inaccuracy in total cost

calculations. Where more than one type of products is manufactured, computation of average cost is more

difficult and a division of the cost element is necessary. This is not relable process for those companies, where different products arise in the same

process and common costs are prorated to various costs units.

3Process Costing

Important Terms

Flow of UnitsProcess costing relies on a very distinct flow of units through the company and production system.

Homogeneous goods usually flow through several various production processes. Each process has aspecific amount of costs associated with producing products. Costs can include direct materials,production labor and manufacturing overheads. These items represent the direct costs related to thespecific production of goods. Manufacturers may have different types of processes they use whenproducing goods. In the wine industry, production processes can include harvesting, crushing andpressing grapes, fermentation, aging, bottling, labeling and shipping.

Normal LossThe loss that occurs in the course of converting an input raw material into finished products is

known as process loss. Such a loss may occur because of the nature of the raw materials. This type ofloss occurs in terms of the difference between the input quantity and the output quantity.

The difference between the input quantity and the output quantity arising on account ofproduction operation is called process loss.

Process loss = Normal process loss + Abnormal process lossIn other words, the loss that cannot be avoided or controlled is called normal loss, for example,

evaporation of petrol and diesel spirit. Losses of this type should be absorbed by good units. Anyvalue realizable on normal loss is credited to process account. Normal losses are unavoidable as theyare losses arising due to the nature of the material or the process. The reasons for such losses in outputcan be the following:

Evaporation Breakage Scrap due to the need for high quality Rejection on inspection Defective units Loss inherent in large-scale manufacturing Chemical change Residue material

Examples of normal losses are metal turnings, off-cuts, metal borings, edges, shreddage and ends.The quantity of normal loss is anticipated based on past experience and the material specification.The specimen of the normal loss is as under:

Normal Loss A/c

Particulars Units ` Particulars Units `

To Process A xx xxx By Cash xx xxxTo Process B xx xxx By Cash xx xxxTo Process C xx xxx By Abnormal Gain xx xxx

By Cash xx xxxxx xxx xx xxx


Abnormal Process LossThe loss realized over the normal loss is called an abnormal loss. Abnormal loss arises because of

abnormal working conditions, bad working condition, carelessness, rough handling, lack of properknowledge, low quality raw material, machine breakdown, accident, etc. Therefore, an abnormal lossis an unanticipated loss. Abnormal loss is a controllable loss and thus can be avoided if correctivemeasures are taken. Therefore, abnormal loss is also called avoidable loss.

The value of an abnormal loss is assessed on the basis of the production cost with which theprofit and loss account is charged.

Value of abnormal loss = (Normal cost of normal output/Normal output) × Abnormal loss qty.The specimen of abnormal loss is as under:

Abnormal Loss A/cParticulars Units ` Particulars Units `

To Process A xx xxx By Cash xx xxxTo Process B xx xxx By Cash xx xxx

By P/L - xxxxx xxx xx xxx

Abnormal GainMore output over the expected or normal output realized is called an abnormal gain. Abnormal

gain arises because of an abnormal effect in the use of raw material or efficiency in performance.Abnormal gain reduces the normal loss quantity as it comes in the form of profit to the industry. Thevalue of an abnormal gain is assessed on the basis of production cost.

Method of determining the value of abnormal gain:Value of abnormal gain = (Normal cost of normal output/Normal output) × Abnormal gain qty.The specimen of abnormal gain is as under:

Abnormal Gain A/c


To Normal Loss xx xxx By Process A xx xxxTo P/L - xxx

xx xxx xx xxx

Items on the Debit Side of Process A/cEach process account is debited with: Cost of materials used in that process. Cost of labour incurred in that process. Direct expenses incurred in that process. Overheads charged to that process on some predetermined basis. Cost of ratification of normal defectives. Cost of abnormal gain (if any arises in that process).

5Process Costing

Items on the Credit SideEach process account is credited with: Scrap value of normal loss (if any) occurs in that process. Cost of abnormal loss (if any occurs in that process).

Cost of ProcessThe cost of the output of the process (Total cost less Sales value of scrap) is transferred to the

next process. The cost of each process is thus made up to cost brought forward from the previousprocess and net cost of material, labour and overheads added in that process after reducing the salesvalue of scrap. The net cost of the finished process is transferred to the finished goods account. Thenet cost is divided by the number of units produced to determine the average cost per unit in thatprocess. Specimen of Process Account is as under:

Process-A

Particulars Units ` Particulars Units `To Input xx xxx By Normal Loss xx xxxTo Process Material - xxx By Abnormal loss xx xxxTo Direct Labour - xxx By Sales xx xxxTo Expenses - xxx By Process B xx xxxTo Abnormal Gain xx xxx

xx xxx xx xxx

Simple Sums1. YZ Ltd. manufactures a product which passes through two processes. The cost records shows

the following particulars for the month ended on 31st March 2009.Input to Process I is 30,000 Units @ ` 5 per Unit.

Particulars Process-A Process-BMaterials (`) 50,000 1,00,000Labour (`) 30,000 80,000Expenses (`) 20,000 20,000Normal Loss (Units) 5,000 5,000Scrap Value Per Kg. (`) 10 20Actual Output (Units) 25,000 20,000

You are required to prepare Process Accounts. Also show process cost per unit for each processSolution:

In the books of YZ Ltd.Process-A


To Input 30,000 1,50,000 By Normal Loss 5,000 50,000To Process Material - 50,000 By Process B (WN1) 25,000 2,00,000To Direct Labour - 30,000To Expenses - 20,000

30,000 2,50,000 30,000 2,50,000


Process-B


To Process I 25,000 2,00,000 By Normal Loss 5,000 1,00,000To Process Material - 1,00,000 By Finished Stock (WN 2) 20,000 3,00,000

To Direct Labour - 80,000To Expenses - 20,000

25,000 4,00,000 25,000 4,00,000

Working Notes:(i) Calculation of per unit and amount of the material transferred to Process B

Particulars ` UnitsTotal of Debit side 2,50,000 30,000Less: Normal Loss 50,000 5,000

2,00,000 25,000

000,25000,00,2

UnitsAmount

UnitPer == = ` 8

Material Transferred to Next Process = Units × Per Unit = 25,000 × 8= ` 2,00,000

(ii) Calculation of per unit and amount of Finished Stock:

Particulars ` UnitsTotal of Debit side 4,00,000 25,000Less: Normal Loss 1,00,000 5,000

3,00,000 20,000

000,20000,00,3

UnitsAmount

UnitPer == = ` 15


2. Y Ltd. manufactures a chemical product which passes through three consecutive processes.The cost records shows the following particulars for the month ended on 30th June 2009.Input to Process I is 20,000 Units @ ` 30 per Unit.

Particulars Process-I Process-II Process-IIIMaterials (`) 50,000 1,00,000 1,00,000

Labour (`) 30,000 80,000 75,000

Expenses (`) 5,000 20,000 25,000

Normal Loss (% on input) (%) 10% 10% 20%Scrap Value Per Kg. (`) 1 2 3

Actual Output (Units) 18,000 16,200 12,960

You are required to prepare Process Accounts. Also show process cost per unit for each process

7Process Costing

Solution:In the books of Y Ltd.

Process - I


To Input 20,000 6,00,000 By Normal Loss (10% of 20,000) × ` 1 2,000 2,000To Process Material - 50,000 By Process II (WN1) 18,000 6,83,000To Direct Labour - 30,000To Expenses - 5,000

20,000 6,85,000 20,000 6,85,000

Process-II


To Process I 18,000 6,83,000 By Normal Loss (10% of 18,000) × ` 2 1,800 3,600To Process Material - 1,00,000 By Process III (WN2) 16,200 8,79,400To Direct Labour - 80,000To Expenses - 20,000

18,000 8,83,000 18,000 8,83,000

Process-III


To Process II 16,200 8,79,400 By Normal Loss (20% of 16,200) × ` 3 3,240 9,720

To ProcessMaterial

- 1,00,000 By Finished Goods (WN3) 12,960 10,69,680

To Direct Labour - 75,000To Expenses - 25,000

16,200 10,79,400 16,200 10,79,400

Working Notes:(iii) Calculation of per unit and amount of the material transferred to Process II.


6,83,000 18,000

000,18000,83,6

UnitsAmountUnitPer = ` 37.95

Material Transferred to Next Process = Units × Per Unit = 18,000 × 37.95= ` 6,83,000

(iv) Calculation of per unit and amount of the material transferred to Process III.


8,79,400 16,200


200,16400,79,8


Material Transferred to Next Process = Units × Per Unit = 16,200 × 54.284= ` 8,79,400

(v) Calculation of per unit and amount of Finished Goods.


10,69,680 12,960

960,12680,69,10


Finished Goods = Units × Per Unit = 12,960 × 82.537= ` 10,69,680

Normal and Abnormal Loss, Abnormal Gain3. Om Industries Ltd. is manufacturing a product which passes through three consecutive

processes, Process-I, Process- II and Process – III. The following figures have been takenfrom their books for the month ended on 31st Jan., 2011.

