process & operation costing

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10Process & Operation Costing

Question 1

Distinguish between job costing and process costing.(November,1996, 4 marks)

Answer

The main points of distinction between job costing and processcosting are as below:

Job Costing Process Costing

1. Job costing is a specific ordercosting

Process costing is a method ofcosting used to ascertain thecost of a product at each stage

of manufacture2. Cost here is determined on job

basisCosts are accumulated foreach process separately for agiven period of time.

3. Each job needs specialtreatment and no two jobs arealike

Finished product of oneprocess becomes the rawmaterial for the next process.

4. The cost of each job iscompiled separately by addingmaterials, labour andoverhead costs

The unit cost here is theaverage cost of the process fora given period. Its correctcomputation requires the

measurement of production atvarious stages of manufacture.

5. Costs are computed when jobis completed

Costs are computed for eachprocess at the end of eachperiod.

6. As each job is distinct or is ofdifferent nature, more detailedsupervision and control are

As the process operations arestandardised accumulation ofcosts and supervision and


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Cost Accounting

necessary control are comparativelyeasier.

Question 2

Write a short note on unit costing method for ascertainingproduct cost

(November, 1995, 6 marks)

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Process & Operation Costing

Answer

It is a form of process or operation costing. It is suitable whereonly one product or a few grades of the same product involving asingle process or operation is produced. Under this system theexpenditure is not analysed in as much detail as is necessary for jobcosting because the whole of the expenditure is normally incurredfor only one type of product but where, however, articles producedvary in grades and sizes, it is necessary to analyse the appropriatecharges for ascertaining the cost of articles. On dividing the totalexpenditure by the number of units produced, the cost per unit is

ascertained. This system of costing is suitable for breweries, cementworks etc.

In all these cases, unit cost of articles produced requires to beascertained.

The cost sheets are prepared periodically and usually containinformation on the under mentioned points:

(i) Cost of materials consumed with details.

(ii) Cost of labour with details.

(iii) Work indirect expenses with details.

(iv) Office and administrative expenses in lumpsum.(v) Abnormal losses and gains are separated and not mixed withcosts.

Question 3

"The value of scrap generated in a process should be credited tothe process account." Do you agree with this statement? Givereasons. (November, 1995, 2 marks)

Answer

This statement is not correct The value of scrap (as normal loss)

received from its sale is credited to the process account. But thevalue of scrap received from its sale under abnormal conditionsshould be credited to Abnormal Loss Account.

Question 4

Explain normal wastage, abnormal wastage and abnormal gainand state, how they should be dealt within process Cost Accounts.


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Cost Accounting

Answer

Normal wastage: It is defined as the loss of material which isinherent in the nature of work. Such wastage can be estimated inadvance on the basis of past experience or technical specifications.If the wastage is within the specified limit, it is considered asnormal. Suppose a company states that the normal wastage inProcess A will be 5% of input. In such a case wastage upto 5% ofinput will be considered as normal wastage of the process.

When the wastage fetches no value, the cost of normal wastageis absorbed by good production units of the process and the cost per

unit of good production is increased accordingly. If the normalwastage realises some value, the value is credited to the processaccount to arrive at normal cost of normal output.

Abnormal wastage: It is defined as the wastage which is notinherent to manufacturing operations. This type of wastage mayoccur to the carelessness of workers, a bad plant, design etc. Such awastage cannot be estimated in advance.

The units representing abnormal wastage are valued like good,units produced and debited to the separate account which is knownas abnormal wastage account. If the abnormal wastage fetchessome value, the same is credited to abnormal wastage account. The

balance of abnormal wastage account i.e. difference between valueof units representing abnormal wastage minus realisation value istransferred to Costing profit and loss account for .the year.

Abnormal gain: It is defined as unexpected gain in productionunder normal conditions. In other words, if the actual process wasteis less than the estimated normal waste, the difference is consideredas abnormal gain. Suppose, a Company states that 10% of its inputwill be normal loss of process A. If input of this company is 100 unitsthen its normal output should be 90 units. If actual output is 95units, then, 5 units will represent its abnormal gain! These unitswhich represents abnormal gain are valued like normal output of the

process. The concerned process account is debited with the quantityand value of abnormal gain. The abnormal gain account is creditedwith the figure of abnormal gain amount. Abnormal gain being theresult of actual wastage, or loss being less than the normal. Thescrap realisation shown against normal wastage gets reduced by thescrap value of abnormal gain. Consequently; there is an apparentloss by way of reduction in the scrap realisation attributable toabnormal effectives. This loss is set off against abnormal effectivesby debiting, the account. The- balance; of this account becomesabnormal gain and is transferred to; costing profit and loss account.

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Question 5

Write short note on Abnormal gain in Process Costing (May,1995,4 marks)

Answer

Abnormal Gain in Process Costing: If in a process the actualprocess loss (which is inherent in a process) is less than theestimated normal loss, the difference is considered as abnormalgain. Abnormal gain is accounted for in the same way as abnormalprocess loss.

The concerned process account is debited with the abnormalgain units and value, and the abnormal gain account is credited. Theabnormal gain account is debited with the figure of reduced normalloss (in units) and value. The balance of the abnormal gain accountis transferred to the costing profit and loss account.

Question 6

Compare Process Costing with Job Costing (November, 1998, 4marks)

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Cost Accounting

Answer

Job costing and process costing are the two methods of costaccounting. Job costing is applied where production is carried outunder specific orders, depending upon customers requirement. Hereeach job is considered as a cost unit and to some extent the costcentre also.

Process costing is applied in cases where the identity ofindividual orders is lost in the general flow of production. Industriesto which process costing is applied produce uniform productswithout reference to the specific requirements of customers.

The main points of comparison between job costing and processcosting are as follows:

(i) Job costing is applicable to goods produced/ manufactured tocustomers specifications. However, process costing is applicableto production consisting of succession of continuous operationsor processes.

(ii) Costs are accumulated by a job or work order irrespective of itstime of completion under job costing. When a job is finished allcosts associated with it are charged to it in full. Whereas underprocess costing costs are accumulated by processes for a

particular period regardless of the number of units produced.(iii) Each job will be .different from the other under job costing

whereas in the case of process costing units of product arehomogenous and indistinguishable, because goods are producedon a mass scale.

(iv) Job is normally a single unit, the whole unit is taken as onefor costing purposes. Even if job consists of number of parts,cost of job is calculated only after all the parts, are complete. Assuch there is no question of work-in-progress merely becausesome parts are not yet completed. In the case of processcosting, the unit of production may remain incomplete at various

stages of production. It is therefore necessary to compute at theend of the period not only the cost of the finished units but ofwork in progress also.

(v) Job costing does not involve transfer of costs from one job toanother. Where as in the case of process costing transfer ofoutput from one process to another involves the transfer of itscosts as well.

(vi) Job costs are ascertained only after the completion of job andnot at the end of a particular period. Whereas in the case of

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process costing costs are ascertained at the end of theaccounting period and not when the process is complete, sinceproduction is a continuous flow constituting itself into cycle.

(vii) Since each job may be different from other therefore theywill not involve the use of identical material and labour, costs of

jobs cannot be ascertained by averaging. In the case of processcosting since units of production are uniform and are at thesame stage of production therefore, costs are computed byaveraging the total cost of each stage of production.

(viii) Control becomes difficult in the case of job costing becauseeach job is different from the other. Whereas control overproduction and costs is easier in the case of process costingsince production is a standardised one.

Question 7

A company within the food industry mixes powdered ingredientsin two different processes to produce one product. The output ofProcess I becomes the input of Process 2 and the output of Process2 is transferred to the packing department.

From the information given below, you are required to openaccounts for Process 1, Process 2, abnormal loss and packing

department and to record the transactions for the week ended 11th

May,1985.

Process 1

Input:

Material A 6,000 kilograms at 50 paise per kilogram

Material B 4,000 kilograms at Rupee 1 per kilogram

Mixing Labour 430 hours at Rs.2 per hour

Normal Loss 5% of weight input, disposed off at 16 paise perkilogram

Output 9,200 kilograms.No work in process at the beginning or end of the week.

Process 2

Input

Material C 6,600 kilograms at Rs. 1.25 per kilogram

Material D 4,200 kilograms at Re. 0.75 per kilogram

Flavouring Essence Rs. 330

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Cost Accounting

Mixing Labour 370 hours at Rs. 2 per hour

Normal Waste 5% of weight input with no disposal value

Output 18,000 kilograms.

No work in process at the beginning of the week but 1,000kilograms in process at the end of the week and estimated to beonly 50% complete so far as labour and overhead were concerned.

Overhead of Rs. 3,200 incurred by the two processes to beabsorbed on the basis of mixing labour hours.

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Answer

Process 1 Account

Kg. Per kg. Kg. Per kg.

Rs. Rs. Rs. Ps.

To Material A 6,000

0.50 3,000

By NormalLoss

500 0.16 80

To Material B 4,000

1.00 4,000

By Abnormal 300 1.00 300

Loss (See Note2)

To MixingLabour

860

(430 hours@ Rs.2.00

per hour)

To Transferto

Process 2

9,200

1.00 9,200

To Overhead _____ 1,720

_____ _____

10,000

9,580

10,000

9,580

Process 2 Account

Kg. Per Kg. Kg. Per kg.

Rs. Rs. Rs. Rs.

