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Week 3 Workshop

Example 1 normal loss calculations

Process A
Inputs Material 20 units at £4
Labour £100
Overheads £120
Normal loss 10%

Process A A/c

Units £ Units £
Materials 20 80 Output to Proc B 18 300

Labour 100 Normal Loss 2 -

Overheads 120

20 300 20 300

Unit cost = input cost/expected output = 300/18 = £16.67 per unit

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Example 2 abnormal loss calculations

E.G. As above, Normal loss 10%, Actual loss 15%

Process A A/c

Units £ Units £

Materials 20 80 Output to Proc B 17 283

Labour 100 Normal Loss 2 -

Overheads 120 Ab loss 1 17

20 300 20 300

Unit cost = input cost/expected output = 300/18 = £16.67 per unit

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Example 3 abnormal gain calculations

E.G, As above Normal loss 10%, Actual loss 5%

Process A A/c
Units £ Units £

Materials 20 80 Output to Proc B 19 317

Labour 100 Normal Loss 2 -

Overheads 120

Abnormal Gain 1 17

21 317 21 317

Unit cost = input cost/expected output = 300/18 = £16.67 per unit

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Example 4 scrap sales with abnormal loss

E.G. As above, `Normal loss 10%, Actual loss 15%, Scrap sold at £5 per unit

Process A A/c

Units £ Units £

Materials 20 80 Output to Proc B 17 274

Labour 100 Normal Loss (Cash) 2 10

Overheads 120 Ab loss 1 16

20 300 20 300

Unit cost = input cost less scrap value of normal loss/ expected output = (300 – 10)/18 = £16.11 per
unit

Abnormal Loss A/c

Process A 16 Cash 5

P&L 11
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Example 5 – Stock valuation and equivalent units

E.G. Input Materials 14 units at £5

Conversion £48
Output 10 units
W.I.P. 4 units - 50% complete for labour and overheads

Workings Cost Output WIP Total Cost

equiv per unit

Materials 70 10 4 14 £5
Conversion 48 10 2 12 £4

Output 10 * £9 = £90

WIP 4 * £5 = £20
2 * £4 = £8

Process A A/c

Units £ Units £

Materials 14 70 Output to Proc B 10 90

Conversion 48 WIP 4 28

14 118 14 118
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Example 6 – Stock Valuation with Opening Work in Process

Example

Opening WIP 6 units (60% complete)

Value Materials £24, Conversion £15.30

Units added 16

Closing WIP 4 units (75% complete)

Material added £64 Conversion cost added £75

Workings
opening WIP 6
units added 16
22
closing WIP (4)
units completed 18

6.1 AVCO method

Opening WIP Cost Added Total

Materials £24 £64 £88
Conversion £15.30 £75 £90.3

Units Comp. WIP equiv Total equiv

Mats 18 4 22
Conversion 18 3 21

Cost per Unit materials £88/22 £4

Conversion £90.30/21 £4.30
£8.30

Process A A/c

Units £ Units £

Opening WIP 6 39.30 Output B 18 149.4

Materials 16 64 WIP 4 28.9

(4*4, 3*4.3)
Conversion 75

22 178.30 22 178.30
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6.2 FIFO method

Cost Added WIP completed Clos WIP Equiv Unit Prod Cost

Materials £64 18 - 6 4 16 £4
Conversion £75 18 - 3.6 3 17.4 £4.31

Summary
Completed production £
Opening WIP 39.3
Materials 12*4 48
Conversion 14.4 * 4.31 62.07
149.37

Closing WIP Materials 4*4 16

Lab/O-H 3*4.31 12.93
28.93

Process A A/c

Units £ Units £

Opening WIP 6 39.3 Output to Proc B 18 149.37

Materials 16 64

Conversion 75 WIP 4 28.93

22 178.3 22 178.3