Chapter 4 Process Costing

Process Costing

J ob-order costing and process costing are two common methods for determining unit product
costs. A job-order costing system is used in situations where many different jobs or products are
worked on each period. Examples of industries that would typically use job-order costing
include furniture manufacturing, special-order printing, shipbuilding, repairing workshops, and many
types of service organisations like legal consultancy firms, accounting firms.

By contrast, process costing is most commonly used in industries that produce essentially
homogenous(i.e., uniform) products on a continuous basis, such as bricks, soaps, cornflakes, paper,
cement, or sugar. Process costing is particularly used in companies that convert basic raw materials
into homogenous products. Examples of such companies in India are Nalco(Aluminium), Indian
Oil(petroleum), Tata Steel(steel), Ambuja(Cement), etc. In addition, process costing may also be used
in utilities that produce gas, water, and electricity.

The objective of this chapter is to tell you how product costing works in a process costing system.

Similarities between job-order and process costing

1. The basic purpose of both the system of costing is to find out the product cost by assigning the
cost of material, labour and manufacturing overhead.
2. The flow of costs through the manufacturing accounts is basically the same in both the system,
like work-in-progress, finished goods and cost of goods sold.

Exhibit 3-1
Difference between Job-order costing and process costing

Job-order costing Process Costing

1. Many different jobs are worked on during
each period, with each job having different
production requirements.
2. Costs are accumulated by individual job.
3. The job cost sheet is the key document
controlling the accumulation of costs by a job.
4. Unit costs are computed by job on the job
cost sheet.
1. A single product is produced either on a
continuous basis or for long periods of time. All
units of product are identical.
2. Costs are accumulated by department.
3. The department production report is the key
document showing the accumulation of costs in a
department and how those costs were assigned to
units of product.
4. Unit costs are computed by department on the
department production report.

In a firm where the raw material passes through different processing for getting completed, we
apply process costing. In process costing, the cost is accumulated for each process or department. In
a given period, material consumed, labour applied in a particular process is collected for that
process/department, and then departmental overheads are added. This total cost is divided by the
total number of completed units during the same period to calculate the cost of each unit after the
completion of each process. Lets understand the cost collection process through the following
example.
Chapter 4 Process Costing

Example.1. A product passes through two processes, A and B. During the month ended June 30,
1500 units were produced. The detailed cost break-up is as follows:
Process A Process B
Direct materials ₹ 90,000 ₹ 75,000
Direct labour 75,000 1,50,000
Direct Expenses 15,000 18,000
Indirect overhead costs during the period were ₹60,000 apportioned to the processes on the basis of
direct labour cost. No work-in-progress existed at the beginning and end of the period.
Prepare relevant process accounts and find out the cost of each unit after each process.

Sol: Process A
Particulars Units Particulars Units Amount
Amount(₹) (₹)
Direct Materials 1,500 90,000 Transferred to Process-B 1500 2,00,000
Direct labour 75,000 @133.33 per unit
Direct Expenses 15,000
Indirect Labour 20,000
1500 2,00,000 1500 2,00,000

Indirect labour(apportioned on the basis of direct labour cost i.e. 75,000:1,50,000)

Process A = 60000 x 1/3 = 20,000; Process B= 60000 x 2/3 = ₹40,000
Process B
Particulars Units Particulars Units Amount
Amount(₹ (₹)
)

Transferred from Proc-A 1500 2,00,000 Transferred to Finished 1500 4,83,000

Direct Materials 75,000 Goods @322 per unit
Direct labour 1,50,000
Direct Expenses 18,000
Indirect Labour 40,000
1,500 4,83,000 1500 4,83,000
The cost of finished goods at the end process B is ₹322 per unit.

Spoilage(Normal loss/Abnormal Loss)