To Process 1 9,200

1.00 9,200

By NormalWaste

1,000

To Material C 6,600

1.25 8,250

To Work 1,000

1,160

To Material D 4,200

0.75 3,150

in-process

To FlavouringEssence 300 (See Note 3)

To MixingLabour

740 To PackingDeptt.

18,000

1.22 21,690

(370 hours@ 2.00 perhour)

To Overhead 1,480

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Cost Accounting

(See Note 1) _____ _____ _____ _____20,0

0023,1

2020,0

0023,1

20

Abnormal Loss Account

Kg. Per Kg. Kg. Per kg.Rs. Rs. Rs. Rs.

To ProcessA/c

300 1.00 300 By Sale A/c 300 0.16 48

___ By Balance toP/L A/c 252

300 300

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Packing Department Account

Kg. Per Kg. Kg. Per kg.Rs. Rs. Rs. Rs.

To Process 2A/c

18,000

1.22 21,960

By Balance 21.960

21,960

21,960

Notes:

1. Total overhead expenses : Rs. 3,200

Total labour hours in Process 1 and 2 = 800Overhead absorption rate = Rs. 3,200/800 hours = Rs. 4 perlabour hour

Overhead under Process 1 = 430 Rs. 4 = Rs. 1,720

Overhead under Process 2 = 370 Rs. 4 = Rs. 1,480

2. Cost of 9,500 Kg. of output is = (Rs. 9,580 Rs. 80) i.e., Rs.9,500

Hence cost per kg. of output is Re. 1.00

3. Equivalent Units Statement of Output

Output Units Equivalent UnitsMaterial Labour Overhead

Completed 18,000 18,000 18,000 18,000

WIP 1,000 1,000 500 550

(100%Material50% LabourandOverhead)

Normal Waste 1,000 _____ _____ _____

20,000 19,000 18,500 18,500

Cost Statement for the week ending 11th May 1985

Rs.

Material (Process 1) 9,200

Material C 8,250

Material D 3,150

Flavouring Essence 300

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Cost Accounting

Total Material Cost 20,900Total Mixing Labour Cost 740

Total Overhead Cost 1,480

Cost per Equivalent Unit

Material = Rs. 20,900 / 19,000 = Rs. 1.10

Labour = Rs. 740 / 18,500 = 0.04 P

Overhead = Rs. 1,480 / 18,500 = 0.08 P

W.I.P.

Material = 1,000 Rs. 1.10 = Rs.1,100

Labour = 500 0.04 P= Rs. 20

Overhead =500 0.08 P= Rs. 40

Rs.1,160

Question 8

In a manufacturing unit, raw material passes through fourprocesses I, II, III & IV and the output of each process is the input of

the subsequent process. The loss in the four processes I, II, III & IVare respectively 25%, 20%, 20% and 16-2/3% of the input. If the endproduct at the end of the process IV is 40,000 kg, what is thequantity of raw material required to be fed at the beginning ofProcess I and the cost of the same at Rs. 4 per kg.?

Find out also the effect of increase or decrease in the materialcost of the end product for variation of every rupee in the cost of theraw material.

Answer

Statement of Production

(based on 100 kg. of input)

Process No. Input Kg. LossPercentage

Loss Kg. Output Kg.

I 100 25 25 75

II 75 20 15 60

III 60 20 12 48

IV 48 162/3 8 40

Quantity of Raw Material required for 40,000 kg. of output

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As is apparent from the above table, 40 kg of output requires100 kg. of raw material to be fed at the beginning of Process I.

Therefore 1 kg of output require 2.5 kg. of raw material to be fedat the beginning of the process I.

Hence 40,000 kg. of output will require 1,00,000 kg. of rawmaterial at the beginning of the Process I.

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Cost Accounting

Cost of Raw Material required:1,00,000 kg. Rs. 5

= Rs. 5,00,000

Effect of increase or decrease in the material cost: For everyincrease or decrease of Re.1, in the cost of raw material, thecorresponding increase or decrease in the material cost of 1 kg. ofthe end product is Rs. 2.50. Therefore the material cost of the endproduct / finished product goes up or down by Rs. 2.50 per kg. asthe cost of raw material goes up or down by Re.1/- per kg.

Question 9

A company is manufacturing building bricks and fire bricks. Both

the products require two processes:

Brick-forming

Heat treating

Time requirements for the two bricks are:

BuildingBricks

FireBricks

Forming per 100 Bricks 3 Hrs. 2 Hrs.

Heat treatment per100 Bricks

2 Hrs. 5 Hrs.

Total costs of the two departments in one month were

Forming Rs.21,200

Heat treatment Rs.48,800

Production during the month was:

Building bricks 1,30,000Nos.

Fire Bricks 70,000Nos.

Prepare a statement of manufacturing costs for the two varieties ofbricks.

Answer

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Computation of Total Cost: It can be calculated in the case ofbrick forming and heat treating by using the rte per hour ascalculated in the statement or by using the following:

Cost of brick forming Building and Fire bricks can be determinedby dividing the total cost of forming i.e., Rs. 21,200 in the ratio39:14.

Cost of forming Building bricks :53

20,21.Rs 39 = Rs. 15,600

Cost of forming Fire bricks :53

20,21.Rs 14 = Rs. 5,600

Cost of giving heat treatment to Building and Fire Bricks aredetermined by dividing the total cost of heat treatment i.e., Rs.48,800 in the ratio 26:35

Cost of heat treatment to Building Bricks61

80,48..Rs 26 = Rs.

20,800

Cost of heat treatment to Fire Bricks :61

80,48.Rs 35 = Rs. 28,000

Manufacturing Cost Statement

(for two varieties of bricks)

Process

es

Building Bricks Fire Bricks

Tota

l

time

(Hrs

.)

Total

Cost

(for

1,30,0

00

Nos.)

Tota

l

time

(Hrs

.)

Total

Cost

(for

1,30,0

00

Nos.)

Time

per100

Nos.

(Hrs.

)`

Rat

eper

Hr.

Cost

per100

Nos.

Tim

eper

100

Nos.

(Hrs

.)

Rat

eper

Hr.

Cost

per100

Nos.

Rs. Rs. Rs. Rs. Rs. Rs.

Brick

forming

3 3,90

0

4.0

0

15,60

0

12.0

0

2 1,40

0

4.0

0

5,600 8.00

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Process&

Op

erationCost in

g

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Cost Accounting

Heat

treating

2 2,60

0

8.0

0

20,80

0

16.0

0

5 3,50

0

8.0

0

28,00

0

40.0

0

Total 6,50

0

36,40

0

28.0

0

4,90

0

33,60

0

48.0

0

Working Notes:

Computation of rate per hour

Brick forming : =300,5

20,21.Rs= Rs. 4.00

(Total cost / Total hours)

Heat treating: =100,6

80,48.Rs= Rs. 8.00

Question 10

An article passes through three successive operations from theraw material to the finished product stage. The following data areavailable from the production records of a particular month:

OperationNo.

No. of Pcs.Input

No. of Pcs.Rejected

No. of Pcs.Output

1 60,000 20,000 40,000

2 66,000 6,000 60,000

3 48,000 8,000 40,000

(i) Determine the input required to be introduced in the firstoperation in number of pieces in order to obtain finished outputof 100 pieces after the last operation.

(ii) Calculate the cost of raw material required to produce one pieceof finished product, given the following information.

Weight of the finished piece is 0.10 kg. and the price of rawmaterial is Rs. 20 per kg.

Answer

Statement of Production(for a month)

Input Rejections Output

Operations Total Total % Total

No. No. No. Rejectionto output

No.

1 60,000 20,000 50% 40,000

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2. 66,000 6,000 10% 60,0003. 48,000 8,000 20% 40,000

Input required for final output of 100 units:

No. of Pcs.

Output of process 3 100

Loss in process, 20% 20

Input to process 3 or output of process 2 120

Loss in process 2, 10% 12

Input to process 2 or output of process 1 132

Loss in process 1, 50% 66Input in process 1 198

(iii) To produce 100 pieces of final output 198 pieces of initialinput is used. The weight of one piece of finished output is 0.10kg. Thus the weight of input to produce one piece of output is0.198 kg. The rate being Rs.20, the cost of materials forproducing 1 piece is Rs.3.96

i.e.,10

19 0.10

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Cost Accounting

Question 11

A Ltd. produces product 'AXE' which passes through twoprocesses before it is completed and transferred to finished stock.The following data relate to October 1981.

Process Finishedstock

Particulars I II

Rs. Rs. Rs.

Opening stock 7,500 9,000 22,500

Direct materials 15,000 15,750Direct wages 11,200 11,250

Factory overheads 10,500 4,500

Closing stock 3,700 4,500 11,250

Inter-process profit

Included in openingstock

1,500 8,250

Output of process I is transferred to process II.

at 25% profit on the transfer price.

Output of process II is transferred to finished stock at 20% profiton the transfer price. Stocks in process are valued at prime cost.Finished stock is valued at the price at which it is received from the

process II. Sales during the period are Rs. 1,40,000.

Required:

Process cost accounts and finished goods account showing theprofit element at each stage.

Answer

Process I Account

Total

Rs.

Cost

Rs.

Profi

t Rs.

Tota

l Rs.

Cost

Rs.

Profi

t Rs.Opening stock 7,50

07,50

0 Transfe

r54,0

0040,5

0013,5

00

Direct materials 15,000

15,000

toprocess

Direct Wages 11,200

11,200

IIAccount

33,7 33,7

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00 00

Less: ClosingStock

3,700

3,700

Prime cost 30,000

30,000

Overheads 10,500

10,500

Process cost 40,500

40,500

Profit 331

/3%of total cost 13,5

00 13,5

00

(See workingnote 1)

_____ _____ _____ _____ _____ _____

54,000

40,500

13,500

54,000

40,500

13,500

Process II Account

Total

Rs.

