PROCESS COSTING

1. The Bharat Manufacturing Company’s product passes through two distinct processes, X and Y and then to
the finished stock. It is known from the past experience that wastage occurs in the process as under:
In Process X, 5% of the units entering the process. In Process Y, 10% of the units entering the process. The
scrap value of the wastages in Process X is Rs.8 per 100 units and in Process Y is Rs.10 per 100 units.
Process X (Rs.) Process Y (Rs.)
Materials Consumed 6,000 3,000
Wages 7,000 4,000
Manufacturing expenses 2,000 2,000

10,000units were brought into Process X, costing Rs.5,000. The outputs were:
Process X 9,500 units
Process Y 8,500 units
Prepare Process Cost Accounts showing the cost of the output.

Solution:
Process X Account
Qty Rate Amount Qty Rate Amount
To Units introduced 10,000 0.50 5,000 By Normal Loss 500 0.08 40
(Scrap – 5% of 10,000)
To Materials 6,000 By Process Y A/c 9,500 2.10 19,960
To Wages 7,000 (output transferred)
To Manufacturing Expenses 2,000
10,000 20,000 10,000 20,000

Process Y Account
Qty Rate Amount Qty Rate Amount
To Process X A/c 9,500 2.10 19,260 By Normal Loss 950 0.10 95
(Scrap – 10% of 950)
To Materials 3,000 By Abnormal Loss 50 3.376 169
To Wages 4,000 By Output transferred to 8,500 3.376 28,696
To Manufacturing Expenses 2,000 Finished Stock A/c

9,500 28,960 9,500 28,960

Working Notes:
Process X Cost per unit = Total Cost – Value of Scrap = 20,000 – 40 = Rs.2.101 (approx.)
Total input – Normal loss 10,000 - 500

Process Y Cost per unit = Total Cost – Value of Scrap = 28,960 – 95 = Rs.3.376 (approx.)
Total input – Normal loss 9,500 – 950

2. The product of a manufacturing concern passes through two processes A and B and then to finished stock. It
is ascertained that in each process normally 5% of the total weight is lost and 10% is scrap from which
processes A and B realizes Rs.80 per ton and Rs.200 per ton, respectively:
The following are the figures relating to both the processes:
Process A Process B
Materials in tons 1,000 70
Cost of materials in rupees per ton 125 200
Wages in rupees 28,000 10,000
Manufacturing expenses 8,000 5,250
Output in tons 830 780

Prepare Process Accounts showing cost per ton of each process. There was no stock or work-in-progress in
any process.
 Solution:

Process A Account
Qty Rate Amount Qty Rate Amount
To Materials 1,000 125 1,25,000 By Normal Loss 5% 50
To Wages 28,000 By Scrap 10% 100 80 8,000
To Manufacturing Expenses 8,000 By Abnormal Loss 20 180 3,600
By Process B A/c
(output transferred) 830 180 1,49,400
1,000 1,61,000 1,000 1,61,000

Cost per unit = 1,61,000 – 8,000 = Rs.180

1,000 – 50 – 100
Process B Account
Qty Rate Amount Qty Rate Amount
To Process A A/c 830 180 1,49,400 By Normal Loss 45
( 5% of 900)
To Materials 70 200 14,000 By Normal Scrap 10% 90 200 18,000
To Wages 10,000 By Finished goods 780 210 1,63,800
To Manufacturing Expenses 5,250
To Abnormal gains 15 210 3,150

915 1,81,800 915 1,81,800

Cost per ton = Total Cost – Value of Scrap = 1,78,650 – 18,000 = Rs.210 per ton
Total input – Normal loss 900 – 135

3. A product passes through three processes. The output of each process is treated as the raw material of the
next process to which it is transferred and output of the third process is transferred to finished stock.
Process I (Rs.) Process II (Rs.) Process III (Rs.)
Materials issued 40,000 20,000 10,000
Labour 6,000 4,000 1,000
Manufacturing overhead 10,000 10,000 15,000

10,000 units have been issued to the Process I and after processing the output of each process is as under:

Process Output Normal Loss

Process I 9,750 units 2%
Process I 9,400 units 5%
Process III 8,000 units 10%

No stock of materials or of work-in-process was left at the end. Calculate the cost of the finished product.

