Revision Module | Process Costing .
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. Costing Revision Module
By GOURAV KABRA
Chapter #6
PROCESS COSTING
List of Topics:
1. Process Cost Account
2. Equivalent Production
3. Inter-Process Profit
Topic #1
PROCESS COST ACCOUNT
Formulae:
1. Cost/unit = Total Cost/Total Quantity
= (Total Cost – Scrap Value) / TQ – Normal loss Qty)
= [Total Cost – (NLQ * Scrap/Unit)] / (TQ – NLQ)
2. Valuation of Normal Loss & Abnormal Loss/Gain:
a) Normal Loss = NLQ * Scrap/Unit
b) Abnormal Loss = Abnormal Loss Qty * Cost/Unit
c) Abnormal Gain = Abnormal Gain Qty * Cost/Unit
3. Valuation of Transfer/Finished Goods
a) Value = FG (units) * Cost/Unit
4. Costing P/L
a) Abnormal Loss → Debited to Costing P/L
= Abnormal Loss Qty * (Cost/Unit – Scrap/Unit)
b) Abnormal Gain → Credited to Costing P/L
= Abnormal Gain Qty * (Cost/Unit – Scrap/Unit)
Notes:
Process Account
Particulars Qty Amt (₹) Particulars Qty Amt (₹)
To Transfer from By Normal Loss
xxx xxx xxx xxx
Previous Process
To Material xxx By Abnormal Loss xxx xxx
To Labour xxx By Finished Goods xxx xxx
To Overheads xxx
To Abnormal Gain xxx xxx
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Revision Module | Process Costing .
Question #1
M J Pvt. Ltd. produces a product "SKY" which passes through two processes, viz. Process-A and
Process-B. The details for the year ending 31st March, 2014 are as follows:
Particulars Process A Process B
40,000 Units introduced at a cost of ₹ 3,60,000 -
Material Consumed ₹ 2,42,000 2,25,000
Direct Wages ₹ 2,58,000 1,90,000
Manufacturing Expenses ₹ 1,96,000 1,23,720
Output in Units 37,000 27,000
Normal Wastage of Input 5% 10%
Scrap Value (per unit) ₹ 15 ₹ 20
Selling Price (per unit) ₹ 37 ₹ 61
Additional Information:
a) 80% of the output of Process-A, was passed on to the next process and the balance was
sold. The entire output of Process- B was sold.
b) Indirect expenses for the year was ₹ 4,48,080.
c) It is assumed that Process-A and Process-B are not responsibility centre.
Required:
i. Prepare Process-A and Process-B Account.
ii. Prepare Profit & Loss Account showing the net profit/net loss for the year.
Solution
Process A Account
Particulars Qty Amt (₹) Particulars Qty Amt (₹)
To Material 40,000 3,60,000 By Normal Loss 2,000 30,000
To Other Material 2,42,000 By Abnormal Loss 1,000 27,000
To Wages 2,58,000 By Finished Stock 7,400 1,99,800
To Mfg Exp 1,96,000 By Transfer to P(B) 29,600 799,200
40,000 10,56,000 40,000 10,56,000
Cost/unit = (10,56,000 – 30,000)/38,000
= ₹ 27 per unit
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. Costing Revision Module
By GOURAV KABRA
Process B Account
Particulars Qty Amt (₹) Particulars Qty Amt (₹)
To Transfer from P(A) 29,600 7,99,200 By Normal Loss 2,960 59,200
To Material 2,25,000 By Finished Stock 27,000 12,96,000
To Wages 1,90,000
To Mfg Exp 123,720
To Abnormal Gain 360 17,280
29,960 13.55.200 29,960 13,55,200
Cost/unit = (13,37,920 – 59,200) / (29,600 – 2,960)
= ₹ 48 per unit
Finished Stock Account
Particulars Amt (₹) Particulars Amt (₹)
To Process A 1,99,800 By Costing P/L 14,95,800
(Cost of Goods Sold)
To Process B 12,96,000
14,95,800 14,95,800
Scrap Account
Particulars Amt (₹) Particulars Amt (₹)
To Normal Loss 89,200 By Cash 97,000
(3,000*15) + 2600*20)
To Abnormal Loss 15,000 By Abnormal Gain 7,200
1,04,200 1,04,200
Normal Loss Account
Particulars Amt (₹) Particulars Amt (₹)
To Process A 30,000 By Scrap Account 89,200
To Process B 59,200
89,200 89,200
Abnormal Loss Account
Particulars Amt (₹) Particulars Amt (₹)
To Process A 27,000 By Scrap A/c 15,000
(1000 * 27) (1,000 * 15)
By Costing P/L 12,000
27,000 27,000
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Revision Module | Process Costing .