Cost

Rs.

Profit

Rs.

Total

Rs.

Cost

Rs.

Profit

Rs.Openingstock

9,000 7,500

1,500

Transfer to

TransferredfromProcess I

54,000

40,500

FinishedStockA/c

112,500

75,750

36,750

Directmaterials

15,750

15,750

Direct wages 11,25

0

11,2

50

90,000

75,000

15,000

Less: Closing

Stock

4,500 3,750

750

Prime cost 85,500

71,250

14,250

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Cost Accounting

Overheads 4,500 4,500

Process cost 90,000

75,750

Profit 25% 22,500

22,500

on total cost

(See workingnote 1)

______

______

______

______ ______

______

1,12,500

75,750

36,750

1,12,500

75,750

36,750

Finished Stock Account

TotalRs.

CostRs.

Profit Rs.

TotalRs.

CostRs.

Profit Rs.

Opening stock 22,500

14,250

8,250

Sales 1,40,000

82,500

57,500

Transferredfrom

Process II 1,12,500

75,750

36,750

1,35,000

90,000

45,000

Less: ClosingStock

11,250

7,500

3,750

Finished Stockat

cost 1,23,7

50

82,5

00

41,2

50Profit 16,25

0

12,2

50______ _____ _____

1,40,000

82,500

57,500

1,40,000

82,500

57,500

Working Notes

Let the transfer price, be 100 then profit is 25; i.e. cost price is75

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1. If cost is Rs. 75 then profit is Rs. 25

If cost is Rs. 40,500 then profit is75

25 40,500 = Rs. 13,500

2. If cost is Rs. 80 then profit is Rs. 20

If cost is Rs. 90,000 then profit is80

20 90,000 = Rs. 22,500

3. Out of Rs. 90,000 total cost, the profit is Rs. 15,000

If the cost is Rs. 4,500, the profit is00,90

00,15 Rs. 4,500 = Rs.

750

Question 12

The following data pertains to Process I for March 1987 of BetaLimited :

Opening Work in Progress 1,500 units at Rs. 15,000

Degree of completion

Materials 100% ; Labour and Overheads 33 31%

Input of Materials 18,500 Units at Rs. 52,000

Direct Labour Rs. 14,000

Overheads Rs. 28,000

Closing Work in Progress 5,000 units

Degree of Completion Materials 90%

and

Labour and Overheads 30%

Normal Process Loss is 10% of total

Input (opening work in progress units + units put in)

Scrap value Rs. 2.00 per unitUnits transferred to the next process 15,000 units.

Your are required to :

(a) Compute equivalent units of production.

(b) Compute cost per equivalent unit for each costelement i.e., materials, labour and overheads.

(c) Compute the cost of finished output and closing workin progress.

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Cost Accounting

(d) Prepare the process and other Accounts.

Assume: (I) FIFO Method is used bythe Company.

(ii) The cost of opening work in progress isfully transferred to the next process.

Answer

(a) Statement of Equivalent Units ofProduction

INPUT OUTPUT EQUIVALENT

Material

PRODUCTION

Labour &Overhead

Particul

ars

Unit

s

Particulars Units % Units % Units

Op. WIP 1,50

0

Work on Op.

WIP

1,500 66 32 1,000

Introduc

ed

18,5

00

Introduced

and completed

in the period

13,500 100 13,50

0

100 13,50

0

Transferred to

next process

15,000

Normal Loss 2,000

Closing WIP 5,000 90 4,500 30 1,500

22,000 18,00

0

16,00

0

_____

Less:Abnormal Gain

2,000

_____

100 2,000

_____

100 2,000

_____

20,0

00

22,000 16,00

0

14,00

0

(b) Statement of Cost per Equivalent Unit for EachCost Element

Cost Equivalent Units

Cost perEquivalent

Unit

Rs. Rs. Rs.

Material 52,000

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Less: ScrapValue

4,000 48,000 16,000 3

Labour 14,000 14,000 1

Overheads 28,000 14,000 2

(c) Statement of Cost of Finished Output and ClosingWork in Progress

Particulars Elements

Equivalent Units

CostperUnits

Cost ofEquivalent Units

Total

Rs. Rs. Rs.Opening WIP(1,500 units)

15,000

Opening WIP Material

NIL

Opening WIP Labour 1,000 1 1,000Opening WIP Overhe

ad1,000 2 2,000 3,000

Unitsintroduced andcompleted

during theperiod

Material

13,500 3 40,500

" Labour 13,500 1 13,500" Overhe

ad13,500 2 27,000 81,000

Total Cost of 15,000 Units of finished output99,000

Closing WIP Material

4,500 3 13,500

(5,000 units) Labour 1,500 1 1,500

Overhead

1,500 2 3,000

Total cost ofclosing WIP(5,000 units)

18,000

(d) Process Account I

Units

Rs. Units Rs.

To Opening WIP 1,50 15,000 By Normal Loss 2,000 4,000

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Cost Accounting

0To Units

introduced(DirectMaterial)

18,500

52,000 By Transfer tonextprocess

15,000

99,000

To DirectLabour

14,000 By Closing WIP 5,000 18,000

To Overhead 28,000

To AbnormalGain (Seeworkingnote)

2,000

_____

12,000

_______ _____ _______

22,000

1,21,000

22,000

1,21,000

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Abnormal Gain Account

Units

Rs. Units Rs.

To Process A/c I 2,000

4,000 By Process I 2,000 12,000

To Profit & LossA/c

8,000 _____

12,000 12,000

Working Note

Total cost of Abnormal Gain:

(2,000 Units) @ Rs. 6/- p.u. = Rs. 12,000

Question 13

The following data are available in respect of Process 1 forFebruary 1990 :

(1) Opening stock of work in process : 800 units at a total cost ofRs. 4,000.

(2) Degree of completion of opening work in process:

Material 100%Labour 60%

Overheads 60%

(3) Input of materials at a total cost of Rs. 36,800 for 9,200units.

(4) Direct wages incurred Rs. 16,740

(5) Production overhead Rs. 8,370.

(6) Units scrapped 1,200 units. The stage of completion of theseunits was:

Materials 100%

Labour 80%

Overheads 80%

(7) Closing work in process; 900 units. The stage of completionof these units was:

Material 100%

Labour 70%

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Cost Accounting

Overheads 70%

(8) 7,900 units were completed and transferred to the nextprocess.

(9) Normal loss is 8% of the total input (opening stock plus unitsput in)

(10) Scrap value is Rs. 4 per unit.

You are required to :

(a) Compute equivalent production,

(b) Calculate the cost per equivalent unit for each element.

(c) Calculate the cost of abnormal loss (or gain), closing work inprocess and the units transferred to the next process usingthe FIFO method,

(d) Show the Process Account for February 1990

Answer

(a) Statement of Equivalent Production (FIFO Method)

Material Labour Overheads

Input(Unit

s)

Output Unit %Co

mpletio

n

Units

%Com

pletion

Units %Com

pletion

Units

800 Opening stockof WIP

800 40 320 40 320

9,200

Finished 7,100

100 7,100

100 7,100 100 7,100

Closing WIP 900 100 900 70 630 70 630

Normal Loss 800

Abnormal Loss 400 100 400 80 320 80 320

8,400

8,370 8,370

(b) Statement of Cost per equivalent units

Elements Cost Equivalent production

(Units)

Cost perequivalent

Unit

Rs. Rs. Rs.

Material Cost 36,80

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0Less: Scraprealisation800 units@ Rs. 4/- p.u.

3,200 33,600 8,400 4/-

Labour cost 16,740 8,370 2/-

Overhead Cost 8,370 8,370 1/-

Total Cost

(c) Cost of Abnormal Loss 400 Units

Rs.

Material cost of 400 equivalent units @ Rs. 4/- p.u. 1,600

Labour cost of 320 equivalent units @ Rs. 2/- p.u. 640

Overhead cost of 320 equivalent units @ Rs. 1/- p.u. 320

2,560

Cost of closing WIP 900 Units

Material cost of 900 equivalent units @ Rs. 4/- p.u. 3,600

Labour cost of 630 equivalent units @ Rs.2/- p.u. 1,260

Overhead cost of 630 equivalent @ Rs. 1/- p.u. 630

5,490

Cost of 7,900 units transferred to next process(i) Cost of opening WIP Stock b/f 800 units 4,000

(ii) Cost incurred on opening WIP stock

Material cost

Labour cost 320 equivalent units @ Rs. 2/- p.u. 640

Overhead cost 320 equivalent units @ Rs. 1/- p.u.320

960

(iii) Cost of 7,100 completed units

7,100 units @ Rs.7/- p.u. 49,700Total cost [(i) + (ii) + (iii))] 54,660

(d) Process Account for February, 1990

Units

Rs. Units Rs.

To Opening WIP

Stock

800 4,000 By Cost of Finished

7,900 54,660

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Cost Accounting

goodsTo Materials 9,20

036,800

To Labour 16,740 By Closing WIP 900 5,490

To Overhead 8,370 By AbnormalLoss

400 2,560

_____ _____ By Normal Loss 800 3200

10,000

65,910 10,000

65.,910

Question 14

A company manufactures a product which involves twoconsecutive processes, viz. Pressing and Polishing. For the month ofOctober, 1991, the following information is available:

Pressing Polishing

Opening Stock

Input of units in process 1,200 1,000

Units completed 1,000 500

Units under process 200 500

Materials Cost Rs., 96,000 Rs. 8,000

Conversion Cost Rs. 3,36,000 Rs. 54,000

For incomplete units in process, charge materials cost at 100percent and conversion cost at 60 percent in the Pressing Processand 50 percent in Polishing Process. Prepare a statement of cost andcalculate the selling price per unit which will result in 25 percent

profit on sale price.