In case of firms whose output passes through several stages of production, some wastage/spoilage
of units takes place for a variety of reasons, such as evaporation, transportation loss, breakdown of
machines, use of substandard material, poor workmanship, shrinkage, and so on. The effect of
wastage is that the actual units produced at the end of the process are less than the units introduced
initially.
The treatment of spoiled units depends on the nature of the spoilage/wastage/loss. The wastage
may be normal or abnormal. Normal loss may be defined as the loss of units which is an inherent
part of the production process, caused by natural and unavoidable causes such as milling, drying,
breaking, weighing, evaporation, processing, loading, unloading and so on. Any loss in excess of the
normal loss is called abnormal loss. Abnormal loss is a controllable loss. It involves consumption of
Chapter 4 Process Costing

resources without accruing corresponding benefits to the firm. On the other hand, if the number of
units actually lost are less than the number of units normally expected to get lost, the difference
would represent an abnormal gain or effectiveness in cost accounting term.
Normal spoilage forms part of the product cost. Since it is inherent in the production process, it
occurs even under efficient operating conditions. Therefore, the cost of production of spoiled units is
recovered from the good units left and therefore we say that normal loss is recovered from the
customers. Abnormal loss is treated as a period cost and is written off as a loss of the period in
which it occurs. It is relevant for determining the process cost. Likewise, abnormal gain is transferred
to the profit and loss account of the period.
It is possible that the wasted units(normal as well as abnormal) may have a salvage value. The sale
proceeds of the units in normal waste would reduce the cost of production. The loss on abnormal
wastage charged against the costing profit and loss account will be lower to the extent of the
revenue received from their sale.
Example, Suppose in an oil refinery 1000 barrels of crude oil is introduced at the beginning of the
process. It is the standard practice in the industry, that 40% of the input is treated as normal loss.
During that period, (1) 670 barrels of refined oil is produced, (2) 560 barrels of refined oil is
produced. The expected output is 600 barrels of oil. In the first situation, the actual output is more
than expected output, hence the abnormal gain is 70 barrels. In the second situation, the actual
output is less than expected output and the abnormal loss is 40 barrels of oil.

Incomplete Units
Given the nature of production process, some units may remain incomplete at the time of
accounting for the total cost of production. In such a situation, some units are complete while others
are incomplete or partially complete. For the purpose of cost accumulation, the units of production
are to be converted into comparable units. They are referred to as equivalent units. For instance,
100 units of inventory estimated to be 40 per cent complete are considered equivalent to 40
completed units. Therefore, for cost determination purposes, 100 partially completed units will be
considered equal to 40 units of equivalent production. The equivalent units will be calculated for
each elements of cost i.e., material, labour and overhead.
Equivalent units(material, labour, overhead) = Actual number of partially completed units x stage of
completion.
The concept of equivalent units is very important for the calculation of cost of completed units
produced and incomplete units.

Example.2. Clonex Labs uses a process costing system. The following data are available for one
department for October:
Percent Completed
Units Materials Conversion
Work-in-process, Oct.1. 30,000 65% 30%
Work-in-process, Oct.31 15,000 80% 40%
The department started 175,000 units into production during the month and transferred 190,000
completed units to the next department. Compute the equivalent units produced using FIFO
method.
Sol: Total units processed during the month = 30,000 + 175,000 = 2,05,000
Chapter 4 Process Costing

Units completed = 190,000

Units incomplete = 2,05,000 -1,90,000 = 15,000
As we are using FIFO method of inventory valuation, this 15,000 units belongs to inputs introduced
during the month, not belonging to opening W-I-P, as opening W-I-P is processed first and
completed as FIFO says first in first out.
The other way, it can be said that the completed units 190,000 units includes, opening W-I-P of
30,000 units and 160,000 units from recent units introduced during the month.
Sol:
Here we have to find out the equivalent units produced by taking into account the amount of work
done in relation to material and conversion cost during the period. It is done in the following table
format:
Equivalent units produced
Units Materials Labour
Percentage Equivalen Percentag Equivalent
completed t units e units
completed
Opening W-I-P completed 30,000 35% 10500 70% 21,000
Input introduced and 160,000 100% 160,000 100% 160,000
completed(i.e.175,000-15,000)
Input introduced but not 15,000 80% 12,000 40% 6,000
completed
Total 2,00,000 182,500 187,000
The amount of material consumed is equivalent to produce 182,500 completed units and the
labour cost incurred is sufficient to manufacture 187,000 completed units.

Practice Questions:
Q.No.1. XYZ Chemical Ltd. processes a range of products including a detergent, 'Washo', which
passes through three processes before completion and transfer to the finished goods warehouse.
During April, data relating to this product were as follows:
Process I Process II Process III Total
Basic raw material(10,000 units) ₹6000 -- -- ₹6,000
Direct raw material added in process 8,500 9,500 5,500 23,500
Direct wages 4,000 6,000 12,000 22,000
Direct expenses 1,200 930 1,340 3,470
Production overhead 16,500
Outputs(units) 9,200 8,700 7,900
Normal loss in process of input(%) 10 5 10
Scrap value loss per unit 0.20 0.50 1
The production overhead is absorbed as a percentage of direct wages. There was no stock at the end
of any process.
You are required to prepare the following accounts: (i) Process I; (ii) Process II; (iii) Process III; (iv)
Abnormal loss; and (v) abnormal gain.