Abnormal Gain Account
Particulars Amt (₹) Particulars Amt (₹)
To Scrap A/c 7,200 By Process B 17,280
(360 * 20) (360 * 48)
To Costing P/L 10,080
17,280 17,280
Costing P/L
Particulars Amt (₹) Particulars Amt (₹)
To Cost of Goods Sold 14,95,000 By Sales 19,20,800
(7,400*37) + (27,000*61)
To Abnormal Loss A/c 12,000 BY Abnormal Gain 10,080
To Indirect Exp 4,48,080 By Net Loss 25,000
19,55,880 19,55,880
Topic #2
EQUIVALENT PRODUCTION
Notes:
1. Steps to complete the statement:
a) Match Input-Output
b) Determine % Completion for every output item
c) Calculate TC per unit for Material, Labour & Overhead separately
d) Calculate value of all items of output
2. Treatment of Opening W.I.P
a) Under FIFO → Completion % = 100 % - Already completed % last year
b) Under LIFO → May not be altered → becomes part of Closing WIP
c) Under Weighted Average → Always treat 100% completed during the current year
3. Normal Loss will be 0% complete always
4. Abnormal Loss % completion depends on % completion of scrap. If nothing mentioned,
take 100% complete
5. Abnormal Gain → always 100% complete and inserted as a negative value
6. Cost per unit
a) For material (for FIFO & LIFO) → [TC during the year – (Scrap p.u * NLQ)]/
Equivalent units of Material
b) For Material (for weighted avg) → [Cost of Op WIP + TC during the year –
(scrap pu * NLQ)/Eq. units of Material]
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. Costing Revision Module
By GOURAV KABRA
c) For Lab & OH (For FIFO & LIFO)→ TC during the year / Eq. units of Lab & OH
d) For Lab & OH (under weighted avg) → (Cost of Op WIP + Cost during the year)
/ Eq. units of Lab & OH
7. Value of Output Items:
Value of each item = € (Eq. units * Cost/units)
8. Under FIFO → Cost of Opening WIP will be added to completed
9. Under LIFO → Cost of Opening WIP may be added to Closing WIP
Question #2
Following details are related to the work done in Process-I by XYZ Company during the month
of March, 20X9:
(₹)
Opening work-in process (2,000 units)
Materials 80,000
Labour 15,000
Overheads 45,000
Materials introduced in Process-I (38,000 units) 14,80,000
Direct Labour 3,59,000
Overheads 10,77,000
Units scrapped: 3,000 units
Degree of completion:
Materials 100%
Labour and overheads 80%
Closing work-in process: 2,000 units
Degree of completion:
Materials 100%
Labour and overheads 80%
Units finished and transferred to Process-II: 35,000 units
Normal Loss: 5% of total input including opening work-in-process.
Scrapped units fetch ₹ 20 per piece.
You are required to PREPARE using average method:
i. Statement of equivalent production
ii. Statement of cost
iii. Statement of distribution cost, and
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Revision Module | Process Costing .
Solution
i. Statement of Equivalent Production: (Average Cost Method)
Material Labour & OH
Particulars Inputs Particulars Output
% Eq units % Eq units
Op WIP 2,000 Complete 2,000 100% 2,000 100% 2,000
Introduced 38,000 Complete 33,000 100% 33,000 100% 33,000
Normal Loss 2,000 0% - 0% -
Cl. WIP 2,000 100% 2,000 80% 1,600
Abnormal
1,000 100% 1,000 80% 800
Loss
40,000 40,000 38,000 37,400
ii. Statement of Cost:
Particulars Total Cost (including WIP) Eq units Cost/unit
Material 80,000+14,80,000–(2,000*20) = 15,20,000 38,000 ₹ 40
Labour 15,000+3,59,000 = 3,74,000 37,400 ₹ 10
Overheads 45,000+10,77,000 = 11,22,000 37,400 ₹ 30
₹ 80
Therefore, Cost/unit = ₹ 80
iii. Statement of Distribution of Cost
Particulars Total Cost
a. Completed units 35,000 * ₹ 80 ₹ 28,00,000
b. Closing WIP (2,000*40) + (1,600*40) ₹ 1,44,000
c. Abnormal Loss (1,000*40) + (800*40) ₹ 72,000
Question #3
From the following Information for the month ending October, 2013, prepare Process Cost
accounts for Process III. Use First-in-fist-out (FIFO) method to value equivalent production.
Direct materials added in Process III (Opening WIP) 2,000 units at ₹ 25,750
Transfer from Process II 53,000 units at ₹ 4,11,500
Transferred to Process IV 48,000 units
Closing stock of Process III 5,000 units
Units scrapped 2,000 units
Direct material added in Process III ₹ 1,97,600
Direct wages ₹ 97,600
Production Overheads ₹ 48,800
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. Costing Revision Module
By GOURAV KABRA
Degree of completion:
Particulars Opening Stock Closing Stock Scrap
Materials 80% 70% 100%
Labour 60% 50% 70%
Overheads 60% 50% 70%
The normal loss in the process was 5% of production and scrap was sold at ₹ 3 per unit.