Answer

Statement of Cost

(i) Pressing process:

Elements of cost Cost

Rs.

EquivalentProduction Units

(Refer to WorkingNote 1)

Costper unit

(Rs.)

Material cost 96,000 1,200 80

Conversion cost 3,36,000 1,120 300

Total 380

Cost of 1,000 completed units @ Rs. 380/- p.u.= Rs. 3,80,000

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Cost of 200 units under Work-in-Process:

Material cost = 200 Rs. 80 = Rs.16,000

Conversion cost = 120 Rs. 300 = Rs.36,000

Total = Rs. 52,000

(ii) Polishing Process

Element of cost Cost

Rs.

Equivalent ProductionUnits

(Refer to WorkingNote 1)

Costper

unit(Rs.)

Cost of units

introduced (Rs.)3,80,000

Material cost (Rs.)8,000

3,88,000

1,000 388

Conversion cost 54,000 750 72

460

Total Cost of 500 completed units @ Rs. 460 p.u. = Rs.2,30,000

Material cost = 500 Rs. 388 = Rs.1,94,000

Conversion cost = 250 Rs. 72 = Rs.18,000

Total = Rs. 2,12,000

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Cost Accounting

Selling price per unit

Cost per unit Rs. 460.00

Profit @ 25% on sale price Rs. 153.33

Or 33 31 % on cost

Selling price (p.u.) Rs. 613.33

Working Note

1. Statement of equivalent production of pressingprocess:

Input

(Units)

Output Units Equivalent units

Material Conversion

Qty.(Units)

% Qty.(Units)

%

1,200

Completed 1,000 1,000 100 1,000 100

Work inprocess

200 200 100 120 60

1,200

1,200 1,200 1,120

2. Statement of equivalent production of polishingprocess

Input

(Units)

Output Units Equivalent units

Material Conversion

Qty.

(units)

% Qty.

(units)

%

1,000

Completed 500 500 100 500 100

Work inprocess

500 500 100 250 50

1,000

1,000 1,000 750

Question 15

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A product passes through three processes A, B and C. Thedetails of expenses incurred on the three processes during the year1992 were as under:

Process A B C

Units issued / introducedcost per unit Rs. 100

10,000

Rs. Rs. Rs.

Sundry Materials 10,000 15,000 5,000

Labour 30,000 80,000 65,000

Direct Expenses 6,000 18,150 27,200

Selling price per unit ofoutput

120 165 250

Management expenses during the year were Rs. 80,000 andselling expenses were Rs. 50,000 These are not allocable to the

processes.

Actual output of the three processes was:

A 9,300 units, B-5, 400 units and C-2, 100 units. Two third ofthe output of Process A and one half of the output of Process B was

passed on to the next process and the balance was sold. The entireoutput of process C was sold.

The normal loss of the three processes, calculated on the inputof every process was:

Process A-5%; B-15% and C-20%

The Loss of Process A was sold at Rs. 2 per unit, that of B at Rs.5 per unit and of Process C at Rs. 10 per unit.

Prepare the Three Processes Accounts and the Profit and LossAccount.

Answer

Process A AccountDr. Cr.

Particulars Units

Rs. Particulars Units Rs.

To Unitsbrought in(Rs.10010,000)

10,000

10,00,000

By Normal Loss

(5% of 10,000units

500 1,000

To Sundry 10,000 @ Rs. 2/- p.u.)

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Cost Accounting

MaterialsTo Labour 30,000 By Abnormal

loss200 22,000

To Directexpenses

6,000 (Working note1)

Process B A/c 6,200 6,82,000

(Output to betransferredRs. 110 6,200)(Working Note1)

_____ _______

By Profit &Loss A/c(Rs. 100 3,100 units)(Working Note1)

3,100

_____

3,41,000

_______

10,000

10,46,000

10,000

10,46,000

Process B AccountDr. Cr.

Particulars Units


To Process AA/c

To SundryMaterials

To Labour

To Direct

expenses

6,200

6,82,000

15,000

80,000

18,150

By Normal Loss(15% of 6,200Units= 930 units@ Rs. 5/- p.u.)

930 4,650

To Abnormalgain(Working Note2)

130 19,500 By Process CA/c(Output to betransferred)Rs. 150 2,700

(Working Note2)

2,700 4,05,000

By Profit & LossA/c

2,700 4,05,0

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____ _______ (Rs. 150 2,700)

____ 00_______

6,330

8,14,650

6,330 8,14,650

Process C Account

Dr. Cr.

Particulars Units


To Process BA/c

To SundryMaterials

To Labour

To Directexpenses

2,700

4,05,000

5,000

65,000

27,200

By Normal Loss(20% of2,700 units =540 units @Rs. 10/- p.u.)

540 5,400

By AbnormalLoss(WorkingNote 3)

60 13,800

_____ _______

By Profit & Loss

A/c (Rs.230 2,100 units)(WorkingNote 3)

2,100

____

4,83,0

00

_______

2,700

5,02,200

2,700 5,02,200

Profit & Loss Account

Dr. Cr.

Particulars Units


To Process AA/c

3,100

3,41,000

By Sale 3,100 3,72,000

To Process BA/c

2,700

4,05,000

(Process A'sOutput

To Process CA/c

2,100

4,83,000

@ Rs. 120/-p.m.)

To Management By Sale 2,700 4,45,500

Expenses 80,000 (Process B's

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Cost Accounting

OutputTo Selling

Expenses50,000 @ Rs. 165/-

p.u.)

To AbnormalLoss A/c

34,800 By Sale 2,100 5,25,000

(WorkingNote 4)

(Process C'sOutput @ Rs.250/- p.u.)

By Abnormalgain A/c(WorkingNote 5)

18,850

____ ________

By Net Loss ____ 32,450

7,900

13,93,800

7,900 13,93,800

Working Notes

1. (i) Per unit cost of normal production under process A:

outputproductionNormal

outpnormaloftcosNormal=

=units500,9

00,1.Rs000,46,10.Rs= Rs. 110

(ii) Value of Abnormal loss under process A:

Abnormal loss units = Normal production Actualproduction

= 9,500 9,300 = 200 unitsValue of Abnormal Loss

= Per unit cost of normal production Abnormal loss units

= Rs. 110 200 Rs. 22,000.

2. (i) Per unit cost of normal production under process B:

= 15.Rs270,5

500,90,7.Rs

270,5

)659,4.Rs150,95,7.Rs(==

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(ii) Value of Abnormal gain under process B:

Abnormal gain units = Normal loss Actual loss

= 930 800 = 130 units

= Per unit cost of normal production Abnormal gain units

= Rs. 150 130 units = Rs. 19,500.

3. (i) Per unit cost of normal production under process C:

= 23.Rsunits160,2

800,96,4.Rs

units160,2

)400,5.Rs200,02,5.Rs(==

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Cost Accounting

(ii) Value of Abnormal loss under process C:

Abnormal loss units

= Normal production Actual production

= 2,160 units 2,100 units = 60 units

= Rs. 230 60 units = Rs. 13,800

4. Abnormal Loss Account

Dr. Cr.

Uni

ts

Cost

p.u.Rs.

Amo

untRs.

Particulars Uni

ts

Cos

tp.u.Rs.

Amo

untRs.

To Process AA/c

200 110 22,000

By Saleproceeds ofProcess ALoss

200 2 400

To Process CA/c

60 230 13,800

By Saleproceeds ofProcess Closs

60 10 600

____ _____ By Profit &Loss A/c ___ 34,800

260 35,800

260 35,800

5. Abnormal Gain Account

Dr. Cr.

Units

Cost

p.u.

Amount

Particulars Units

Cost

p.u.

Amount

Rs. Rs. Rs. Rs.To Normal

lossshortfall

130 5 650 By Process B 130 150 19,500

To Profit & LossA/c

18,850

_____

19,500

19,500

Question 16

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Following data are available for a product for the month of July,1993.

Process I Process II

Opening work-in-progress NIL NIL

Rs. Rs.

Cost Incurred during the month:

Direct materials 60,000

Labour 12,000 16,000

Factory overheads 24,000 20,000

Units of production:

Received in Process 40,000 36,000

Completed and transferred 36,000 32,000

Closing work-in-progress 2,000 ?

Normal loss in process 2,000 1,500

Production remaining in Process has to be valued as follows:

Materials 100%

Labour 50%

Overheads 50%

There has been no abnormal loss in Process IIPrepare process accounts after working out the missing figures

and with detailed workings.

Answer

Statement of equivalent production units (Process I)

TABLE 1

Particulars UnitsIntrodu

ced

UnitsOut

Equivalent Production

Material Labour andOverhead

%Comple

tion

Units %Comple

tion

Units

Units in 40,000

Unitscompletedandtransferred toProcess-II

36,000

100 36,000

100 36,000

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Cost Accounting

Normal loss 2,000 Closing work-in-progress

2,000 100 2,000 50 1,000

Total 40,000 40,000

38,000

37,000

Computation of cost per equivalent unit for each costelement

TABLE 2

Total Cost

Rs.

EquivalentUnits

Cost perEquivalent

UnitRs.

Direct materials 60,000 38,000 1.5780

Labour 12,000 37,000 0.3243

Factory overheads 24,000 37,000 0.6487

Total 2.5519

Process 1 Account

Units

Rs. Units Rs.