Q.No.2. A chemical company processes a patent material used in buildings. The material is produced
in three consecutive grades: soft, medium and hard. The details of its operations are as follows:
Chapter 4 Process Costing

Process I Process II Process III

Raw materials used(tonnes) 1000
Cost per tonne ₹200
Total manufacturing expenses 87,500 ₹39,500 ₹10,710
Weight lost(per cent of input of the process) 5 10 20
Scrap in tonnes (sale price ₹50 per tonne) 50 30 51
Sale price per tonne 350 500 800
Management expenses were ₹7,500 and selling expenses, ₹5,000. Two-thirds of the output of
process I and one-half of the output of process II is passed on to the next process and the balance is
sold. The entire output of process III is sold. Prepare relevant process accounts.

Q.No.3. XYZ Chemical Ltd processes a range of products including a detergent, 'Washo', which passes
through three processes before completion and transfer to the finished goods warehouse. During
April, data relating to this product were as follows:
Process I Process II Process III Total
Basic raw material(5,000 units) ₹36000 -- -- ₹36,000
Direct raw material added in process 17,000 19,000 11,000 47,000
Direct wages 30,000 12,000 18,000 60,000
Direct expenses 15,500 12,560 13,400 51,460
Production overhead 1,80,000
Outputs(units) 4,400 4,000 3,750
Normal loss in process of input(%) 10 5 10
Scrap value loss per unit 2.00 5.00 10.00
The production overhead is absorbed as a percentage of direct wages. There was no stock at the end
of any process.
You are required to prepare the following accounts: (i) Process I; (ii) Process II; (iii) Process III; (iv)
Abnormal loss; and (v) abnormal gain. Find out the cost of each unit after every process.
Sol: The final product ‘Washo’ goes through three processes before completion. Hence cost will be
calculated after each process and then the cost of finished goods will be calculated.
The production overhead is given together for all processes, which is to be divided among three
departments in the ratio of direct wages i.e.,5:2:3. Hence production overhead will be ₹90,000 for
Process-I, ₹36,000 for Process-II and ₹54,000 for Process-III.
Process I
Particulars Units Amount Particulars Units Amount
Basic Raw Materials 5000 36,000 Normal Loss 500 1000
Additional Raw Materials 17,000 Abnormal Loss 100 4166
Direct wages 30,000 Transferred to Process-II 4,400 183334
Direct Expenses 15,500
Production overhead 90,000
5000 188500 5000 188500
Chapter 4 Process Costing

Working-1
Input 5,000 Cost per unit
Less: 10% Normal loss 500
= (188500 -1000)/(5000-500)
Expected Output 4,500 Process II
Actual Output
Particulars 4,400
Units Amount = 41.66
Particulars Units Amount
Abnormal
TransferredLoss
from Proc-I 100
4,400 183334 Normal Loss 220 1100
Additional Raw Materials 19,000 Abnormal Loss 180 11273
Direct wages 12,000 Transferred to Process-II 4,000 250521
Direct Expenses 12,560
Production overhead 36,000
4,400 2,62,894 4400 262894

Working-2
Input 4,400 Cost per unit
Less: 10% Normal loss 220
= (262894 -1100)/(4400-220)
Expected Output 4,180 Process III
Actual Output
Particulars 4,000
Units Amount = 62.63
Particulars Units Amount
Abnormal
TransferredLoss
from Proc-I 180
4,000 2,50,52 Normal Loss 400 4,000
Additional Raw Materials 1 Transferred to Finished
Direct wages 11,000 goods 3750 3,57,210
Direct Expenses 18,000
Production overhead 13,400
Abnormal gain 150 54,000
14,289
4,150 3,61,21 4,150 3,61,210
0

Working-3
Input 4,000 Cost per unit
Less: 10% Normal loss 400 The final product ‘Washo’ will have a cost of ₹ 95.256 per
= (346921 -4000)/(4000-400)
Expected Output 3,600 unit.
Actual Output 3,750 = 95.256
Q.No.4. A chemical company processes a patent material
Abnormal gain (150) used in buildings. The material is produced in three
consecutive grades: soft, medium and hard. The details of its operations are as follows:

Process I Process II Process III

Raw materials used(tonnes) 1000
Cost per tonne ₹200
Total manufacturing expenses 87,500 ₹39,500 ₹10,710
Weight lost(per cent of input of the process) 5 10 20
Scrap in tonnes (sale price ₹50 per tonne) 50 30 51
Sale price per tonne 350 500 800

Management expenses were ₹7,500 and selling expenses, ₹5,000. Two-thirds of the output of
process I and one-half of the output of process II is passed on to the next process and the balance is
Chapter 4 Process Costing

sold. The entire output of process III is sold. Prepare relevant process accounts and find out the cost
of each units after each and every process and also find out the value of abnormal loss unit.

Q.No.5. NK Enterprise processes wood pulp for various manufacturers of paper products, Data
relating to tons of pulp processed during June are provided below:
Percent Completed
Units Materials Conversion
Work-in-process, June.1. 20,000 90% 80%
Work-in-process, June.30 30,000 60% 40%
Started into production
during June 1,90,000
Required:
1. Compute the number of tons of pulp completed and transferred out during June.
2. Compute the equivalent units of production for June.

Q.No.6. From the following production record of XYZ Manufacturing Company Ltd, prepare a
statement of equivalent units:
Units in process(Opening) 2,000
Stage of completion(%): Material 100
Labour 60
Overhead 50
New units introduced 20,000
Units completed 18,000
Units in process(Closing) 4,000
Stage of completion(%): Material 100
Labour 50
Overhead 40
Q.No.7. From the following details, prepare(a) statement of equivalent production, (b) statement of
cost, and (c) find the value output transferred and (d) closing work-in-progress.
Opening work-in-progress 2000 units
Materials(100% completed) ₹7500
Labour(60% completed) ₹3000
Manufacturing overhead(60% completed) ₹1500
Units introduced to the process 8000
There are 2500 units in process at the end of the period, and the stage of completion is estimated to
be material: 100%; labour: 50% and manufacturing overhead: 50%.
Units transferred to the next process are 7500 units. The process costs for the period are material
₹1,20,000, Labour: 90,000 and manufacturing overhead: 45,000.

Q.No.8. The finished output of a factory passes through two processes, the entire material being
introduced at the beginning of the first process. From the following production and cost data
relating to the first process, work out the value of closing inventory and the value of materials
transferred to the second process. Also prepare process I account.
Process I : Opening stock, 10,000 units at ₹50,000
Chapter 4 Process Costing

Stage of completion of opening inventory: Materials, 100 percent; Labour, 60 per cent; Overheads,
50 percent.
Units introduced during the process: 50,000 units at ₹144,000; During labour ₹81,000; Overheads
₹80000.
Units transferred to next process: 38,000
spoilage during the process(units): 7,000
Stage of completion of closing inventory, 15,000 units: Material, 100 percent; labour, 50 percent;
overheads, 40 percent.
Normal loss, 10 per cent of input. Sale value of spoilage, ₹2 per unit.
Q.No.9.The product of ABC Ltd passes through three distinct processes for completion. From past
experience, it is ascertained that normal wastage in each process is as under:
Process Wastage(%) Sale value of wastage per unit
A 2 0.25
B 4 0.50
C 2.5 0.60

The expenses were as follows:

Process A Process B Process C
Materials ₹12,000 ₹10,000 ₹9,000
Direct labour 16,000 5,000 4,900
Manufacturing expenses 2,000 3,400 3,590
Other factory expenses 3,500 2,005 2,004
4000 units were initially introduced in process at a cost of ₹13,560. The output of each process was
as under: A, 3,850 units; B, 3,600; and C, 3,500 units.
Prepare process accounts and also work out the sale price per unit of finished stock so as to realise
20% profit on selling price.
Q.No.10. LML Limited furnishes you the following information relating to process B for the month of
October.
1. Opening work-in-process, Nil
2. Units introduced, 10,000 units @ Rs 3 per unit
3. Expenses debited to the process
Direct materials, ₹14,650
Labour, ₹ 21,148
Overheads, ₹42,000
4. Normal loss in process, 1 percent of input
5. Closing work-in-process, 350 units
Degree of completion:
Material,100 percent
Labour and overheads, 50 percent
6. Finished output, 9,500 units
7. Degree of completion of abnormal loss:
Material, 100 per cent
Labour and overheads, 80 per cent
8. Units scrapped as normal loss were sold at ₹1 per unit
9. All units of abnormal loss were sold at ₹2.50 per unit.
Chapter 4 Process Costing

Prepare: (a) statement of equivalent production, (b) Statement of cost, (c) Process B account, and (d)
Abnormal Loss account.