Particulars Process-I Process-II Process-IIIQuantitative InformationBasic Raw Material at ` 10 per kg. (Kgs) 25,000 - -Output during the year (Kgs.) 24,000 23,200 22,250Other Additional InformationProcess Material (`) 1,50,000 2,70,000 3,50,000Direct Wages 80% of Process

Material70% ofProcess

Material

60% of ProcessMaterial

Factory Overheads 80% of DirectWages

90% of DirectWages

75% of DirectWages

Machine Overheads (`) 22,000 16,980 15,620Normal Loss (% on input) (%) 2% 4% 4%Scrap Value Per Kg. (`) 2 3 5

You are required to prepare Process Accounts. (March 2011, B.Com.)Solution:

In the books of Om Industries Ltd.Process-I


To Input 25,000 2,50,000 By Normal Loss (2% of 25,000) × 2 500 1,000To Process Material - 1,50,000 By Process II (WN1) 24,000 6,24,000To Direct Wages - 1,20,000 By Abnormal Loss (WN1) 500 13,000To Factory Overheads - 96,000

9Process Costing

To Machine Overheads - 22,00025,000 6,38,000 25,000 6,38,000

Process-II


To Process I 24,000 6,24,000 By Normal Loss (3% of 24,0000) × 3 960 2,880To Process Material - 2,70,000 By Process III (WN 2) 23,200 12,76,000To Direct Wages - 1,89,000To Factory Overheads - 1,70,100To MachineOverheads

- 16,980

To Abnormal Gain(WN2)

160 8,800

25,000 12,78,880 25,000 12,78,880

Process-IIIParticulars Units ` Particulars Units `

To Process II 23,200 12,76,000 By Normal Loss(4% of 23,200) × 5

928 4,640

To Process Material - 3,50,000 By Finished Goods(WN3)

22,250 20,02,500

To Direct Wages - 2,10,000 By Abnormal Loss(WN3)

22 1,980

To Factory Overheads - 1,57,500To Machine Overheads - 15,620

23,200 20,09,120 23,200 20,09,120

Working Notes:(i) Calculation of per unit and amount of the material transferred to Process II and

Abnormal Loss:Particulars ` Units

Total of Debit side 6,38,000 25,000Less: Normal Loss 1,000 500

6,37,000 24,500

500,24000,37,6

UnitsAmountUnitPer = ` 26

Calculation of Abnormal Loss in Units = Input – Normal Loss – Material Transferred toNext Process

= 25,000 – 500 – 24,000 = 500 Units.Material Transferred to Next Process = Units × Per Unit = 24,000 × 26

= ` 6,24,000Abnormal Loss = Units × Per Unit = 500 × 26

= ` 13,000


(ii) Calculation of per unit and amount of the material transferred to Process III andAbnormal Gain:

Particulars ` UnitsTotal of Debit side (Except Abnormal Gain) 12,70,080 24,000Less: Normal Loss 2,880 960

12,67,200 23,040

040,23200,67,12


Calculation of Abnormal Gain in Units = Input – Normal Loss – MaterialTransferred to Next Process

= 24,000 – 960 – 23,200= 160 Units.


Abnormal Loss = Units × Per Unit = 160 × 55= ` 8,800

(iii) Calculation of per unit and amount of Finished Goods and Abnormal Loss:Particulars ` Units


20,04,480 22,272

272,22480,04,20

UnitsAmountUnitPerCost = ` 90

Calculation of Abnormal Loss in Units = Input – Normal Loss – Finished Goods= 23,200 – 928 – 24,000= 22 Units.

Finished Goods = Units × Per Unit = 22,250 × 90= ` 20,02,500


4. Y Ltd. manufactures a chemical product which passes through three consecutive processes.The cost records shows the following particulars for the month ended on 30th June 2009.Input to Process I is 20,000 Units @ ` 28 per Unit.

Particulars Process-I Process-II Process-IIIMaterials (`) 48,620 1,08,259 1,03,345

Labour (`) 32,865 84,553 77,180

Expenses (`) 2,515 10,588 16,275

Normal Loss (% on input) (%) 20% 15% 10%

11Process Costing

Scrap Value Per Kg. (`) 1 2 3

Actual Output (Units) 18,000 16,000 15,000

You are required to prepare Process Accounts., Abnormal Loss A/c, Abnormal Gain A/c. Alsoshow process cost per unit for each process (Oct. 2005, B.Com.)Solution:

In the books of Y Ltd.Process-I


To Input 20,000 5,60,000 By Normal Loss (20% of 20,000) × 1 4,000 4,000To Process Material - 48,620 By Process II (WN1) 18,000 7,20,000To Direct Labour - 32,865To Expenses - 2,515To Abnormal Gain (WN1) 2,000 80,000

22,000 7,24,000 22,000 7,24,000

Process-II


To Process I 18,000 7,20,000 By Normal Loss (15% of 18,000) × 2 2,700 5,400To Process Material - 1,08,259 By Process III (WN 2) 16,000 9,60,000To Direct Labour - 84,553

To Expenses - 10,588To Abnormal Gain (WN2) 700 42,000

18,700 9,65,400 18,700 9,65,400

Process -III


To Process II 16,000 9,60,000 By Normal Loss (10% of 16,000) ×3

1,600 4,800

To Process Material - 1,03,345 By Finished Goods (WN3) 15,000 12,00,000To Direct Labour - 77,180To Expenses - 16,275To Abnormal Gain (WN3) 600 48,000

16,600 12,04,800 16,600 12,04,800

Working Notes:(i) Calculation of per unit and amount of the material transferred to Process II and

Abnormal Gain:Particulars ` Units

Total of Debit side (Except Abnormal Gain) 6,44,000 20,000Less: Normal Loss 4,000 4,000

6,40,000 16,000


000,16000,40,6


Calculation of Abnormal Gain in Units = Input – Normal Loss – Material Transferred toNext Process

= 20,000 – 4,000 – 18,000= 2,000 Units.


Abnormal Gain = Units × Per Unit = 2,000 × 40= ` 80,000


Particulars ` UnitsTotal of Debit side (Except Abnormal Gain) 9,23,400 18,000Less: Normal Loss 5,400 2,700

9,18,000 15,300

60300,15000,18,9

UnitsAmount

UnitPer `===

Calculation of Abnormal Gain in Units = Input – Normal Loss – MaterialTransferred to Next Process

= 18,000 – 2,700 – 16,000= 700 Units.



(iii) Calculation of per unit and amount of Finished Goods and Abnormal Loss:Particulars ` Units

Total of Debit side (Except Abnormal Gain) 11,56,800 16,000Less: Normal Loss 4,800 1,600

11,52,000 14,400

80400,14

52000,11Units

AmountUnitPer `===

Calculation of Abnormal Loss in Units = Input – Normal Loss – Finished Goods

= 16,000 – 1,600 – 15,000

= 600 Units.

Finished Goods = Units × Per Unit = 15,000 × 8

13Process Costing

= ` 12,00,000


5. A product passes through three processes. The following cost data have been extracted fromthe books of a company.

Particulars Process A ` Process B ` Process C `

Process Materials 12,000 10,000 9,000

Direct Labour 16,000 5,000 4,900Manufacturing Expenses 2,000 3,400 3,590

Other Factory Expenses 3,500 2,005 2,004

The Following additional data is obtained.Process Output (Units) % of Normal Loss to Input Value of Scrap

A 3,850 2% 25 Paise per unitB 3,600 4% 50 Paise per unit

C 3,520 2.5% 60 Paise per unit

4,000 Units were initially introduced in Process A at a cost of ` 13,560. There was no stockof material or work in progress at the beginning or at the end. The output of each processpasses directly to the next process and finally to finished stock. You are required to prepare:

(a) Process A/c(b) Normal Loss A/c(c) Abnormal Loss A/c(d) Abnormal Gain A/c (Oct. 2009, B.Com.)

Solution:In the books of A Ltd.

Process-AParticulars Units ` Particulars Units `

To Input 4,000 13,560 By Normal Loss(2% of 4,000) × 0.25

80 20

To Process materials - 12,000 By Abnormal Loss @12 `

70 840

To Direct labour - 16,000 By Process B (WN1) 3,850 46,200To Manufacturing

expenses- 2,000

To Other factoryexpenses

- 3,500

4,000 47,060 4,000 47,060

Process-BParticulars Units ` Particulars Units `

To Process A 3,850 46,200 By Normal Loss (4% of 3,850) × 0.50 154 77To Process materials - 10,000 By Abnormal Loss @ 18 ` 96 1,728To Direct labour - 5,000 By Process C (WN2) 3,600 64,800


To Manufacturingexpenses

- 3,400

To Other factoryexpenses

- 2,005

3,850 66,605 3,850 66,605

Process-C


To Process B 3,600 64,800 By Normal Loss(2.5% of 3,600) × 0.60

90 54

To Process materials - 9,000 By Finished Goods(WN3)

3,520 84,480

To Direct labour - 4,900To Manufacturing expenses - 3,590To Other factory expenses - 2,004To Abnormal Gain (WN3) 10 240

3610 84534 3610 84534

Normal Loss A/c


To Process A 80 20 By Cash 80 20To Process B 154 77 By Cash 154 77To Process C 90 54 By Abnormal Gain 10 6

By Cash 80 48324 151 324 151

Abnormal Loss A/c


To Process A 70 840 By Cash 70 17.5To Process B 96 1,728 By Cash 96 48.0

By P/L - 2502.5166 2,568 166 2,568

Abnormal Gain A/c


To Normal Loss 10 6 By Process C 10 240To P/L - 234

10 240 10 240

Working Notes:(i) Calculation of per unit and amount of the material transferred to Process B and

Abnormal Loss:Particulars ` Units

Total of Debit side 47,060 4,000Less: Normal Loss 20 80

47,040 3,920

15Process Costing

123,920

47,060Units

AmountUniterpCost `

Calculation of Abnormal Loss in Units = Input – Normal Loss – Material Transferred to Next Process= 4,000 – 80 – 3,850= 70 Units.

Material Transferred to Next Process = Units × Per Unit = 3,850 ×12= ` 46,200

Abnormal Loss = Units × Per Unit = 70 × 12= ` 840

(ii) Calculation of per unit and amount of the material transferred to Process C andAbnormal Loss:

Particulars ` UnitsTotal of Debit side 66,605 3,850Less: Normal Loss 77 154

66,528 3,696

18696,3528,66

UnitsAmountUnitperCost `

Calculation of Abnormal Loss in Units = Input – Normal Loss – Material Transferred to NextProcess

= 3,850 – 154 – 3,600= 96 Units.

Material Transferred to Next Process = Units × Per Unit = 3,600 × 18= ` 64,800


(iii) Calculation of per unit and amount of Finished Goods and Abnormal Gain:Particulars ` Units

Total of Debit side (except Abnormal Gain) 84,294 3,600

Less: Normal Loss 54 90

84,240 3,510

24510,3240,84

UnitsAmountUnitperCost `

Calculation of Abnormal Gain in Units = Input – Normal Loss – Finished Goods= 3,600 – 90 – 3,520= 10 Units.