To Unitsintroduced(Directmaterials)

40,000

60,000 By Normal Loss 2,000 NIL

To Labour 12,000 By Process IIItransferred(Refer toWorking Note-1)

36,000

91,869

To Factoryoverheads

_____

24,000

_____

By Work in-process (Refer

to WorkingNote 2)

2,000

_____

4,131

_____

40,000

96,000 40,000

96,000

Statement of equivalent production units (Process II)

TABLE 3

Particulars Equivalent Production

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UnitsIntroduc

ed

UnitsOut

Material Labour andOverheads

%Completi

on

Units %Completi

on

Units

Unitstransferredfromprocess-I

36,000 32,000 100 32,000

100 32,000

Normal loss 1,500

Closingwork-in-process

2,500 100 2,500

50 1,250

36,000 36,000 34,500

33,250

Computation of cost per equivalent unit for each costelement

TABLE 4

Total Cost

Rs.

Equivalent

Units

Cost perEquivalent

UnitsRs.

Cost of 36,000 unitstransferred from Process I

91,869 34,500 2.6629

Labour 16,000 33,250 0.4812

Factory overheads 20,000 33,250 0.6015

Total 3.7456

Process-II Account

Units

Rs. Units Rs.

To Unitsintroduced(TransferredfromProcess-I)

36,000

91,869 By Normal Loss

By Finishedstocktransferred

1,500

32,000

1,19,859

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Cost Accounting

To Labour 16,000 (Refer toWorking Note3)

To Factoryoverheads

_____

20,000

_____

By Work-in-process (Referto WorkingNote 4)

2,500

_____

8,010

_____

36,000

1,27,860

36,000

1,27,869

Working Notes:

1. Cost of 36,000 completed units in Process I:

= 36,000 Cost per unit (Refer to Table 2)

= 36,000 Rs. 2.5519 = Rs. 91,869.

2. Cost of 2,000 units under work-in-process in Process-I:

= Cost of 2,000 equivalent units of material + Cost of 1,000equivalent units of labour and overheads (Refer to Tables 1and 2).

= 2,000 Rs. 1.5789 + 1,000 Rs.0.3243 + 1,000 Rs.0.6487

= Rs. 4,1313. Cost of 32,000 units of finished stock in Process-II:

= 32,000 Cost per unit (Refer to Table 3)

= 32,000 Rs. 3.7456 = Rs. 1,19,589

4. Cost of 2,500 units under work-in-process in Process-II:

= Cost of 2,500 equivalent units of material + Cost of 1,250equivalent units of labour and overhead (Refer to Tables 3and 4)

= 2,500 Rs. 2.6629 + 1,250 Rs. 0.4812 + 1,250 Rs.

0.6015= Rs. 6657.25 + Rs. 601.50 + Rs. 751.88

= Rs. 8,010.63.

Question 17

In a manufacturing company, a product passes through 5operations. The output of the 5th operation becomes the finished

product. The input, rejection, output and labour and overheads ofeach operation for a period are as under:

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Operation Input (units)

Rejection(units)

Output(units)

Labour andOverhead

(Rs.)1 21,600 5,400 16,200 1,94,4002 20,250 1,350 18,900 1,41,7503 18,900 1,350 17,550 2,45,7004 23,400 1,800 21,600 1,40,4005 17,280 2,880 14,400 86,400

You are required to:

(i) Determine the input required in each operation for one unit offinal output.

(ii) Calculate the labour and overhead cost at each operation forone unit of final output and the total labour and overhead cost ofall operations for one unit of final output.

(November,1996,8 marks)

Answer

(i) Statement of Input required in each operation forone unit of final output:

(Refer to Working Note)

Operation Output (Units)

Rejection ofoutput in %

Inputrequired

5 1 20 1.20

10

121

4 1.20 8.33 1.30

100

33.10820.1

3 1.30 7.69 1.40

100

69.10730.1

2 1.40 7.14 1.50

100

14.10740.1

1 1.50 33.33 2.00

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Cost Accounting

100

33.13350.1

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Working Note:

Input required for final output

Operation

Input(units)

Rejection

(units)

Output(units)

Rejection

as %of output

Inputrequiredfor finaloutput

1 21,600 5,400 16,200 33.33 2.00

2 20,250 1,350 18,900 7.14 1.50

3 18,900 1,350 17,550 7,69 1.40

4 23,400 1,800 21,600 8.33 1.30

5 17,280 2,880 14,400 20.00 1.20

(ii) Statement of labour and overhead cost

at each operation for one unit of final output

Operation

Input(Units)

(Rs.)

Labour &Overhead

s)

(Rs.)

Labour &Overheadper unitof input

(Rs.)

Inputunits

requiredfor oneunit of

finaloutput

Labourand

Overheadcost perunit of

finaloutput

(Rs.)

(a) (b) (c) (d) = (c)/(b)

(e) (f) =(d)(e)

1 21,600 1,94,400 9 2.00 18.00

2 20,250 1,41,750 7 1.50 10.50

3 18,900 2,45,700 13 1.40 18.20

4 23,400 140,400 6 1.30 7.80

5 17,280 86,400 5 1.20 6.00

60.50

Total labour and overhead cost of all operations for one unit of finaloutput is Rs. 60.50

Question 18

From the following information for the month of October, 2003,prepare Process III cost accounts:

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Cost Accounting

Opening WIP in Process III 1,800 units at Rs. 27,000

Transfer from Process II 47,700 units at Rs. 5,36,625

Transferred to Warehouse 43,200 units

Closing WIP of Process III 4,500 units

Units scrapped 1,800 units

Direct material added in Process III Rs. 1,77,840

Direct Wages Rs.87,840

Production overheads Rs. 43,920

Degree of completion:Opening Stock Closing Stock Scrap

Material 80% 70% 100%

Labour 60% 50% 70%

Overheads 60% 50% 70%

The normal loss in the process was 5% of the production andscrap was sold @ Rs. 6.75 per unit.


Answer

Statement of Equivalent Production

(Process III)

Equivalent production

Input

_____________

Output

_______________

Material A

__________

Material B

__________

Labour &overheads

Details Quantity

Units

Quantity

units

Quantity units

% Quant ity

units

% Quant ity

units

%

Op WIP 1,800 Work onOp. WIP

1,800 360 20 720 40

Process II

Transfer

47,700

Introduced &

completed

duringthe

month

41,400

41,400 100

41,400

100 41,400

100

Normalloss (5%

2,250

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of45,000units)

Cl. WIP 4,500 4,500 100

3,150 70 2,250 50

49,950

45,900 44,910

44,370

Abnormal gain

450 450 100

450 100 450 100

49,500

49,500

45,450 44,460

43,920

Working note

Production units:

Production units = Opening units + Unitstransferred from process II Closing units

= 1,800 units + 47,700 units 4,500 units = 45,000units

Statement of cost

Cost Equivale

nt

Cost per

equivalentunits

Rs. Rs.

(a) (b) (a) / (b)

Material A 5,36,625

(Transfer from previous process)

Less: Scrap value of normal loss

(2,250 units Rs 6.75)

15,187

5,21,438

45,450 11.4728

Material B 1,77,840

44,460 4.0000

Labour 87,840 43,920 2.0000

Overheads 43,920

43,920 1.0000

8,31,037.50

18.4728

Statement of apportionment of process cost

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Cost Accounting

Rs.Opening WIP Material

A27,000

Completed opening WIPunits 1,800

MaterialB

360 units Rs.4 = Rs.1,440

Wages 720 units Rs.2 = Rs.1,440

Overheads

720 units Re. 1 =Rs. 720

3,600

Introduced &completed 41,400units

41,400 units Rs.18.4728

7,64,773

______

Total cost of 43,200finished goods units

7,95,373

Closing WIP Units 4,500

MaterialA

4,500 units Rs.11.4728

51,628

MaterialB

3,150 units Rs.4 12,600

Wages 2,250 units Rs.2 4,500

Overheads

2,250 units Re.1 2,250

70,978Abnormal gain units 450

450 units Rs.18.4728

8313

Process III A/c

Units

Rs. Units Rs.

To Balance b/d 1,800

27,000 By Normal Loss 2,250 15,187

To Process II A/c 47,700

5,36,625

By Finishedgoods

stock

43,200

7,95,373

To Directmaterial

1,77,840

To DirectWages

87,840

To Productionoverheads

43,920 By Closing WIP 4,500 70,978

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To Abnormalgain

450

8,313

_____ _______

49,950

8,81,538

49,950

8,81,538

Question 19

The following information is given in respect of Process No.3 forthe month of January 2001.

Opening stock 2,000 units made up of

Direct Materials I Rs. 12,350

Direct Materials II Rs. 13,200



Transferred from Process No.2: 20,000 units @ Rs. 6.00 per unit

Transferred to Process No.4: 17,000 units

Expenditure incurred in Process No.3

Direct Materials Rs. 30,000


Overheads Rs. 60,000Scrap 1,000 units Direct Materials 100%, Direct Labour 60%.Overheads 40%. Normal loss 10% of production.

Scrapped units realised Rs. 4 per unit.

Closing Stock: 4,000 units Degree of completion: DirectMaterials 80%, Direct Labour 60% and overheads 40%.

Prepare Process No.3 Account using average price method,alongwith necessary supporting statements.