Solution:
Process I Account
Qty Rate Amount Qty Rate Amount
To Material 10,000 40,000 By Normal Loss A/C 200
To Labour 6,000 (2% of 10,000 units)
To Manufacturing O/H 10,000
By Abnormal Loss A/C 50 5.7142 286

By Process II A/C 9,750 5.7142 55,714

10,000 56,000 10,000 56,000

 Cost per unit of completed units and abnormal loss:

Total Cost = 56,000 = Rs.5.7142

Inputs – Normal loss 10,000 – 200
Process II Account
Qty Rate Amount Qty Rate Amount
To Process I A/C 9,750 5.7142 55,714 By Normal Loss A/C 488
(5% of 9,750 units)
To Material 20,000
To Labour 4,000
To Manufacturing O/H 10,000 By Process III A/C 9,400 9.6862 91,051
To Abnormal Gain A/C 138 9.6862 1,337

9,888 91,051 9,888 91,051

Cost per unit of completed units and abnormal loss:

Total Cost = 89,714 = Rs.9.6862

Inputs – Normal loss 9,750 - 488
Process III Account
Qty Rate Amount Qty Rate Amount
To Process II A/C 9,400 9.6862 91,051 By Normal Loss A/C 940
(10% of 9,400 units)
To Material 10,000
To Labour 1,000 By Abnormal Loss A/C 460 13.8358 6,364
To Manufacturing O/H 15,000

By Finished Stock A/C 8,000 13.8358 1,10,687

9,400 1,17,051 9,400 1,17,051

Cost per unit of completed units and abnormal loss:

Total Cost = 1,17,051 = Rs.13.8358

Inputs – Normal loss 9,400 - 940

4. Opening Work-in-process 1,000 units (60% complete); cost Rs.1,10,000. Units introduced during the period
10,000 units; cost Rs.19,30,000. Transferred to next process – 9,000 units.
Closing work-in-process 800 units (75% complete). Normal loss is estimated at 10% of total output including units
in process at the beginning. Scraps realize Rs.10 per unit. Scraps are 100% complete.
Using FIFO method, COMPUTE equivalent production and cost per equivalent unit. Also evaluate the output.

Solution:
Statement of Equivalent production units (under FIFO method)
Particulars Input units Particulars Output units Equivalent production
% Equivalent units
Opening W-I-P 1,000 From opening W-I-P 1,000 40 400
Units introduced 10,000 From fresh inputs 8,000 100 8,000
Units completed 9,000
(transferred to next process)

Normal loss 1,100 ---- ----

10% of (1,000 + 10,000 units)

Closing W-I-P 800 75 600

Abnormal loss 100 100 100
(balancing figure)
11,000 11,000 9,100
 Computation of cost per equivalent production unit:
Cost of the process for the period 19,30,000
Less: Scrap value of normal loss (Rs.10 x 1,100 units) (11,000)
Total process cost 19,19,000
Cost per equivalent unit = Rs.19,19,000 = Rs.210.88
9,100 units
Statement of Evaluation
Particulars Equivalent Cost per Amount (Rs.)
units (EU) EU (Rs.)
(i) Opening W-I-P completed during the period 400 210.88 84,352
Add: Cost of W-I-P at the beginning ----- ----- 1,10,000
Complete cost of 1,000 units of opening W-I-P 1,000 194.35 1,94,352

(ii) Completely processed units 8,000 210.88 16,87,040

(iii) Abnormal loss 100 210.88 21,088
(iv) Closing W-I-P 600 210.88 1,26,528

(The difference in total amount may arise due to rounding off error)

Solution under Weighted Average Method

Statement of Equivalent production units (under Weighted Average method)

Particulars Input units Particulars Output units Equivalent production
% Equivalent units
Opening W-I-P 1,000 Units completed 9,000 100 9,000
Units introduced 10,000 (transferred to next process)

Normal loss 1,100 ---- ----

10% of (1,000 + 10,000 units)

Closing W-I-P 800 75 600

Abnormal loss 100 100 100
(balancing figure)

11,000 11,000 9,700

Computation of cost per equivalent production unit:

Cost of opening W-I-P 1,10,000
Cost of the process (for the period) 19,30,000
Less: Scrap value of normal loss (Rs.1 x 1,100 units) (1,100)
Total process cost 20,29,000
Cost per equivalent unit = Rs.20,29,000 = Rs.209.18
9,700 units
Statement of Evaluation
Particulars Equivalent Cost per Amount (Rs.)
units (EU) EU (Rs.)
(i) Units completed and transferred to next process 9,000 209.18 18,82,620
(ii) Abnormal loss 100 209.18 20,918
(iii) Closing W-I-P 600 209.18 1,25,508

(The difference in total amount may arise due to rounding off error)