Finished Goods = Units × Per Unit = 3,520 × 24= ` 84,480


Abnormal Gain = Units × Per Unit = 10 × 24= ` 240

6. A product passes through three Processes i.e. Process U, P and A. The following details areavailable from the books for the year ended 31st March 2009.

Particulars Process-U Process-P Process-ANo. of Units introduced ` 2,000 - -

Cost per Unit ` 12 - -

Sundry Materials ` 10,400 7,920 11,428

Direct Labour ` 8,000 12,000 16,000

Direct Expenses ` 6,000 8,000 50% of DirectLabour

Production Overheads 25% of DirectLabour

50% of DirectLabour

100% of DirectLabour

Normal Loss (% of input of the process) 5% 10% 15%

Scrap Value per unit ` 10 14 20

Actual Output ` 1,900 1,680 1,470

The output of each process passes directly to the next process and finally to the finished stock.You are required to prepare: (April 2009 B.Com.)

Process A/c, Normal Loss A/c, Abnormal Loss A/c, Abnormal Gain A/cSolution:

In the books of _________Process-U


To Input 2,000 24,000 By Normal Loss(5% of 2,000) × 10

100 1,000

To Sundry Materials - 10,400 By Process P (WN1) 1,900 49,400To Direct Labour - 8,000To Direct Expenses - 6,000To Production O/H - 2,000

2,000 50,400 2,000 50,400

Process-PParticulars Units ` Particulars Units `

To Process U Stock 1,900 49,400 By Normal Loss(20% of 9,000) × 150

190 2,660

To Sundry Materials - 7,920 By Abnormal Loss 30 1,380To Direct Labour - 12,000 By Process A (WN2) 1,680 77,280To Direct Expenses - 8,000To Production O/H - 4,000

1,900 81,320 1,900 81,320

17Process Costing

Process-A


To Process P Stock 1,680 77,280 By Normal Loss(15% of 1,680) × 20

252 5,040

To Sundry Materials - 11,428 By Finished Goods(WN3)

1,470 1,19,070

To Direct Labour - 16,000To Direct Expenses - 8,000To Production O/H - 8,000To AbnormalGain(WN3)

42 3,402

1,722 1,24,110 1,722 1,24,110

Normal Loss A/c


To Process U 100 1,000 By Cash 100 1,000To Process P 190 2,660 By Abnormal Gain 42 840To Process A 252 5,040 By Cash 190 2,660

By Cash 210 4,200542 8,700 542 8,700

Abnormal Loss A/c


To Process P 30 1,380 By Cash 30 420By Costing P/L - 960

30 1,380 30 1,380

Abnormal Gain A/c


To Normal Loss 42 840 By Process A 42 3,402To Costing P/L - 2,562

42 3,402 42 3,402

Working Notes:(i) Calculation of per unit and amount of the material transferred to Process U Stock A/c:

Particulars ` UnitsTotal of Debit side 50,400 2,000Less: Normal Loss 1,000 100

49,400 1,900

26900,1400,49

UnitsAmount

UnitPer `===

Material Transferred to Process P = Units × Per Unit = 1,900 × 26

= ` 49,400


(ii) Calculation of per unit and amount of the material transferred to Process Stock A andAbnormal Loss:

Particulars ` UnitsTotal of Debit side 81,320 1,900Less: Normal Loss 2,660 190

78,660 1,710

46710,1660,78

UnitsAmount

UnitPer `===

Calculation of Abnormal Loss in Units = Input – Normal Loss – Material Transferred toProcess Stock Q

= 1,900 – 190 – 1,680= 30 Units.

Material Transferred to Process Stock A = Units × Per Unit = 1,680 × 46= ` 77,280



Total of Debit side (Except Abnormal Gain) 1,20,708 1,680Less: Normal Loss 5,040 252

1,15,668 1,428

81428,1

668,15,1Units

AmountUnitPer `

Calculation of Abnormal Gain in Units = Input – Normal Loss – Material Transferred toProcess Stock R

= 1,680 – 252 – 1,470= 42 Units.

Finished Stock = Units × Per Unit = 1,470 × 81= ` 1,19,070

Abnormal Gain = Units × Per Unit = 42 × 81= ` 3,402

7. A product passes through three processes. The following cost data have been extracted fromthe books of a manufacturing company.

Particulars Total`

Process I`

Process II`

Process`

Process Materials 1,50,840 52,000 39,600 59,240Direct Wages 1,80,000 40,000 60,000 80,000Production Expenses 1,80,000 - - -

10,000 Units at ` 6 each, were initially introduced in Process I. There was no stock ofmaterial or work in progress at the beginning or at the end. The output of each process passes

19Process Costing

directly to the next process and finally to finished stock. Production Overheads is recovered at100% of Direct Wages. The Following additional data is obtained.

Process Output (Units) % of Normal Loss to Input Value of ScrapI 9,500 5% 4II 8,400 10% 8III 7,500 15% 10

Prepare Process A/c, Normal Loss A/c, Abnormal Loss A/c, Abnormal Gain A/c(Oct. 2007, B.Com.)

Solution:In the books of A Ltd.

Process-IParticulars Units ` Particulars Units `

To Input 10,000 60,000 By Normal Loss (5% of 10,000) × 4 500 2,000To Process materials - 52,000 By Process II (WN1) 9,500 1,90,000To Direct Wages - 40,000To Production Expenses - 40,000

10,000 1,92,000 10,000 1,92,000

Process-II


To Process I 9,500 1,90,000 By Normal Loss(10% of 9,500) × 8

950 7,600

To Process materials - 39,600 By Abnormal Loss (WN 2) 150 6,000To Direct Wages - 60,000 By Process III (WN 2) 8,400 3,36,000To Production Expenses - 60,000

9,500 3,49,600 9,500 3,49,600

Process-III


To Process II 8,400 3,36,000 By Normal Loss(15% of 8,400) × 10

1,260 12,600

To Process materials - 59,240 By Finished Goods (WN 3) 7,500 5,70,000To Direct Wages - 80,000To Production Expenses - 80,000To Abnormal Gain (WN 3) 360 27,360

8,760 5,82,600 8,760 5,82,600

Normal Loss A/c


To Process I 500 2,000 By Cash 500 2,000To Process II 950 7,600 By Cash 950 7,600To Process III 1,260 12,600 By Abnormal Gain 360 3,600

By Cash 900 9,0002,710 22,200 2,710 22,200


Abnormal Loss A/c


To Process II 150 6,000 By Cash 150 1,200By Costing P/L - 4,800

150 6,000 150 6,000

Abnormal Gain A/c


To Normal Loss 360 3,600 By Process III 360 27,360To Costing P/L - 23,760

360 27,360 360 27,360

Working Notes:(i) Calculation of per unit and amount of the material transferred to Process I :

Particulars ` UnitsTotal of Debit side 1,92,000 10,000Less: Normal Loss 2,000 500

1,90,000 9,500

20500,9

000,90,1Units

AmountUnitperCost `


(ii) Calculation of per unit and amount of the material transferred to Process II andAbnormal Loss:


3,42,000 8,550

40550,8

000,42,3Units

AmountUnitperCost `===


= 9,500 – 950 – 8,400= 150 Units.




Total of Debit side (except Abnormal Gain) 5,55,240 8,400

21Process Costing

Less: Normal Loss 12,600 1,2605,42,640 7,140

76140,7

640,42,5Units

AmountUnitperCost `===

Calculation of Abnormal Gain in Units = Input – Normal Loss – Finished Goods= 8,400 – 1,260 – 7,500= 360 Units.

Finished Goods = Units × Per Unit = 7,500 × 76= ` 5,70,000


Sales are Given8. M/s Arun Enterprises Ltd. provides you the following information for the month of December,

2009 about processes X,Y, and Z

You are required to prepare Process Accounts indicating clearly the profit or loss in eachprocess and Costing P/ L A/c. (Oct. 2010, B.Com.)

Solution:In the books of Arun Industries Ltd.

Process-X


To Input 20,000 2,40,000 By Normal Loss (4% of20,000) × 5

800 4,000

To Direct Expenses - 1,12,250 By Process Y (20,000 –800) × 60%) (WN1)

11,520 2,74,480

To Labour Charges - 86,300 By Cash A/c (Sales) (WN1) 7,680 2,30,400To Factory Overheads - 25,750To Profit and Loss A/c (WN 1) - 46,080

20,000 5,10,880 20,000 5,10,880

Particulars Process -X Process -Y Process -ZRaw Material introduced in the process (Units) 20,000 3,480 2,875Cost of Raw Material per Unit (`) 12 15 18Direct Expenses (`) 1,12,250 79,220 72,770Labour Charges (`) 86,800 85,480 58,330Factory Overheads (`) 25,750 28,620 39,650Normal Loss (% on input) (%) 4% 5% 6%Scrap Value Per Unit (`) 5 12 15Output transferred to the Next Process (%) 60% 50% -Output sold at the end of the process (%) 40% 50% 100%Selling price per unit of the output sold at end of theprocess (`)

30 35 55


Process-Y


To Process X 11,520 2,76,480 By Normal Loss(5% of 15,000) × 12

750 9,000

To Direct Material 3,480 52,200 By Cash A/c 7,125 2,49,375To Direct Expenses - 79,220 By Process Z (WN 2) 7,125 2,56,500To Labour Charges - 85,480 By Profit and Loss A/c (WN 2) - 7,125To Factory Overheads - 28,620

15,000 5,22,000 15,000 5,22,000

Process-Z


To Process Y 7,125 2,56,500 By Normal Loss(6% of 10,000) ×15

600 9,000

To Direct Material 2,875 51,750 By Cash (sales) (WN 3) 9,400 5,17,000To Direct Expenses - 72,770To Labour Charges - 58,330To Factory Overheads - 39,650To Profit and Loss A/c (WN 3) - 47,000

10,000 5,26,000 10,000 5,26,000

Dr. Costing Profit and Loss A/c Cr.