(May,2001, 10 marks)

Answer

Statement of Equivalent Production(Average cost method)

Particulars

TotalUnit

Material I Material II Labour Overhead

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Cost Accounting

% Unit s

% Unit s

% Unit s

% Unit s

Unitscompletelyprocessed

17,000

100 17,000

100 17,000

100 17,000

100 17,000

NormalLoss10% of(2,000

units +20,000units 4,000units)(Refer toworkingnote)

1,800

Abnormalgain

-800

100 -800 100 -800 100 -800 100 -800

Closing

stock

4,0

00

100 4,00

0

80 3,20

0

60 2,40

0

40 1,60

022,0

0020,2

0019,4

0018,6

0017,8

00

Statement of Cost

CostRs.

EquivalentUnits

Rate/Equivalent(Unit) (Rs.)

Material I:

Opening balance2,000 units

12,350

Cost of 20,000 units

@ Rs. 6/- per unit

1,20,0

00Less: Scrap realized

(1,800 units Rs. 4)(7,200

)

___________ _____

1,25,150

20,200 6,1955

Material II:

Opening Stock 13,200

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In Process II 30,000

_____ _____

43,200

19,400 2.2268

Labour

Opening labour 17,500


_____ _____

77,500

18,600 4.1667

Overhead:

Opening stock 11,000


_____ _____

71,000

17,800 3.9888

16.5778

Statement of Evaluation

Cost of 17,000 finished goods units 2,81,822.60 or Rs.2,81,822 (say)(17,000 units Rs. 16.5778)

Cost of 800 abnormal units 13,262.24 or 13,262 (say)

(800 units Rs. 16.5778)

Cost of 4,000 closing work-in-progress units 48,289.92 or 48,290(say)

Rs.

Material I 4,000 units Rs. 6.1955 = 24,782.00

Material II 3,200 units Rs. 2.2268 = 7,125.76

Labour 2,400 units Rs. 4.1667 = 10,000.08

Overhead 1,600 units Rs. 3,988 = 6,382.08

48,289.92

Process 3 A/c

Dr. Cr.

Particulars Units

Rs. Particulars Units

Rs.

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Cost Accounting

To Opening WIP 2,000

54,050 By Normal Loss 1,800

7,200

To Process 2 20,000

1,20,000

By Finishedgoods units

17,000

2,81,822

By Closingbalance

4,000

48,290

To DirectMaterial II

30,000

To DirectLabour

60,000

To Overhead 60,000To Abnormalgain

800

13,262

_____ _______

22,800

3,37,312

22,800

3,37,312

Working Note: Normal loss given is 10% ofproduction. The word production here means thoseunits which come upto the state of inspection. In thatcase, opening stock plus receipts minus closing stockof WIP will represent units of production (2,000 units+ 20,000 units 4,000 units). In this case the units of

production comes to 18,000 units and hence 1,800units as normal loss units.

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Question 20

JKL Limited produces two products J and K together with a by-product L from a single main process (process I). Product J is sold atthe point of separation for Rs. 55 per kg. Whereas product K is soldfor Rs. 77 per kg. After further processing into product K2. By-

product L is sold without further processing for Rs. 19.25 per kg.

Process I is closely monitored by a team of chemists, whoplanned the output per 1,000 kg of input materials to be as follows:

Product J 500 kg

Product K 350 kg.Product L 100 kg.

Toxic waste 50 kg.

The toxic waste is disposed at a cost of Rs. 16.50 per kg. Andarises at the end of processing.

Process II which is used for further processing of product K intoproduct K2, has the following cost structure:

Fixed costs Rs. 2,64,000 per week

Variable cost Rs. 16.50 per kg. processed

The following actual date relate to the first week of the month:Process I

Opening work-in-progress NIL

Material input 40,000 kg costing Rs. 6,60,000

Direct Labour Rs.4,40,000

Variable overheads Rs. 1,76,000

Fixed overheads Rs. 2,64,000

Outputs:

Product J 19,200 kg.Product K 14,400 kg.

Product L 4,000 kg.

Toxic waste 2,400 kg.

Closing work-in-progress NIL

10.51


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Cost Accounting

Process II

Opening work-in-progress NIL

Input of product K 14,400 kg.

Output of product K2 13,200 kg.

Closing work-in-progress (50% converted

and conversion costs were incurred in

accordance with the planned cost

structure) 1,200 kg.

Required(i) Prepare Process I account for the first week of the month using

the final sales value method of attribute the pre-separation coststo join products.

(ii) Prepare the toxic waste account and Process II account for thefirst week of the month.

(iii) Comment on the method used by the JKL Limited to attribute thepre-separation costs to joint products.

(iv) Advise the management of JKL Limited whether or not, on purelyfinancial grounds it should continue to process product K into

product K2.(a) If product K could be sold at the point of separation for Rs.

47.30 per kg; and

(b) If the 60% of the weekly fixed costs of Process II wereavoided by not processing product K further.

(May,2004, 10 marks)

Answer

(i) Process I account

Particulars Qty in

Kg.

Rate /

Kg.Rs.

Amoun

t Rs.

Particulars Qty

inKg.

Rate

/Kg.R

s.

Amou

nt Rs.

To Material

input

40,00

0

16.50 6,60,0

00

By Product L

sales

4,00

0

19.2

5

77,000

To Direct

Labour

4,40,0

00

By Normal loss 2,00

0

(-)

16.5

0

(-)

33,000

10.52


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To Variable

overheads

1,76,0

00

By Abnormal

Loss*

400 44 17,600

To Fixed

overheads

2,64,0

00

By Joint Product J

(Refer to working

note 2)

19,2

00

7,21,1

71

_____ _______

By Joint product K

(Refer to working

note 2)

14,4

00

_____

7,67,2

29

_______

40,00

0

15,40,0

00

40,0

00

15,40,

000

10.53


54/96

Cost Accounting

Valuation of abnormal loss per kg. =85.0.Kgs000,40

00,33.Rs000,77.Rs000,40,15.Rs

+

(Using physical measure method) = Rs. 14,96,000 / 34,000 kgs.

= Rs. 44 per kg.

(ii) Toxic Waste Account

Particulars Qty . inKg.

Rate /Kg.Rs.

Amount Rs.

Particulars

Qty.in

Kg.

Rate/Kg.Rs.

Amount Rs.

To Process IA/c

2,000

16.50

(-)33,000

ByBalance

16.50 (-)33,000

Process II Account

Particulars Qty.in

Kg.

Rate/ Kg.

Amount

Particulars

Qty.in

Kg.

Rate/

Kg.

Amount .

Rs. Rs. Rs. Rs.To ProcessI

A/c

(Product K)

14,400

52,585

7,57,236

ByProductK2

account

13,200

11,73,924

To Variableoverhead

sTo Fixed

overheads

16.50

2,37,600

2,64,000

ByClosingWIP(Refer toworkingnote 3)

1,200

84,912

________

12,58,836

12,58,836

Working notes:

1. Calculation of joint cost of the output:

= Rs. 15,40,000 Rs. 77,000 Rs. (-) 33,000 Rs. 17,600

= Rs. 14,78,400

2. Allocation of joint cost over joint products J& K

(By using final sales value method)

Products Quantity (Kgs.)

Sales ValueRs.

Joint CostRs.

10.54


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J 19,200 10,56,000(19,200 kg

Rs. 55)

7,21,171

K 14,400 11,08,800

(14,400 kgs xRs.77)

7,57,229

Total 21,64,800 14,78,400

10.55


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Cost Accounting

3. Valuation of 1,200 Kgs. of Closing WIP :

Material I 100% complete Rs.

(1200 kgs x Rs.52.5858)63,103

Fixed & variable overheads

units800,13

600,01,5.Rsx 600 units

21,809

Total valuation of 1,200 kgs of closing WIP 84,912

(iii) Comment on the method used by the JKL Ltd :

(To attribute the pre-separation costs to joint products)

For attributing the joint costs over joint products J and K , JKLFLtd., used the basis of final sales value. This is one of thepopular method used in the industry.

Other methods can also be used for the purpose. Some of theseare as follows:

Physical Measure Method (if both the products are equallycomplex).

Constant Gross Margin Percentage method.

Net Realization Value Method.(iv) Advise to the management of JKL Ltd.:

Rs.

Incremental sales revenue per kg. from further processing 29.70

Less: Incremental variable cost per kg. of further processing16.50

Incremental contribution per kg from further processing 13.20

At an output of 14,400 kgs the incremental contribution is:1,90,080

Less: Avoidable fixed cost 1,58,400(60% x Rs. 2,64,000) _____

Net benefit (Rs.) 31,680

Break-even point =.kgperoncontributilIncrementa

costsfixedAvoidable=

20.13.Rs

40,58,1..Rs

= 12,000 kgs.

10.56


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Hence further processing should be undertaken if output isexpected to exceed 12:000 kgs. per week.

Question 21

A product passes through two processes. The output of Process Ibecomes the input of Process II and the output of Process II istransferred to warehouse. The quantity of raw materials introducedinto Process I is 20,000 kg. at Rs. 10 per kg. The cost and outputdata for the month under review are as under:

Process I Process II

Direct Materials Rs. 60,000 Rs. 40,000Direct Labour Rs. 40,000 Rs. 30,000

Production overheads Rs. 39,000 Rs. 40,250

Normal Loss 8% 5%

Output 18,000 17,400

Loss realisation of Rs. / Unit 2.00 3.00

The company's policy is to fix the Selling price of end product issuch a way as to yield a Profit of 20% on Selling price.

Required

(i) Prepare the Process Accounts

(ii) Determine the Selling price per unit of the end product.(November,2002, 9 marks)

Answer

(i) Process I Account

Dr.Cr.

Kgs. Rat e /

Kg.

Amount

Particulars Kgs.

Rate/

Kg.

Amount.

Rs. Rs. Rs. Rs.