Q.No.11. Product X in a manufacturing unit passes through three process—A, B and C. The expense
incurred in the three processes during the year 2007 were as under:
Process A Process B Process C
Units of input issued 9000
Cost per unit 150 --- ---
Sundry materials 23500 25000 15000
Direct Labour 80000 207200 26110
Direct expenses 2250 7200 8100
Selling price per unit of output 200 280 600
The actual outputs obtained vis-à-vis normal process losses from the three processes were:
Process Output(units) Process loss (%)
A 8400 5
B 5700 10
C 3660 3
During the year, three-fourth of the output of Process A and two-third of the output of Process B
were transferred to the next process and the balances were sold outside. The entire output of
Process C was, however, sold outside. The losses of the three processes were sold at ₹5 per unit for
Process A, ₹10 per unit for Process B and ₹15 per unit for Process C.
Prepare the three Process Accounts and a Statement of Income considering a total selling and
distribution expenses of ₹45,000 which is not allocated to processes.
Sol: Process A
Particulars Units Amount Particulars Units Amount
Basic Raw Materials 9,000 13,50,000 Normal Loss 450 2,250
Sundry Materials 23,500 Abnormal Loss 150 25,500
Direct Labour 80,000 Transferred to Process-II 6,300 10,71,000
Direct Expenses 2,250 Cost of goods sold 2,100 3,57,000
9,000 14,55,750 9,000 14,55,750

Working-1
Input 9,000 Cost per unit
Less: 10% Normal loss 450
= (1455750 -2250)/(9000-450)
Expected Output 8,550 Process B
Actual Output
Particulars 8,400 Amount
Units = 170
Particulars Units Amount
Abnormal
Basic Raw Loss
Materials 150
6,300 10,71,000 Normal Loss 630 6300
Sundry Materials 25,000 Transferred to Process-II 3,800 8,74,000
Direct Labour 2,07,200 Cost of goods sold 1,900 4,37,000
Direct Expenses 7,200
Abnormal Gain 30 6,900
6,330 13,17,300 6,330 13,17,300

Working-2
Cost per unit

= (1310400 -6300)/(6300-630)

= 230
Chapter 4 Process Costing

Input 6,300
Less: 10% Normal loss 630
Expected Output 5,670 Process C
Actual
Particulars
Output Units
5,700 Amount Particulars Units Amount
Basic Raw Materials
Abnormal Gain 3,800
(30) 8,74,000 Normal Loss 114 1,710
Sundry Materials 15,000 Abnormal Loss 26
Direct Labour 26,110 Cost of goods sold 3660
Direct Expenses 8,100

3,800 9,23,210 3,800 9,23,210

Working-3
Input 3,800 Cost per unit
Less: 3% Normal loss 114
= (923210-1710)/3800-114)
Expected Output 3686 Income Statement
Actual Output
Particulars 3660 = 250
Amount( ₹)
Abnormal
Sales: Loss 26
After Process-I
After Process-II
After Process-III
Total sales
Less:Cost of goods sold
Process-I
Process-II
Process-III
Total cost of goods sold
Gross Margin
Less: Selling and Distribution Expenses
Less: Abnormal Loss
Process-I
Process-III
Add: Process-II
Net Profit

Theory Questions:
Q.1. Briefly explain the following terms:
i) Normal loss; ii) Abnormal loss; iii) Equivalent units; iv) Abnormal gain
Q.2. Explain the difference between job costing and process costing.
Chapter 4 Process Costing

Quiz-2/Practice set-1

1. A document that shows the quantity of each type of direct material required to make a
productis called __________________________. 1 mark

2. Which method of determining product costs, job-order costing or process costing, would be
more appropriate in each of the following situations? 2 marks

a. An Elmer’s glue factory

b. A text book published such as McGraw-Hill.
c. An Exxon oil refinery.
d. A facility that makes Minute Maid frozen orange juice

3. If a company has different departments and most of the works are done manually, then
what basis is appropriate for overhead absorption. 1 mark

Ans.
4. Elliott Company estimated that costs of production for the coming year would be

Raw Materials Rs.75,000

Direct Labour 90,000
Production overhead 135,000
Labour hours 20,000
Required:
Calculate the overhead rate for the next year, assuming that it is based on direct labour cost.