Particulars ` Particulars `

To Process Y A/c 7,125 By Process X 46,080To Net Profit c/d 85,955 By Process Z 47,000

93,080 93,080

Working Notes:(i) Calculation of per unit and amount of the material transferred to Process Y and Profit

and Loss A/c:Particulars ` Units

Total of Debit side (except P/L) 4,64,800 20,000Less: Normal Loss 4,000 800

4,60,800 19,200

24200,19800,60,4

UnitsAmount

UnitperCost `===

Units Transferred to Next Process = (Units Introduced – Normal Loss) × 60%= (20,000 – 800) × 60%= 11,520 Units

Units Sold = (Units Introduced – Normal Loss) × 40%= (20,000 - 800) × 40%= 7,680 Units

Material Transferred to Next Process = Units × Per Unit = 11,520 × 24

23Process Costing

= ` 2,74,480Cash Sales = Units × Per Unit = 7,680 × 30

= ` 2,30,400Profit on Cash Sales = Selling Price – Cost Price

= 2,30,400 – (7,680 × 24)= 2,30,400 – 1,84,320= ` 46,080


Particulars ` UnitsTotal of Debit side (except P/L) 5,22,000 15,000Less: Normal Loss 9,000 750

5,13,000 14,250

36250,14000,13,5

UnitsAmount

UnitperCost `===

Units Transferred to Next Process = (Units Introduced – Normal Loss) × 60%= (15,000 – 750) × 50%= 7,125 Units

Units Sold = (Units Introduced – Normal Loss) × 60%= (15,000 – 750) × 50%= 7,125 Units


Cash Sales = Units × Per Unit = 7,125 × 35= ` 2,49,375

Loss on Cash Sales = Selling Price – Cost Price= 2,49,375 – (7,125 × 36)= 2,49,375 – 2,56,500= ` 7,125

(iii) Calculation of per Unit and amount of Finished Goods and Abnormal Loss:Particulars ` Units

Total of Debit side (except P/L) 4,79,000 10,000Less: Normal Loss 9,000 600

4,70,000 9,400

509,400

4,70,000Units

AmountUnitPerCost `

Units Sold = (Units Introduced – Normal Loss) × 60%= (10,000 – 600) × 100%= 9,400 Units


Selling Price = Units × Per Unit = 9,400 × 55= ` 5,17,000

Loss on Cash Sales = Selling Price – Cost price= 5,17,000 – (9,400 × 50)= ` 47,000

9. Jaya manufacturing co. supplies you the following information for the year ended 31st March2009 (March 2003, B.Com)

Particulars ProcessesA B C

Raw Material introduce in the process (Units) 12,000 2,440 2,600Cost of Raw Material per unit (`) 5 5 5Direct Wages (`) 34,000 24,000 15,000Production Overheads (`) 16,160 16,200 96004Normal Loss (% on Number of units entering to process having scrapvalues)

4% 5% 4%

Wastage (%on number of unit s entering to the process having scrapvalues)

6% 5% 4%

Scrap value per unit of wastage (`) 3 4 5Output transferred to subsequence process 70% 60% -Output sold at the end of the process 30% 40% 100%Selling price per unit of the output sold at the end of the process (`) 12 16 17

You are required to prepare the process A, B and C accounts showing the profit earned at eachprocess.Solution: In the books of Jaya Manufacturing Co.

Process-AParticulars Units ` Particulars Units `

To Input 12,000 60,000 By Normal Loss (4% of 12,000) 480 -To Direct Wages - 34,000 By Wastage (6% of 12,000) 720 2,160To Production Overheads - 16,160 By Sales 3,240 38,880To Costing P/L - 6,480 Process B 7,560 75,600

12,000 1,16,640 12,000 1,16,640

Process-B


To Process A 7,560 75,600 By Normal Loss(5% of 10,000)

500 -

To Materials 2,440 12,200 By Wastage (5% of 10,000) 500 2,000To Direct Wages - 24,000 By Sales 3,600 57,600To Production Overheads - 16,200 By Process C 5,400 75,600To Costing P/L - 7,200

10,000 1,35,200 10,000 1,35,200

25Process Costing

Process-C


To Process B 5,400 75,600 By Normal Loss(3% of 8,000)

240 -

To Materials 2,600 13,000 By Wastage (4% of 8,000) 320 1,600To Direct Wages - 15,000 By Sales 7,440 1,26,480To Production Overheads - 9,600To Costing P/L - 14,880

8,000 1,13,080 8,000 1,13,080

Working Notes:(i) Calculation of per unit at every stage

Particulars Process A Process B Process C` ` `

Total of Debit side (Except Costing P/L) 1,10,160 1,28,000 1,13,200Less: Normal Loss - - -Less: Wastage (2,160) (2,000) (1,600)

(A) 1,08,000 1,26,000 1,11,600

Units Units Units

Total of Debit side 12,000 10,000 8,000Less: Normal Loss (480) (500) (240)Less: Wastage (720) (500) (320)

(B) 10,800 9,000 7,440

Cost per Unit (A/B) ` 10 ` 14 ` 15

(ii) Calculation of units transferred to the next process, sales and the amount of Costing P/LParticular Transfer

to% Units

TransferredRate

per Unit` Profit per

UnitCosting

P/LProcess A(10,800 Units)

Process BSales

7030

7,5603,240

1012

7,56038,880

-2 6,480

Process B(9,000 Units)

Process CSales

6040

5,4003,600

1416

75,60057,600

-2

-7,200

Process C(7,440 Units)

Sales 100 7,440 17 1,26480 2 14,880

10. A product passes through three processes A,B and C. 10,000 units at a cost of ` 1.10 per unitwere issued to process A. The other direct expenses were as follows:

Particulars Process A(`)

Process B(`)

Process C(`)

Sundry materials 1,500 1,500 1,500Direct labour 4,500 8,500 6,500Direct expenses 1,000 1,000 1,000

The wastage of process A was 5% and in process B was 4% of inputs. The wastage of processA was sold at ` 0.25 per unit and that of process B at Re.0.50 per unit and that of process C atRe.1.00 per unit.


The overhead charges were 160% of Direct labour.The final product was sold at ` 10 per unit fetching a profit of 20% on sales .Prepare all process accounts. (Oct. 2004, TYB.Com.)

Solution:

In the books of ___________Process- A


To Input 10,000 11,000 By Normal Loss (5% of10,000) × 0.25

500 125

To Materials - 1,500 By Process B(WN1)

9,500 25,075

To Direct Labour - 4,500To Direct Exp - 1,000To Overheads @ 16% of Labour - 7,200

10,000 25,200 10,000 25,200

Process- B


To Process A 9,500 25,075 By Normal Loss(4% of 9,500) × 0.50

380 190

To Materials - 1,500 By Process C (WN2) 9,120 48,185To Direct Labour - 8,000To Direct Exp. - 1,000To Overheads @ 16% of Labour - 12,800

9,500 48,375 9,500 48,375

Process - C


To Process B 9,120 48,185 By Normal Loss (WN3) 696 696To Materials - 1,500 By Finished Goods(WN) 8,424 67,392To Direct Labour - 6,500To Direct Exp. - 1,503To Overheads @ 16% of Labour - 10,400

9,120 68,088 9,120 68,088

Working Notes:(i) Calculation of per unit and amount of the material transferred to Process B :

Particulars ` UnitsTotal of Debit side 25,200 10,000Less: Normal Loss 125 500

25,075 9,500

64.2500,9075,25

UnitsAmountUnitPerCost `

27Process Costing

Material Transferred to Next Process = Units × Per Unit = 9,500 × 2.64= ` 25,075

(ii) Calculation of per unit and amount of the material transferred to Process C :Particulars ` Units


48,185 9,120

28.5120,9185,48

UnitsAmount

UnitperCost `===

Material Transferred to Next Process = Units × Per Unit = 9,120 × 5.28= ` 48,185

(iii) Calculation of per Unit and amount of Finished Goods:Particulars % Amount

Cost Price 80 8Add: Profit (20% of sales) 20 2Sales 100 10

)Units(LossNormalsideDebitofUnitsTotalLossNormalSideDebitofTotalUnitPerCost

UnitsL.N120,91UnitsL.N088,688

8 (9,120 – N.L.Units) = 68,088 – N.L.Units72,960 – 8 N.L. Units = 68,088 – N.L.Units72,960 – 68,088 = 7 N.L.(Units)

Normal Loss (Units) = 696Particulars ` Units


67,392 8,424

8424,8392,67


Finished Goods = Units × Per Unit= 8,424 × 8= ` 67,392

11. Tea Estate Ltd. manufactures flavored Tea which passes through three processes. Thefollowing particulars are available for the year ended 30-06-2009:

Particulars ProcessI II III

Raw material (kg.) 10,000 4,600 1,500Cost of raw materials (per kg. `) 5 6 8Direct wages (`) 24,000 18,000 12,250


Direct expenses (`) 15,200 10,736 8,590Factory expenses (`) 20,960 6,000 4,255Normal loss (%) 4% 8% 5%Weight loss (%) 6% 2% NilScrap sale Value per kg. (`) 1.80 2.50 4Output transferred to next process 60% 50% NilOutput sold 40% 50% 80%Selling price of output per kg 14 16 17Transferred to finished stock Nil Nil 20%

% of normal loss and % of weight loss are based on total input in the process.Prepare Process Account and profit and loss A/c. (Oct. 2006, B.Com)

Solution:In the books of Tea Estate Ltd.