To Rawmaterial

20,000

10 2,00,000

By Normalloss

1,600

2.00

3,200

To Directmaterial

To Directlabour

60,000

40,000

ByAbnormal loss(Refertoworking

400 18.25

7,300

10.57


58/96

Cost Accounting

notes 1& 2)

ToProduction

overheads

_____ 39,000

ByTransfer toProcess II

18,000

18.25

3,28,500

20,000

3,39,000

20,000

3,39,000

Process II Account

Dr.Cr.

Kgs. Rat

e /

Kg.

Amou

nt

Particulars Kgs. Rate

/ Kg.

Amoun

t Rs.

Rs. Rs. Rs.

To Process I Account 18,000 18.2

5

3,28,5

00

By Normal

loss

900 3.00 2.700

To Direct materials 40,000 By Transfer

to

warehou

se

17,40

0

25.50 4,43,7

00

To Direct labour 30,000

To Production

overheads

40,250

To Abnormal gain 300 25.5

0

7,65

0

_____ ______

(Refer to working

notes 3 & 4)

18,300 446400 1830

0

44640

0

Working notes

1. Abnormal loss in Process I:

Required production (20,000 kgs. 1,600 kgs.) 18,400

Actual production (in kgs.) 18,000

Abnormal loss (in kgs.) 400

2. Value of abnormal loss in Process I:

=

outputNormal

outpunormaloftcosNormal Abnormal loss.

10.58


59/96


=

.kgs400,18

800,35,3.Rs 400 kgs. = Rs. 18.25 400 kgs. = 7,300

3. Abnormal gain in Process II:

Required production (18,000 kgs. 900 kgs.) 17,100

Actual production 17,400

Abnormal gain (in kgs.) 300

(4) Value of abnormal gain in Process I:

=

kgs100,17

050,36,4.Rs

300 Kgs. = Rs. 25.50 3,000 kgs. =

Rs.7,650.00

(ii) Determination of selling price of the end product:

If the cost price of end product is Rs. 80 the units S.P. is Rs. 100

If the cost price of end product is Re.1, the unit S.P. is80

10

If the cost price is Rs. 25.50, then the S.P. of the end product is

5.2580

100

= Rs. 31.875

Question 22

RST Ltd. manufactures plastic moulded chairs. Three models ofmoulded chairs, all variation of the same design are Standard,Deluxe and Executive. The company uses an operation-costingsystem.

RST Ltd. has extrusion, form, trim and finish operations. Plastic

sheets are produced by the extrusion operation. During the formingoperation, the plastic sheets are moulded into chair seats and thelegs are added. The standard model is sold after this operation.During the trim operation, the arms are added to the Deluxe andExecutive models and the chair edges are smoothed. Only theexecutive model enters the finish operation, in which padding isadded. All of the units produced receive the same steps within eachoperation. In April, 2003 units of production and direct material costincurred are as follows:

10.59


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Cost Accounting

Units

Produced

Extrusion

Materials

(Rs.)

Form

Materials

(Rs.)

TrimMaterials (Rs.)

Finish

Materials (Rs.)

Standard Model 10,500 1,26,000

42,000 0 0

Deluxe Model 5,250 63,000 21,000 15,750 0

Executive Model 3,500 42,000 14,000 10,500 21,000

19,250 2,31,000

77,000 26,250 21,000

The total conversion costs for the month of April, 2003 are:

Extrusion

Operation

Form

Operation

Trim

Operation

Finish

Operations

Total conversioncosts

Rs.6,06,375

Rs.2.97,000

Rs.1,55,250

Rs.94,500

Required:

(i) For each product produced by RST Ltd. during April.2003,determine the unit cost and the total cost

(i) Now consider the following information for May. All unit costsin May are identical to the . April unit costs calculated as abovein (i). At the end of May, 1,500 units of the Deluxe model remainin work-in-progress. These units are 100% complete as tomaterials and 65 % complete in the trim operation. Determinethe cost of the Deluxe model work-in-process inventory at the

end of

May. (May,2003, 6+3=9 marks)Answer

Working notes:

1. Statement of equivalent production units of Extrusion,Form, Trim and Finish

materials for Standard, Deluxe and Executive model ofchairs.

10.60


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Extrusionmaterials

Formmaterials

Trimmaterials

Finishmaterials

units units units units

Equivalent units ofmaterials required toproduce three brandsof plastic mouldedchairs

19,250 19,250 8,750 3,500

2. Statement of material and conversion cost perequivalent unit:

Extrusion Form Trim Finish

Equivalent units: (A)(Refer to workingnote 1)

19,250 19,250 8,750 3,500

Material costs (Rs.):(B)

2,31,000 77,000 26,250 21,000

Conversion costs ofdifferent operationsperformed onmaterial (Rs.) : (C)

6,06,375 2,97,000 1,55,250 94,500

Material cost perequivalent unit (Rs.):(B/A)

12 4 3 6

Conversion cost perequivalent unit (Rs.):(C/A)

31.50 15.43 17.74 27

(i) Statement of Unit and Total cost Model-wise

(Refer to working notes 1 & 2)

Standard

Model cost

Deluxe

Model Cost

Executive

ModelRs. Rs. Rs.

Extrusion material 12.00 12.00 12.00

Form material 4.00 4.00 4.00

Trim material 3.00 3.00

Finish material - - 6..00

Extrusionconversion

31.50 31.50 31.50

Form conversion 15.43 15.43 15.43

10.61


62/96

Cost Accounting

Trim conversion 17.74 17.74Finish conversion 27

Total unit cost 62.93 83.67 116.67

Total Cost 6,60,765

(10,500unitsRs.62.9

3)

4,39,267.5

(5,250 units Rs.83.67)

4,08,345

(3,500 units Rs.116.67)

(ii) Statement of cost of 1,500 units of the Deluxe Modelof the chairs lying in

Work-in-progress inventory at the end of May 2003

Equivalent

units

Unit cost

(Refer toworkingnote 2)

Rs.

Total Cost

(1) (2) (3)=(1) (2)

Extrusion materials 1,500 12 18,000

Form materials 1,500 4 6,000

Trim materials 1,500 3 4,500

Extrusion materials conversion 1,500 31.50 47,250Form materials conversion 1,500 15.43 23,145

Trim materials conversation 975 17.74 17,296.50

(1,500 units 65%) _________

Total cost of 1,500 units of 1,16,191.50

Delux Model of chairs lying inWIP

Question 23

Process 2 receives units from Process I and after carrying outwork on the units transfers them to Process 3. For the accountingperiod the relevant data were as follows:

Opening WIP 200 units (25% complete) valued at Rs. 5,000

800 Units received from Process I valued at Rs. 8,600

840 units were transferred to Process 3

Closing WIP 160 units (50% complete)

10.62


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The costs of the period were Rs. 33.160 and no units werescrapped.

Required:

Prepare the process Account for Process 2 using the AverageCost method of valuation.

(November,1995, 6 marks)

Answer

Process 2 Account

Units Rs. Units Rs.

To Opening WIP

To Process 1 A/c

To Process Cost

200

800

5,000

8,600

33,160

By Transfer toProcess 3(Refer to W.note No.3)

840 42,694

____ _____

By Closing WIP

(Refer to W.note No.3)

160

____

4,066

_____

1,000

46,760 1,000 46,700

Working Notes

1. Computation of Equivalent Units

UnitsIn

Particulars

Unitsout


Material Labour and Overhead

%Comp

-letion

Units %Comp-letio

n

Units %Comp-letio

n

Units

1000 Completedunits

840 100 840 100 840 100 840

WIP 160 50 80 50 80 50 80

1000 1000 920 920 920

2. Average cost per completed units

Rs.

10.63


64/96

Cost Accounting

Cost of 200 opening WIP units 5,000

Cost of 800 units received from Process I 8,600

Cost of the period 33,160

Total cost 46,760

Equivalent units = 920

(Refer to Working Note No.1)

Average cost per completed unit =unit920

76,46.Rs= Rs. 50.826

Rs.3. Cost of 840 completed units transferred to Process 342,694

(840 units Rs. 50,826)

Cost of 160 WIP units which are 50% complete 4,066

(80 units Rs. 50,826)

10.64


65/96


Question 24

The input to a purifying process was 16,000 kgs. of basicmaterial purchased @ Rs. 1.20 per kg. Process wages amounted toRs.720 and overhead was applied @ 240% of the labour cost.Indirect materials of negligible weight were introduced into the

process at a cost of Rs. 336. The actual output from the processweighed 15,000 kgs. The normal yield of the process is 92%. Anydifference in weight between the input of basic material and outputof purified material (product) is sold @ Re. 0.50 per kg.

The process is operated under a licence which provides for the

payment of royalty @ Re.0.15 per kg. of the purified materialproduced.

Prepare:

(i) Purifying Process Account (3 marks)

(ii) Normal Wastage Account (3 marks)

(iii) Abnormal Wastage / Yield Account (May, 1996, 2 marks)

(iv) Royalty Payable Account (1 marks)

Answer

(i) Purifying Process AccountDr. Cr.

Qty.

kg.

Rate

perkg.Rs.

Amount

Rs.

Qty.

kg.

Rate

perkg.Rs.

Amount

Rs.To Basic

material16,0

001.2

019,20

00By Normal

wastage8%

of

1,60,000 Kg.

1,280

0.50

640.00

To Wages 720

To Overheads

240% ofRs. 720

1,728 By Purified

stock

15,000

1.60

24,000

To Indirect

materials

336

10.65


66/96

Cost Accounting

To Royaltypayable

on

normalyield 14,720kg 0.15

2,208

To Abnormal

yield 280

1.60

448

______ ______

______

16,280

24,640

16,280

24,640

(ii) Normal Wastage Account

Dr. Cr.Qty

.

kg.