Solution
Statement of Equivalent Production
Material A Material B Labour & OH
Particulars Inputs Particulars Output
% Eq units % Eq units % Eq units
Op WIP 2,000 Completed 2,000 - - 20% 400 40% 800
Introduced 53,000 Completed 46,000 100% 46,000 100% 46,000 100% 46,000
Cl. WIP 5,000 100% 5,000 70% 3,500 50% 2,500
Normal Loss 2,500 - - - - - -
Abnormal
(500) 100% (500) 100% (500) 100% (500)
Gain
55,000 55,000 50,500 49,400 48,000
Units produced = Op WIP + Introduced – Cl WIP, or
= units completed + units scrapped
= 2,000 + 53,000 – 5,000
= 48,000 + 2,000
= 50,000
Therefore, Normal Loss = 5% of 50,000 = 2,500 units
Computation of cost per element
Particulars Total Cost Eq. units Cost/unit
Material A 4,11,500 -(2,500*3) =4,04,00 50,500 8
Material B 1,97,600 49,400 4
Labour 97,600 48,800 2
OH 48,800 48,800 1
15
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Revision Module | Process Costing .
Topic #3
INTER-PROCESS PROFIT
Question #4
Pharma Limited produces product ‘Gluco-G’ which passes through two processes before it is
completed and transferred to finished stock. The following data relates to March, 2014:
Particulars Process-I (₹) Process-II (₹) Finished Stock (₹)
Opening Stock 1,50,000 1,80,000 4,50,000
Direct materials 3,00,000 3,15,000 -
Direct Wages 2,24,000 2,25,000 -
Factory Overheads 2,10,000 90,000 -
Closing Stock 74,000 90,000 2,25,000
Inter process profit included in
NIL 30,000 1,65,000
Opening stock
Output of process I is transferred to process II at 25 percent profit on the transfer price, whereas
output of process II is transferred to finished stock at 20 percent on transfer price. Stock in
processes are valued at prime cost. Finished stock is valued at the price at which it is received
from process II. Sales for the month is ₹ 28,00,000.
You are required to prepare Process-I A/c, Process-II A/c, and Finished Stock A/c showing the
profit element at each stage.
Solution
Process-I Account
Particulars Cost Profit Total Particulars Cost Profit Total
To Op WIP 1,50,000 - 1,50,000 By Cl WIP 74,000 - 74,000
To DM 3,00,000 - 3,00,000 By Process-II 8,10,000 2,70,000 10,80,000
To DW 2,24,000 - 2,24,000
To FOH 2,10,000 - 2,10,000
To CPL - 2,70,000 2,70,000
8,84,000 2,70,000 11,54,000 8,84,000 2,70,000 11,54,000
Transfer to Process II = Cost of Material transferred + Profit
Therefore, Transfer Price = (1,50,000 + 3,00,000+ 2,24,000 + 2,10,000 – 74,000 + 25% of TP
75% of TP = 8,10,000
TP = 10,80,000
(9)
. Costing Revision Module
By GOURAV KABRA
Process-II Account
Particulars Cost Profit Total Particulars Cost Profit Total
To Op WIP 1,50,000 30,000 1,80,000 By Cl WIP 75,000 15,000 90,000
To Process I 8,10,000 2,70,000 10,80,000 By Finis. St. 15,15,000 7,35,000 22,50,000
To DM 3,15,000 - 3,15,000
To DW 2,25,000 - 2,25,000
To FOH 90,000 - 90,000
To CPL - 4,50,000 4,50,000
15,90,000 7,50,000 23,40,000 15,90,000 7,50,000 23,40,000
Profit included in Closing WIP = 90,000 * (3,00,000/18,00,000) = 15,000
Transfer Price (for Process II) = Cost of Material Transferred (for Process II) + Profit
= (1,80,000+10,80,000+3,15,000+2,25,000+90,000–90,000) +
20% of transfer price
80% of Transfer Price = 18,00,000
Transfer Price = 18,00,000/80%
= 22,50,000
Finished Stock Account
Particulars Cost Profit Total Particulars Cost Profit Total
To Op WIP 2,85,000 1,65,000 4,50,000 By Cl WIP 1,51,500 73,500 2,25,000
To Process II 15,15,000 7,35,000 22,50,000 By Sales 16,48,500 11,51,500 28,00,000
To CPL - 3,25,000 3,25,000
18,00,000 12,25,000 30,25,000 18,00,000 12,25,000 30,25,000
Profit included in FG = 2,25,000 * (7,35,000/22,50,000) = 73,500
Note: Closing Stock of FG is calculated by taking only current years transfer value (under FIFO
Method)
Costing P/L
Particulars Amount Particulars Amount
To Unrealised Profit in Cl Stock 88,500 By Unrealised Profit in Op Stock 1,95,000
(15,000 + 73,500) (30,000 + 1,65,000)
To Net Profit 11,51,500 By Process I 2,70,000
By Process II 4,50,000
By Finished Stock 3,25,000
12,40,000 12,40,000
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Revision Module | Process Costing .
Thank you!
COURSES OFFERED
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