Process-IParticulars Units ` Particulars Units `

To Materials 10,000 50,000 By Normal Loss(4% of 10,000) × 1.8 400 720

To Wages - 24,000 By Weight Loss (6% of 10,000) 600 -To Direct Expenses - 15,200 By Process II (WN1) 5,400 65,664To Factory Expenses - 20,960 By Sales (WN 1) 3,600 50,400To Costing P/L - 6,624

10,000 1,16,784 10,000 1,16,784

Process-IIParticulars Units ` Particulars Units `

To Process I 5,400 65,664 By Normal Loss (8% of 10,000) × 2.5 800 2,000To Materials 4,600 27,600 By Weight Loss (2% of 10,000) 200 -To Wages - 18,000 By Process III (WN2) 4,500 72,000To Direct Expenses - 10,736 By Sales (WN 2) 4,500 63,000To Factory Expenses - 6,000To Costing P/L - 9,000

10,000 1,37,000 10,000 1,37,000

Process-IIIParticulars Units ` Particulars Units `

To Process II 4,500 63,000 By Normal Loss(5% of 6,000) × 4

300 1,200

To Materials 1,500 12,000 By Finished Stock (WN 3) 1,140 19,779To Wages - 12,250 To Costing P/L - 1,596To Direct Expenses - 8,590 By Sales (WN 3) 4,560 77,520To Factory Expenses - 4,255

6,000 1,00,095 6,000 1,00,095

29Process Costing

Working Notes:(i) Calculation of per Unit and amount of the material transferred to Process II ,the

amount of sales and the costing profit :

Particulars ` UnitsTotal of Debit side(Except P/L)Less: Normal Loss

1,10,160720

10,000600

1,09,440 4009,000

16.129000

440,09,1Units

AmountUnitPer `

Units 9,000

Transfer to Next Process Sales60% 40%

5,400 Units 3,600 UnitsMaterial Transferred to Process II = Units × Per Unit = 5,400 × 12.16

= ` 65,664Sales = Units × Per Unit = 3,600 × 14

= ` 50,400Profit on Cash Sales = Selling p rice – Cost price

= 50,400 – (3,600 × 12.16)= ` 6,624

(ii) Calculation of per unit and amount of the material transferred to Process Stock III, theamount of sales and the costing profit:

Particulars ` UnitsTotal of Debit side (Except P/L) 1,28,000 10,000Less: Normal Loss 2,000 200

1,26,000 8009,000

149000

000,26,1Units

AmountUnitPer `

Units 9,000

Transfer to Next Process Sales50% 50%

4,500 Units 4,500 Units


Material Transferred to Process III = Units × Per Unit = 4,500 × 14= ` 63,000

Sales = Units × Per Unit = 4,500 × 16= ` 72,000

Profit on Cash Sales = Selling price – Cost price= 72,000 – (4,500 × 14)= ` 9,000

(iii) Calculation of per Unit and amount of Finished Goods:Particulars ` Units

Total of Debit side 10,0095 6,000Less: Normal Loss 1,200 300

98,895 5,700

35.175700

895,98Units

AmountUnitPer `

Finished Stock = Units × Per Unit = 1,140 × 17.35= ` 19,779

Sales = Units × Per Unit = 4,560 × 17= ` 77,520

Loss on Cash Sales = Selling price – Cost price= 77,520 – (4,560 × 17.35)= 77,520 – 79,116= ` 1,596

Opening Stock and Closing Stock are Given12. V.B. Industries Ltd. is manufacturing a product which passes through three consecutive

Processes i.e. Process P, Q and R. The following figures have been taken from their books forthe year ended 31st March 2009.

Particulars Process-P Process-Q Process-RNo. of Units introduced ` 10,000 - -Rate per Unit of Units Introduced (`) 400 - -Output during the Year (Units) 8,500 7,500 6,500Normal Loss (% on units introduced in each process) 10% 20% 15%Scrap Value per unit (`) 100 150 200Process StockOpening (Units) 1,500 2,000 1,500Closing (Units) 1,000 1,500 1,000Value of Opening Stock per unit (`) 550 850 1,200Process Materials (`) 8,00,000 7,27,000 9,42,000Wages (`) 3,25,000 3,75,000 4,09,000Manufacturing Overheads (`) 2,85,000 3,26,000 2,13,000

31Process Costing

Closing stock is to be valued at respective cost of each process. You are required to prepare:(a) Process A/c (b) Process Stock A/c(c) Normal Loss A/c (d) Abnormal Loss A/c(e) Abnormal Gain A/c (April 2010, B.Com.)

Solution:In the books of V.B. Industries Ltd.

Process-P


To Input 10,000 40,00,000 By Normal Loss(10% of 10,000) × 100

1,000 1,00,000

To Process Materials - 8,00,000 By Process P Stock (WN1) 8,500 50,15,000To Wages - 3,25,000 By Abnormal Loss (WN1) 500 2,95,000To Manufacturing Overheads - 2,85,000

10,000 54,10,000 10,000 54,10,000

Process-P Stock A/c


To Opening Stock @ 550 1,500 8,25,000 By Process Q 9,000 52,50,000To Process P 8,500 50,15,000 By Closing stock 1,000 5,90,000

10,000 58,40,000 10,000 58,40,000

Process-Q


To Process P Stock 9,000 52, 50,000 By Normal Loss(20% of 9,000) × 150

1,800 2,70,000

To Process Materials - 7, 27,000 By Process Q Stock (WN2) 7,500 66,75,000To Wages - 3, 75,000To Manufacturing Overheads - 3, 26,000To Abnormal Gain(WN2) 300 2,67,000

9,300 69, 75,000 9,300 69,75,000

Process-Q Stock A/c


To Opening Stock @ 850 2,000 17,00,000 By Process R (*) 8,000 70,40,000To Process Q 7,500 66,75,000 By Closing stock @ 890 1,500 13,35,000

9,500 83,75,000 9,500 83,75,000

Process-R


To Process Q Stock 8,000 70,40,000 By Normal Loss(15% of 8,000) × 200

1,200 2,40,000

To Process Materials - 9,42,000 By Process R Stock (WN3) 6,500 79,95,000To Wages - 4,09,000 By Abnormal Loss (WN3) 300 3,69,000


To Manufacturing Overheads - 2,13,0008,000 86,04,000 8,000 86,04,000

Process-R Stock A/c


To Opening Stock @ 1,200 1,500 18,00,000 By Finished Stock 8,000 85,65,000To Process R 6,500 79,95,000 By Closing stock @ 1,230 1,000 12,30,000

8,000 97,95,000 8,000 97,95,000

Normal Loss A/c


To Process P 1,000 1,00,000 By Cash 1,000 1,00,000To Process Q 1,800 2,70,000 By Abnormal Gain 300 45,000To Process R 1,200 2,40,000 By Cash 1,500 2,25,000

By Cash 1,200 2,40,0004,000 6,10,000 4,000 6,10,000

Abnormal Loss A/c


To Process P 500 2,95,000 By Cash 500 50,000To Process R 300 3,69,000 By Cash 300 60,000

By Costing P/L - 5,54,000800 6,64,000 800 6,64,000

Abnormal Gain A/c


To Normal Loss @ 150 300 45,000 By Process Q 300 2,67,000To Costing P/L - 2,22,000

300 2,67,000 300 2,67,000

Working Notes:(i) Calculation of per unit and amount of the material transferred to Process P stock A/c

and Abnormal Loss:Particulars ` Units

Total of Debit side 54,10,000 10,000Less: Normal Loss 1,00,000 1,000

53,10,000 9,000

5909000

000,10,53Units

AmountUnitPer `===

Calculation of Abnormal Loss in Units = Input – Normal Loss – Material Transferredto Process Stock

= 10,000 – 1,000 – 8,500= 500 Units.

33Process Costing

Material Transferred to Process Stock = Units × Per Unit = 8,500 × 590= ` 50,15,000

Abnormal Loss = Units × Per Unit = 500 × 590= ` 2,95,000

(ii) Calculation of per unit and amount of the material transferred to Process Stock Q andAbnormal Gain:

Particulars ` UnitsTotal of Debit side (Except Abnormal Gain) 66,78,000 9,000Less: Normal Loss 2,70,000 1,800

64,08,000 7,200

8907200

000,08,64Units

AmountUnitPer `

Calculation of Abnormal Gain in Units = Input – Normal Loss – Material Transferred toProcess Stock Q

= 9,000 – 1,800 – 7,500= 300 Units.

Material Transferred to Process Stock Q = Units × Per Unit = 7,500 × 890= ` 66,75,000

Abnormal Gain = Units × Per Unit = 300 × 890= ` 2,67,000

(iii) Calculation of per unit and amount of material transferred to Process Stock R andAbnormal Loss:

Particulars ` UnitsTotal of Debit side 86,04,000 8,000Less: Normal Loss 2,40,000 1,200

83,64,000 6,800

230,1800,6

000,64,83Units

AmountUnitPer `

Calculation of Abnormal Loss in Units = Input – Normal Loss – Material Transferred toProcess Stock R

= 8,000 – 1,200 – 6,500= 300 Units.

Material Transferred to Process Stock R = Units × Per Unit = 6,500 × 1,230= ` 79,95,000

Abnormal Loss = Units × Per Unit = 300 × 1,230= ` 79,95,000


13.Particulars Process-A

`Process-B

`Process-C

`

Indirect material 1,00,000 18,750 16,550Direct Wages 56,250 35,000 44,900Direct Expenses 51,250 6,875 11,500Value of Opening Stock per unit 25 31 40Scrap Value per unit 13.50 11.25 21.00

Units Units UnitsOutput 9,750 9,625 8,000Stock of process output:01-01-2008 1,500 1,375 2,00031-12-2008 1,250 2,000 1,000

(%) (%) (%)Wastage 2 5 10

10,000 Units of Direct Material were introduced in Process A at rate of ` 5 per unit. Thepercentage of wastage is computed on the number of units entering the process concerned.From the above information of DE Enterprise prepare: (i) Process A/c (ii) Process Stock A/c(iii) Normal Loss A/c (iv) Abnormal Loss A/c (v) Abnormal Gain A/c. Value closing stock atthe respective process cost. (April 2006, B.Com.)