Rate

perkg.Rs.

Amount

Rs.

Particulars Qty.

Kg.

Rate

perkg.Rs.

Amount

Rs.To Purifying

process(Normal

wastage)

1,280

0.50

640 By Purifying

Process(Ab.

Yield)reduction

280 0.50

140

____ ___

By Cash saleof

wastage1,000

0.50

500

1,280

640 1,280

640

(iii) Abnormal Yield Account

Dr. Cr.

Qty.

kg.

Rateperkg.Rs.

Amount

Rs.

Particulars Qty.

kg.

Rateperkg.Rs.

Amount

Rs.To Normal

Wastage A/c280 0.5

0140 By Purifying

Process A/c280 1.6

0448

10.66


67/96


To Royaltypayable (onabnormalyield)

0.15

42

To Balance(Profit &Loss A/c

___ 266 ___ ___

280 448 280 448

(iv) Royalty Payable Account

Dr. Cr.

Qty.

kg.

Rate

perkg.Rs.

Amount

Rs.

Particulars Qty.

kg.

Rate

perkg.Rs.

Amount

Rs.To Balance 15,0

000.1

52,250 By Purifying

ProcessA/c

14,720

0.15

2,208

_____ _____

ByAbnormalyield A/c

280

0.15

42

15,000

2,250 15,000

2,250

Question 25

The following data relate to Process Q

(i) Opening work-in-process 4,000 units

Degree of completion:

Materials 100% Rs. 24,000

Labour 60% Rs. 14,400

Overheads 60% Rs. 7,200

(ii) Received during the month of April, 1998 from process P.

40,000 Units. Rs. 1,71,000

(iii) Expenses incurred in Process Q during the month:

Material Rs. 79,000

Labour Rs. 1,38,230

10.67


68/96

Cost Accounting


(iv) Closing work-in-process 3,000 units


Material 100%

Labour & Overheads 50%

(v) Units scrapped 4,000 units


Materials 100%

Labour & Overheads 80%(vi) Normal loss: 5% of current input.

(vii) Spoiled goods realised Rs. 1.50 each on sale.

(viii) Completed units are transferred to warehouse;

Required

Prepare:

(i) Equivalent units statement

(ii) Statement of cost per equivalent unit and total costs.

(iii) Process Q Account

(iv) Any other account necessary (May, 1998,12 marks)

Answer

(i) Equivalent units Statement(using FIFO method)

Units in

Particulars

Unitsout


Materials Labour Overheads

%comple-tion

Units

%comp

le-tion

Units %comp

le-tion

Units

4,000

Openingwork in-progressunits,completed and

4,000

40 1,600

40 1,600

10.68


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transferred towarehouse

40,000

Unitscompleted andtransferred towarehouse

33,000

100 33,000

100 33,000

100 33,000

Closingwork-inprogress

3,000

100 3,000

50 1,500

50 1,500

Normalloss

2,000

Abnormalloss

2,000

100 2,000

80 1,600

80 1,600

38,000

37,700

37,700

(ii) Statement of Cost per equivalent unit and total

costPreviousProcess P

Current process Q Total

Material Labour and

overheads

Costs (Rs.) 1,71,000 79,000 2,07,350

Less: Recovery fromthe sale of 2,000units @ Rs.1.50p.u. of normal

loss (Rs.)

3,000

1,71,000 76,000 2,07,350

Equivalent units: 38,000 37.700

Cost per equivalentunit (Rs.)

6.50 5.50 12.00

+

000,38

000,76.Rs000,71,1.Rs

700,37

35,07,2.Rs

Total cost of 37,000 completed units transferred to warehouse.

10.69


70/96

Cost Accounting

Cost of 4,000 completed opening units (Rs.) 54,400

(Rs. 45,600 + Rs. 8,800)

(1,600 units Rs. 5.50)

Cost of 33,000 completed units (Rs.) 3,96,000

(33,000 units Rs. 12)

Total cost of 37,000 completed units (Rs.) 4,50,400

Cost of 3,000 Closing W.I.P. Units (Rs.) 27,750

(Rs. 19,500 + Rs. 8,250)

{ (3,000 units Rs. 6.50) + (1,500 units Rs. 5.50) }Cost of 2,000 abnormal loss unit (Rs.) 21,800

(Rs. 13,000 + Rs. 8,800) Rs. 4,99,950

(iii) Process Q Account

Dr. Cr.Particulars Units Rs. Particulars Units Rs.

To Op. W.I.P. 4,000 45,600 By Normal loss 2,000

3,000

To Unitsreceived

40,000

1,71,000

By Completedunits (Refer to(ii) Part)

37,000

4,50,400

To ExpensesincurredMaterials

79,000By Cl. W.I.P.(Refer to (ii)

part)

3,000

27,750

Labour 1,38,230

By AbnormalLoss

2,000

21,800

Overheads ______ 69,120 (Refer to (ii)part)

_____ _______

44,000

5,02,950

44,000

5,02,950

(iv) Any other account necessary is abnormalloss account:

Abnormal Loss Account

Dr. Cr.Particulars Units Amoun

tRs.

Particulars Units Amount

Rs.To Process Q

Account2,000 21,800 By Sale 2,00

03,000

10.70


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_____By Balance(To Profit & LossA/c)

18,800

_____21,800 21,80

0

Question 26

Following information is available regarding process A for themonth of February, 1999: Production Record.

Units in process as on 1.2.1999 4,000

(All materials used, 25% complete for labour and overhead)

New units introduced 16,000

Units completed 14,000

Units in process as on 28.2.1999 6,000

(All materials used, 33-1/3% complete for labour and overhead)

Cost Records

Work-in-process as on 1.2.1999 Rs.

Materials 6,000

Labour 1,000

Overhead 1,000

8,000Cost during the month

Materials25,600

Labour 15,000

Overhead 15,000

55,600

Presuming that average method of inventory is used, prepare:

(i) Statement of equivalent production.

(ii) Statement showing cost for each element.

(iii) Statement of apportionment of cost.

(iv) Process cost account for process A. (May, 1999,10 marks)

Answer

(i) Statement of equivalent production(Average cost method)

Particulars Equivalent ProductionOutput Units Materials Labour Overheads

10.71


72/96

Cost Accounting

Input(Units)

%comple-tion

Equi-

valent

units

%comp

le-tion

Equi-valent

units

%comp

le-tion

Equi-valent

units

20,000

Completed

14,000

100 14,000

100 14,000

100 14,000

_____ WIP 6,000

100 6,000

33-1/3

2,000

33-1/3

2,000

20,0

00

20,0

00

20,0

00

16,0

00

16,0

00

(ii) Statement showing cost for each element

Particulars Materials

Labour Overhead

Total

Cost of opening work-in-progress (Rs.)

6,000 1,000 1,000 8,000

Cost incurred during themonth (Rs.)

25,600 15,000 15,000 55,600

Total cost (Rs.) : (A) 31,600 16,000 16,000 63,600

Equivalent units : (B) 20,000 16,000 16,000

Cost per equivalent unit(Rs.) : C=(A/B)

1.58 1 1 3.58

(iii) Statement of apportionment of cost

Rs. Rs.

Value of outputtransferred: (a)

14,000 units @ Rs.3.58

50,120

Value of closing work-in-progress: (b)

Material

Labour

Overhead

6,000 units @ Rs.1.58

2,000 units @ Re. 1

2,000 units @ Re. 1

9,480

2,000

2,000 13,480

Total cost : (a+b) 63,600

10.72


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(iv) Process cost account for process A:

Process A Cost Account

Units

Rs. Units Rs.

To Opening WIP 4,000

8,000 By Completedunits

14,000

50,120

To Materials 16,000

25,600 By Closing WIP 6,000 13,480

To Labour 15,000

To Overhead _____ 15,000 _____ _____

20,000

63,600 20,000

63,600

Quotation 27

Explain briefly the procedure for the valuation of Work-in-process.

(November,2002, 2 marks)

10.73


74/96

Cost Accounting

Answer

Valuation of Work-in process:

The valuation of work-in-process can be made in the followingthree ways, depending upon the assumptions made regarding theflow of costs.

First-in-first out (FIFO) method

Last-in-first out (LIFO) method

- Average cost method

A brief account of the procedure followed for the valuation ofwork-in-process under the above three methods is as follows;

FIFO method: According to this method the units first enteringthe process are completed first. Thus the units completed during aperiod would consist partly of the units which were incomplete atthe beginning of the period and partly of the units introduced duringthe period.

The cost of completed units is affected by the value of theopening inventory, which is based on the cost of the previous period.

The closing inventory of work-in-process is valued at its current cost.

LIFO method: According to this method units last entering theprocess are to be completed first. The completed units will be shownat their current cost and the closing-work in process will continue toappear at the cost of the opening inventory of work-in-progressalong with current cost of work in progress if any.

Average cost method: According to this method openinginventory of work-in-process and its costs are merged with theproduction and cost of the current period, respectively. An averagecost per unit is determined by dividing the total cost by the totalequivalent units, to ascertain the value of the units completed andunits in process.

Question 28

Explain equivalent units (May, 2002, 2 marks)

Answer

When opening and closing stocks of work-in-process exist, unitcosts cannot be computed by simply dividing the total cost by totalnumber of units still in process. We can convert the work-in-processunits into finished units called equivalent units so that the unit costof these units can be obtained.

10.

process & operation costing

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