Solution:Process-A



200 2,700

To Process Materials - 1,00,000 By Process A Stock (WN1) 9,750 2,53,500To Wages - 56,250 By Abnormal Loss (WN1) 50 1,300To Direct Expenses - 51,250

10,000 2,57,500 10,000 2,57,500

Process-A Stock A/cParticulars Units ` Particulars Units `

To Bal. b/d 1,500 37,500 By Process B 10,000 2,58,500To Process A 9,750 2,53,500 By Bal c/d 1,250 32,500

11,250 2,91,000 11,250 2,91,000

Process-BParticulars Units ` Particulars Units `

To Process A Stock 10,000 2,58,500 By Normal Loss(5% of 10,000) × 11.25

500 5,625

To Process Materials - 18,750 By Process B Stock (WN2) 9,625 3,17,625To Wages - 35,000To Direct Expenses - 6,875

35Process Costing

To Abnormal Gain (WN2) 125 4,12510,125 3,23,250 10,125 3,23,250

Process-B Stock A/c


To Bal. b/d 1,375 42,625 By Process C 9,000 2,94,250To Process B 9,625 3,17,625 By Bal c/d 2,000 66,000

11,000 3,60,250 11,000 3,60,250

Process-C


To Process B Stock 9,000 2,94,250 By Normal Loss (10% of 9,000) × 21 900 18,900To Process Materials - 16,550 By Process C Stock (WN3) 8,000 3,44,000To Wages - 44,900 By Abnormal Loss (WN3) 100 4,300To Direct Expenses - 11,500

9,000 3,67,200 9,000 3,67,200

Process-C Stock A/c


To Bal. b/d 2,000 80,000 By Finished stock 9,000 3,81,000

To Process C 8,000 3,44,000 By Bal c/d 1,000 43,000

10,000 4,24,000 10,000 4,24,000

Normal Loss A/c

Particulars Units ` Particulars Units `To Process A 200 2,700 By Cash 200 2,700To Process B 500 5,625 By Abnormal Gain 125 1,406To Process C 900 18,900 By Cash 375 4,219

By Cash 900 18,9001,600 27,225 1,600 27,225

Abnormal Loss A/cParticulars Units ` Particulars Units `

To Process A 50 1,300 By Cash (A) 50 675To Process C 100 4,300 By Cash (B) 100 2,100

By Costing P/L 2,825150 5,600 150 5,600

Abnormal Gain A/c


To Normal Loss 125 1,406 By Process B 125 4,125To Costing P/L - 2,719

125 4,125 125 4,125


Working Notes:(i) Calculation of per unit and amount of the material transferred to Process A stock A/c



2,54,800 9,800

26800,9

800,54,2Units

AmountUnitPer `

Calculation of Abnormal Loss in Units = Input – Normal Loss – Material Transferredto Process Stock

= 10,000 – 200 – 9,750= 50 Units.

Material Transferred to Process Stock = Units × Per Uni = 9,750 × 26= ` 2,53,500


(ii) Calculation of per unit and amount of the material transferred to Process Stock B andAbnormal Gain:

Particulars ` UnitsTotal of Debit side (Except Abnormal Gain) 3,19,125 10,000Less: Normal Loss 5,625 500

3,13,500 9,500

33500,9

500,13,3Units

AmountUnitPer `===

Calculation of Abnormal Gain in Units = Input – Normal Loss – Material Transferred toProcess Stock B

= 10,000 – 500 – 9,625= 125 Units.

Material Transferred to Process Stock B = Units × Per Unit = 9,625 × 33= ` 3,17,625


(iii) Calculation of per unit and amount of material transferred to Process Stock C andAbnormal Loss:


3,48,300 8,100

37Process Costing

43100,8

300,48,3Units

AmountUnitPer `

Calculation of Abnormal Loss in Units = Input – Normal Loss – Material Transferred toProcess Stock C

= 9,000 – 900 – 8,000= 100 Units.

Material Transferred to Process Stock C = Units × Per Unit = 8,000 × 43= ` 3,44,000


14. A product passes through three processes and 40,000 units were introduced in process a atcost of ` 30,000. The following further information is available :-

Particulars Process A (`) Process B (`) Process C (`)

Sundry Materials 20,000 4,000 2,000Direct Labour 6,000 3,000 1,500Direct Expenses 1,920 5,600 4,200Output 38,000 37,000 34,000Opening stock 6,000 3,000 4,000Closing stock 4,000 5,000 9,500Opening stock valuation (per unit) ` 1.40 1.80 2.50% of normal wastage % 4 5 10Scrap sale price (per unit) ` 0.20 0.30 0.40

The closing stock in each process is valued at respective process cost.Prepare Process Accounts and Process Stock Accounts. (March 2005, B.Com.)

Solution:

Process-A



1,600 320

To Materials - 20,000 By Process A Stock (WN1) 38,000 57,000To Direct labour - 6,000 By Abnormal Loss (WN1) 400 600To Direct Expenses - 1,920

40,000 57,920 10,000 2,57,500

Process-A Stock A/c


To Op. Stock 6,000 8,400 By Process B 40,000 59,400To Process A 38,000 57,000 By Cl. Stock @ 1.50 4,000 6,000

44,000 65,400 44,000 65,400


Process-B


To Process A Stock 40,000 59,400 By Normal Loss (5% of 40,000) × 0.3 2,000 600

To Materials - 4,000 By Process B Stock (WN2) 37,000 69,520To Direct labour - 3,000 By Abnormal Loss (WN2) 1,000 1,880To Direct Expenses - 5,600

40,000 72,000 40,000 72,000

Process-B Stock A/c


To Op. Stock 3,000 5,400 By Process C 35,000 65,520To Process B 37,000 69,520 By Cl. Stock @ 1.88 5,000 9,400

40,000 74,920 40,000 74,920

Process-C


To Process B Stock 35,000 65,520 By Normal Loss(10% of 35,000) × 0.4

3,500 1,400

To Materials - 2,000 By Process C Stock (WN3) 34,000 77,520To Direct labour - 1,500To Direct Expenses - 4,200To Abnormal Gain (WN3) 2,500 5,700

37,500 78,920 37,500 78,920

Process-C Stock A/c


To Op. Stock 4,000 10,000 By Finished Stock 28,500 65,860To Process B 34,000 77,520 By Cl. Stock @ 2.28 9,500 21,660

38,000 87,520 38,000 87,520

Working Notes:(i) Calculation of per unit and amount of the material transferred to Process A stock A/c


Total of Debit side 57,920 40,000Less: Normal Loss 320 1,600

57,600 38,400

5.1400,38600,57

UnitsAmountUnitPer `

= ` 66,75,000Calculation of Abnormal Loss in Units = Input – Normal Loss – Material Transferred

to Process Stock= 40,000 – 1,600 – 38,000

39Process Costing

= 400 Units.Material Transferred to Process Stock = Units × Per Unit = 38,000 × 1.5

= ` 57,000Abnormal Loss = Units × Per Unit = 400 × 1.5

= ` 600(ii) Calculation of per unit and amount of the material transferred to Process Stock B and

Abnormal Loss:Particulars ` `

Total of Debit side 72,000 40,000Less: Normal Loss 600 2,000

71,400 38,000

88.1000,38400,71


Calculation of Abnormal Loss in Units = Input – Normal Loss – Material Transferred toProcess Stock B

= 40,000 – 2,000 – 37,000= 1,000 Units.

Material Transferred to Process Stock B = Units × Per Unit = 37,000 × 1.88= ` 69,520

Abnormal Loss = Units × Per Unit = 1,000 × 1.88= ` 1,880

(iii) Calculation of per unit and amount of material transferred to Process Stock C andAbnormal Gain:

Particulars ` UnitsTotal of Debit side (Except Abnormal Gain) 73,220 35,000Less: Normal Loss 1,400 3,500

71,820 31,500

28.2500,31820,71


Calculation of Abnormal Gain in Units = Input – Normal Loss – Material Transferred toProcess Stock C

= 35,000 – 3,500 – 34,000= 2,500 Units.

Material Transferred to Process Stock C = Units × Per Unit = 34,000 × 2.28= ` 77,520

Abnormal Gain = Units × Per Unit = 2,500 × 2.28= ` 5,700


Transfer to Warehouse15. M/S XYZ and company manufacture a chemical which passes through three Processes. The

following particulars gathered for the month of January 2009:Particulars Process - I Process-II Process-III

Materials (Litre) 400 208 168Material Cost (`) 38,400 18,800 6,000Wages (`) 7,680 7,600 2,200Normal Loss (% of input of the process) 4 5 5Scrap sale Value (`) - ` 3 Per Litre -Output transferred to next process % 50% 40% -Output transferred to Warehouse % 50% 60% 100%

Overheads are charged @ 50% of Direct WagesYou are required to prepare Process A/c (April 2007, B.Com.)

Solution:In the books of M/S XYZ

Process- I


To Materials 400 38,400 By Normal Loss (4% of 400) × 0 16 -To Wages - 7,680 By Process II (WN1) 192 24,960To Overheads - 3,840 By Trans. to warehouse (WN 1) 192 24,960

400 49,920 400 49,920

Process-II


To Process I 192 24,960 By Normal Loss(5% of 400) × 3

20 60

To Materials 208 18,800 By Process III (WN2) 152 22,040To Wages - 7,600 By Trans. to warehouse (WN 2) 228 33,060To Overheads - 3,800

400 55,160 400 55,160

Process-III


To Process II 152 22,040 By Normal Loss(5% of 320) × 0

16 -

To Materials 168 6,000 By Trans. to warehouse (WN 3) 304 31,340To Wages - 2,200To Overheads - 1,100

320 31,340 320 31,340

41Process Costing

Working Notes:(i) Calculation of per unit and amount of the material transferred to Process I A/c :

Particulars ` UnitsTotal of Debit side 49,920 400Less: Normal Loss - 16

49,920 384

130384

920,49Units

AmountUnitPer `===

Units 384

Transfer to Next Process Transfer to Warehouse50% 50%

192 Units 192 UnitsMaterial Transferred to Process II = Units × Per Unit = 192 × 130

= ` 24,960Material Transferred to Warehouse = Units × Per Unit = 192 × 130

= ` 24,960(ii) Calculation of per unit and amount of the material transferred to Process Stock II:

Particulars ` UnitsTotal of Debit side 55,160 400Less: Normal Loss 60 20

55,100 380

145380

100,55Units

AmountUnitPer `===

Units 380

Transfer to Next Process Transfer to Warehouse40% 60%

152 Units 228 UnitsMaterial Transferred to Process II = Units × Per Unit = 152 × 145

= ` 22,040Material Transferred to Warehouse = Units × Per Unit = 228 × 145

= ` 33,060(iii) Calculation of per unit and amount of Finished Goods:

Particulars ` UnitsTotal of Debit side 31,340 320Less: Normal Loss - 16

31,340 304


09.1034.3

340,31Units

AmountUnitPer `===

Finished Stock = Units × Per Unit = 304 × 103.09= ` 31,340

Sale of By-product16. In an Oil refinery, the product passes through three different processes, viz., Crushing,

Refining and Finishing. The following information is available for the month of March 2009:Particulars Crushing Refining Finishing

Raw Material (500 tons Copra) 9,00,000 - -Wages 32,000 23,600 23,500Power 4,800 4,000 6,000Sundry Materials 2,000 7,600 -Factory Expenses 2,400 4,000 3,800

200 tons of oil cake was sold for ` 60,000 and 275 tons of crude oil was obtained fromcrushing process.25 tons of byproduct of crushing process fetched ` 3,600.25 tons of byproduct of refining process was sold for ` 3,600 and 250 tons of refined oil wasobtained.10 tons of finished oil was sold for ` 4,800 and 240 tons of finished oil was stored in drums.The establishment expenses for the month amounted to ` 14,000 which is to be charged to thethree processes in the proportion of 3:2:2The cost of the drums for storing finished oil was ` 84,100.Prepare accounts for all three processes. (April 2004, B.Com)

Solution:In the books of ___________

Crushing Process

Particulars Tons ` Particulars Tons `

To Raw Material 500 9,00,000 By Sale of Oil Cake 200 60,000To Wages - 32,000 By Sale of By- Products 25 3,600To Power - 4,800 By Refining Process 275 8,83,600To Sundry Material - 2,000To Factory Expenses - 2,400To Establishment Exp. - 6,000

500 9,47,200 500 9,47,200

Refining Process


To Crushing process 275 8,83,600 By Sale of By- Products 25 3,600

To Wages - 23,600 By Finishing Process 250 9,23,200To Power - 4,000To Sundry Material - 7,600To Factory Expenses - 4,000

43Process Costing

To Establishment Exp. - 4,000275 9,26,800 275 9,26,800

Finishing Process


To Refining Process 250 9,23,200 By Sale of Oil 10 4,800To Wages - 23,500 By Finished Stock (Cost of Oil) 240 10,39,800To Power - 6,000To Sundry Material - 3,800To Factory Expenses - 4,000To Establishment Exp. - 84,100

250 10,44,600 250 10,44,600

Working Notes:(i) Calculation of per unit and amount of the material transferred to Process Refining :

Particulars ` UnitsTotal of Debit sideLess: Sale of Oil CakeLess : Sale of By-product

9,47,20060,000

3,600

500200

25

8,8,3600 275

10.213,3275

600,83,8Units

AmountUnitPerCost `

Material Transferred to Next Process = Units × Per Unit = 275 × 3,213.10= ` 8,83,600

(ii) Calculation of Per Unit and amount of the material transferred to Process Finishing :Particulars ` Units

Total of Debit side 9,26,800 275Less : Sale of By-product 3,600 25

9,23,200 250

80.692,3250

200,23,9Units

AmountUnitperCost `

Material Transferred to Next Process = Units × Per Unit = 250 × 3,692.80= ` 9,23,200

(iii) Calculation of per unit and amount of Finished Goods:Particulars ` Units

Total of Debit side 10,44,600 250Less : Sale of Oil 4,800 10

10,39,800 240

50.332,4240

800,39,10Units

AmountUnitperCost `

Finished Goods = Units × Per Unit = 240 × 4,332.50= ` 10,39,800


University Sums17. Product X is obtained after it is processed through three processes. The following information

is available for the month of March 2009:Particulars Total (`) Process A (`) Process B (`) Process C (`)

Materials Consumed 22,500 10,400 8,000 4,100Direct Labour 29,320 9,000 14,720 5,600Production Overheads 29,320 - - -

2,000 Units were initially introduced in Process A. Production Overhaeds to be distributed as100% on direct labour. The actual output and normal loss of the respective processes are:Process Output (Units) % of Normal Loss to Input Value of Scrap

A 1,800 10 2B 1,360 20 4C 1,080 25 5

There was no stock of material or work in any process. You are required to prepare ProcessA/c (Oct. 1998, B.Com.)

Solution:In the books of __________

Process- A


To Input 2,000 8,000 By Normal Loss (10% of 2,000) × 2 200 400To Materials - 10,400 By Process B (WN1) 1,800 36,000To Direct Labour - 9,000To Production Overheads - 9,000

2,000 36,400 2,000 36,400

Process- B


To Process A 1,800 36,000 By Normal Loss(20% of 36,000) × 4

360 1,440

To Materials - 8,000 By Abnormal Loss @ 50 ` 80 4,000To Direct Labour - 14,720 By Process C (WN 2) 1,360 68,000To Production Overheads - 14,720

1,800 73,440 1,800 73,440

Process - C


To Process B 1,360 68,000 By Normal Loss(25% of 1,360) × 5

340 1,700

To Materials - 4,100 By Finished Goods (WN 3) 1,080 86,400To Direct Labour - 5,600To Production Overheads - 5,600To Abnormal Gain (WN 3) 60 4,800

1,420 88,100 1,420 88,100

45Process Costing

Working Notes:(i) Calculation of per unit and amount of the material transferred to Process B :

Particulars ` UnitsTotal of Debit side 36,400 2,000Less : Normal Loss 400 200

36,000 1,800

20800,1000,36



(ii) Calculation of per unit and amount of the material transferred to Process C andAbnormal Loss:

Particulars ` UnitsTotal of Debit side 73,440 1,800Less : Normal Loss 1,440 360

72,000 1,440

50440,1000,72



= 1,800 – 360 – 1,360= 80 Units.




Total of Debit side (except Abnormal Gain) 83,300 1,360Less: Normal Loss 1,700 340

81,600 1,020

80020,1600,81


Calculation of Abnormal Gain in Units = Input – Normal Loss – Finished Goods= 1,360 – 340 – 1,080= 60 Units.

Finished Goods = Units × Per Unit = 1,080 × 80= ` 86,400



Theory QuestionsQ.1. State any four features of process costing.Q.2. Define process costing,Q.3. What do you mean by normal loss ? How is it treated in process cost accounts?Q.4. What do you mean by abnormal loss ? How is it treated in process cost accounts?Q.5. Distinguish between normal loss and abnormal loss.Q.6. What do you mean by abnormal effect? How is it treated in process cost accounts?Q.7. Explain the advantages of process costing.Q.8. Explain the disadvantages of process costing.

Unsolved SumsQ.1. ABZ Ltd. manufactures a product which passes through two processes. The cost records

shows the following particulars for the month ended on 31st March 2013Input to Process A is 50,000 Units @ ` 5 per Unit.

Particulars Process-A Process-BMaterials (`) 1,00,000 1,10,000Labour (`) 45,000 55,000Expenses (`) 55,000 65,000Normal Loss (Units) 5,000 5,000Scrap Value Per Kg. (`) 10 20Actual Output (Units) 45,000 40,000

You are required to prepare Process Accounts. Also show process cost per unit for eachprocess

Q.2. AY Ltd. manufactures a chemical product which passes through three consecutive processes.The cost records shows the following particulars for the month ended on 30th June 2009.Input to Process I is 40,000 Units @ ` 60 per Unit.

Particulars Process-A Process-B Process-CMaterials (`) 1,00,000 2,00,000 2,00,000Labour (`) 60,000 1,60,000 1,50,000Expenses (`) 10,000 40,000 50,000Normal Loss (% on input) (%) 10% 10% 10%Scrap Value Per Kg. (`) 2 4 6Actual Output (Units) 36,000 32,400 29,160

You are required to prepare Process Accounts. Also show process cost per unit for eachprocess

Q.3. Jai Industries Ltd. is manufacturing a product which passes through three consecutiveprocesses, Process-A, Process- B and Process – C. The following figures have been takenfrom their books for the month ended on 31st Jan., 2011.

Particulars Process-I Process-II Process-IIIQuantitative Information

Basic Raw Material at ` 10 per kg. (Kgs) 50,000 - -

Output during the year (Kgs.) 48,000 46,400 44,500

47Process Costing

Other Additional Information

Process Material (`) 3,00,000 5,40,000 7,00,000

Direct Wages 80% of ProcessMaterial



Factory Overheads 80% of DirectWages

90% of DirectWages

75% of DirectWages

Machine Overheads (`) 22,000 16,980 15,620

Normal Loss (% on input) (%) 2% 4% 4%

Scrap Value Per Kg. (`) 4 3 7

You are required to prepare Process Accounts.Q.4. Tractor Ltd. manufactures a chemical product which passes through three consecutive

processes. The cost records shows the following particulars for the month ended on 31stMarch 2013.

Input to Process I is 25,000 Units @ ` 35 per Unit.

Particulars Process-I Process-II Process-IIIMaterials (`) 69.640 99,825 1,03,345Labour (`) 43.265 64,520 75,645Expenses (`) 4.525 12,350 18,750Normal Loss (% on input) (%) 5% 10% 5%Scrap Value Per Kg. (`) 2.5 3 3.5Actual Output (Units) 23,000 20,000 19,500

You are required to prepare Process Accounts., Abnormal Loss A/c, Abnormal Gain A/c.Also show process cost per unit for each process

Q.5. A product passes through three processes. The following cost data have been extracted fromthe books of a company.

Particulars Process I (`) Process II (`) Process III (`)Process Materials 1,25,000 1,60,000 1,90,000Direct Labour 65,000 75,000 80,000Manufacturing Expenses 15,000 20,000 20,000Other Factory Expenses 15,000 15,000 20,000

The Following additional data is obtained.Process Output (Units) % of Normal Loss to Input Value of Scrap

A 10,000 2% 100B 13,500 4% 105C 13,000 2.5% 120

4,000 Units were initially introduced in Process A at a cost of ` 52,000. There was no stock ofmaterial or work in progress at the beginning or at the end. The output of each process passesdirectly to the next process and finally to finished stock. You are required to prepare: ProcessA/c, Normal Loss A/c, Abnormal Loss A/c, Abnormal Gain A/c

Q.6. A product passes through three Processes i.e. Process I, II and III. The following details areavailable from the books for the year ended 31-3-2010.


Particulars Process -I Process -II Process -IIINo. of Units introduced `4,000 - -Cost per Unit (`) 24 - -Sundry Materials (`) 20,800 16,000 23,000Direct Labour (`) 16,000 24,000 32,000Direct Expenses (`) 12,000 16,000 40% of Direct

LabourProduction Overheads 25% of Direct

Labour50% of Direct

Labour80% of Direct

LabourNormal Loss (% of input of the Process) 5% 10% 15%Scrap Value per unit (`) 20 14 20Actual Output (Units) 3,800 3,360 2,940

The output of each process passes directly to the next process and finally to the finished stock.You are required to prepare: Process A/c, Normal Loss A/c, Abnormal Loss A/c, AbnormalGain A/c

Q.7. A product passes through three processes A, B and C. The following cost data have beenextracted from the books of a manufacturing company.

Particulars Total(`)

Process A(`)

Process B(`)

Process C(`)

Process Materials 22,500 10,400 8,000 4,100Direct Wages 29,320 9,000 14,720 5,600Production Expenses 29,320 - - -

2,000 Units at ` 4 each, were introduced in Process A. Production Overheads is recovered at100% of Direct Labour. The actual output and normal loss of the respective processes are:

Process Output (Units) % of Normal Loss to Input Value of ScrapA 1,800 10% 2B 1,360 20% 4C 1,080 25% 5

There is no stock or work in progress in any process. Prepare Process A/c.(Oct. 1998, T.Y. B.Com.)

Q.8. Ajay manufacturing Pvt. Ltd. provides you the following information for the month of March,2009

Particulars Process-X Process-Y Process-ZRaw Material introduced in the process (Units) 6,000 1,220 1,300Cost of Raw Material per Unit (`) 5 5 5Labour Charges (`) 17,000 12,000 7,500Manufacturing Overheads (`) 8,080 8,100 4,800Normal Loss (% on number of units entering to the processhaving no realizable value) (%)

4% 5% 3%

Scrap Value (% on number of units entering to the pocesshaving no realizable value)

6% 5% 4%

Scrap Value Per Unit 3 4 5Output transferred to the Next Process (%) 70% 60% 100%

49Process Costing

Output sold at the end of the process (%) 30% 40% -Selling price per unit of the output sold at end of the process

(`)12 16 17

You are required to prepare Process Accounts indicating clearly the profit or loss in eachprocess and Costing P/ L A/c. (April 1998, B.Com.)

Q.9. A Manufacturing Co. supplies you the following information for the year ended 31st March2009

Particulars ProcessesA B C

Raw Material introduce in the process (Units) 24,000 4,880 5,200Cost of Raw Material per unit (`) 5 5 5Direct Wages (`) 68,000 48,000 30,000Production Overheads (`) 32,320 32,400 1,92,000Normal Loss (% on Number of units entering to process having scrapvalues)

4% 5% 4%

Wastage (%on number of unit s entering to the process having scrapvalues)

6% 5% 4%

Scarp value per unit of wastage (`) 6 8 10Output transferred to subsequence process 70% 60% -Output sold at the end of the process 30% 40% 100%Selling price per unit of the output sold at the end of the process (`) 24 32 34

You are required to prepare the process A, B and C accounts showing the profit earned ateach process.

Q.10. A product passes through three processes A,B and C. 30,000 units at a cost of ` 20 per unitwere issued to process A. The other direct expenses were as follows :-


Process B(`)

Process C(`)

Sundry materials 20,000 25,000 30,000Direct labour 15,000 20,000 18,000Direct expenses 5,000 5,000 5,000

The wastage of process A was 5% and in process B was 4% of inputs. The wastage of processA was sold at ` 2 per unit and that of process B at ` 3 per unit and that of process C at ` 5 perunit.The overhead charges were 160% of Direct labour.The final product was sold at ` 10 per unit fetching a profit of 20% on sales .Prepare all process accounts.

Q.11. Coffee Ltd. manufactures flavored coffee which passes through three processes. Thefollowing particulars are available for the year ended 30-06-2009:-

Particulars Process

I II III

Raw material (kg.) 25,000 10,000 40,000

Cost of raw materials (per kg. `) 5 4 8


Direct wages (`) 12,000 16,000 10,000

Direct expenses (`) 12,200 18,000 15,000

Factory expenses (`) 21,000 12,000 8,000

Normal loss (%) 4% 8% 5%

Weight loss (%) 6% 2% Nil

Scrap sale value per kg. (`) 2 2.50 3

Output transferred to next process 60% 50% Nil

Output sold 40% 50% 80%

Selling price of output per kg 15 16 17

Transferred to finished stock Nil Nil 20%

% of normal loss and % of weight loss are based on total input in the process.Prepare Process Account and profit and loss A/c.

Q.12. A Industries Ltd. is manufacturing a product which passes through three consecutiveProcesses i.e. Process P, Q and R. The following figures have been taken from their books forthe year ended 31st March 2012.

Particulars Process-P Process-Q Process-RNo. of Units introduced 50,000 - -Rate per Unit of Units Introduced (`) 2,000 - -Output during the Year (Units) 42,500 37,500 32,500Normal Loss (% on units introduced in each process) 10% 20% 15%Scrap Value per unit (`) 500 750 1,000Process StockOpening (Units) 7,500 10,000 7,500Closing (Units) 5,000 7,500 5,000Value of Opening Stock per unit (`) 2,750 4,250 6,000Process Materials (`) 40,00,000 36,35,000 47,10,000Wages (`) 16,25,000 18,75,000 20,45,000Manufacturing Overheads (`) 14,25,000 16,30,000 10,65,000

Closing stock is to be valued at respective cost of each process. You are required to prepare:Process A/c, Process Stock A/c, Normal Loss A/c, Abnormal Loss A/c, Abnormal Gain A/c

Q.13.Particulars Process-A

`Process-B

`Process-C

`

Indirect material 2,00,000 36,750 25,550Direct Wages 76,250 45,000 54,900Direct Expenses 61,250 8,875 10,500Value of Opening Stock per unit 25 31 40Scrap Value per unit 13.50 11.25 21.00

Units Units UnitsOutput 12,750 10,625 9,000Stock of process output:

51Process Costing

01-01-2008 1,500 1,375 2,00031-12-2008 2,250 3,000 3,000

(%) (%) (%)Wastage 2 5 10

25,000 Units of Direct Material were introduced in Process A at rate of ` 10 per unit. Thepercentage of wastage is computed on the number of units entering the process concerned.From the above information of DE Enterprise prepare: i) Process A/c ii) Process Stock A/ciii) Normal Loss A/c iv) Abnormal Loss A/c v) Abnormal Gain A/c. Value closing stock atthe respective process cost.

Q.14. A product passes through three processes and 80,000 units were introduced in process a atcost of ` 60,000. The following further information is available :-


Process B(`)

Process C(`)

Sundry Materials 40,000 8,000 4,000Direct Labour 12,000 6,000 3,000Direct Expenses 3,840 11,200 8,400Output 76,000 74,000 68,000Opening stock 12,000 6,000 8,000Closing stock 8,000 10,000 19,000Opening stock valuation (per unit) ` 2.80 3.60 5.00% of normal wastage % 8 10 20Scrap sale price (per unit) ` 0.40 0.60 0.80

The closing stock in each process is valued at respective process cost.Prepare Process Accounts and Process Stock Accounts.

Q.15. A product of a company passes through three Processes, Process A, Process B and Process C,to obtain three consecutive grades of the product. The details relating to its production for theyear 2008 are as follows:

Particulars Process-A Process-B Process-CRaw Materials used 1,000 tonnes - -Cost per tone ` 200 - -Manufacturing Wages and Expenses ` 75,000 ` 41,000 ` 11,000Weight Lost 5% 10% 20%Scrap sold at ` 50 per tone 50 tonnes 30 tonnes 51 tonnesSale price per tonne 400 500 800

Management expenses were ` 15,000, selling expenses were ` 10,000 and interest onborrowed capital was ` 5,000Two third output of process A and one-half output of process B are passed on the next processand the balance was sold.You are required to prepare Process Cost accounts and Costing P/L for the year 2008

(Oct. 1995, B.Com.)Q.16. Divine Oil Process Pvt. Ltd., submits the following information. The product passes through

two processes viz. Filtering and Refining. The output of filtering process can be sold in the


market as filtered oil or it can pass to next process. The output of Refining process is the finalfinished product.From the following information, prepare,Process Accounts, Abnormal Loss A/c, Abnormal Gain A/c and Costing P/L A/c to computethe amount of profit or loss for the month of March 2009

Particulars Filtering RefiningCrude Oil @ ` 30/- Per Liter Litres 80,000 -Process Materials consumed ` 4,40,000 6,38,000Wages ` 8,57,200 12,18,500Manufacturing Overheads ` 2,18,800 3,46,700Normal Waste (% of Input) % 5 10Scrap Value of waste per litre ` 10 15Filtered oil transferred to Refining Process Litres 51,000 -Output sold Litres 24,000 46,500Sales price per litre ` 60 120

(Oct. 2000, B.Com.)Q.17. Product A is manufactured after it is passes through three processes. The following information is

obtained from the records of the company, for the year ended 31st December 2008:

Particulars Process I(`)

Process II(`)

Process III (`)

Direct Materials 2,500 2,000 3,000Direct Wages 2,000 3,000 4,000

Production Overheads are ` 9,000, 1,000 units at ` 5 each were introduced to Process I. Therewas no stock of material or work in progress at the beginning and at the end of the year. Theoutput of each process passes direct to the next process and finally to the finished stockaccount. Production overheads are recovered on 100% on Direct Wages.

Process Output (Units) % of Normal Loss toInput

Value of Scrap

I 950 5 3II 840 10 5III 750 15 5

any process. You are required to prepare Process Cost A/c, Abnormal Gain, Loss Accounts(April 1995, B.Com.)

Documents

Advanced Costing · Preface We are happy to present the book “Advanced Costing and Auditing” to the students of Semester IV of S.Y. BMS, to the teachers and the readers. This