POHR_____________________________
For the month of May if the raw materials put into production totaled Rs.6,000 and direct
labour was Rs.6,600. If the actual production overhead costs incurred in May were Rs.9,550,
calculate the amount of overhead absorbed for the month and find out the overhead
overapplied or underapplied .
Chapter 4 Process Costing

__________________________________ and _________________ 3

marks
5. Write (True or False). 1 mark
a. Overheads are also known as indirect cost.
b. Under-applied means the actual cost is less than the cost applied to jobs.

6. A company uses process costing to value its output. The following was recorded for the
period:
Input materials 2000 units at $4.50 per unit
Conversion costs $13,340
Normal loss 5% of input, scrap value at $3 per unit
Actual loss 150 units
There were no opening or closing stocks.
find out the abnormal loss/gain and find out the cost of each unit of output to one decimal
place?
Quiz-2/Practice set-2

1. A costing system used in situations where a single, homogeneous product is produced for
long periods of time is called __________________________ 1 mark

2. If a company has two departments and in one department most of the works are done
manually and in the other department things are done machineries. A plant-wide overhead
rate is good for absorbing manufacturing overhead.(Yes or No ) 1 mark

3. Luthan Company uses a predetermined overhead rate of $23.40 per direct labour-hour. This
predetermined rate was based on 11,000 estimated direct labour-hours and $257,400 of
estimated total manufacturing overhead. The company incurred actual total manufacturing
overhead costs $249,000 and 10,800 total direct labour hours during the period.
Determine the amount of manufacturing overhead that would have been applied to units of

product during the period __________________________and the amount of under(___) or

over (_____) applied_Rs.__________________________. 3 marks

4. Which method of determining product costs, job-order costing or process costing, would be
more appropriate in each of the following situations?

a. An Elmer’s glue factory

b. A text book published such as McGraw-Hill. 1 mark

5. The following information has been given about process-I of a manufacturing company:

Labour cost Rs.5000

Material(1000) 20,000
Chapter 4 Process Costing

Production overheads 3,500

The normal process loss has been estimated at 7% of the input which can be sold at Rs.10 per
unit. Actual product was 950 units.
Find out the abnormal loss and cost per unit of output produced. 3 marks

6. Write (true or false). 1 mark

a. Normal loss is avoidable in nature.

b. If actual output is more than expected output then there will be abnormal gain.

Quiz-2/Practice set-3

1. A document that is used to record the amount of time an employee spends on various
activities is called ________________________ 1 mark
2. A costing system used in situations where customized products are manufactured is called

___________________ 1 mark

3. Which method of determining product costs, job-order costing or process costing, would be
more appropriate in each of the following situations? 1 mark
a. A Scott paper mill
b. A custom home builder

4. If a company has two departments and in one department(Assembly) most of the works are
done manually and in the other department(Machining) things are done through
machineries. What basis should be used in machining departments to apply overhead.

___________________________ 1 mark
5. Public Company uses a job-order costing system. Overhead costs are applied to jobs on the
basis of machine hours. At the beginning of the year, management estimated that the
company would incur $175,000 in manufacturing overhead costs and work 70000 machine-
hours and 60000 labour hours. The actual overhead incurred during the period is $190,000
and 72000 labour hours and 80,000 machine hours are consumed.

 Compute the company’s predetermined overhead rate___________________

 Assume that during the year the company works only 80,000 machine-hours, find

out the overhead under-applied (___)or over-applied(___)

Rs.___________________________ 2 mark
Chapter 4 Process Costing

6. Write (true or false)

a. Manufacturing overhead should be absorbed by machine hour in those cost centers
where the work is dominantly done by machines.
b. Abnormal loss should be charged to customers. 1 mark

7.A company uses process costing to value its output and all materials are input at the start of
the process. The following information relates to the process for one month:
Input 3000units
Opening stock 400 units
Losses 10% of input is expected to be lost
Closing stock 200 units
How many good units were produced from the process if actual losses were 400 units?
2 marks

Quiz-3/Practice set-1 .

1. The allocation of service department 's costs directly to operating departments without

recognising services provided to other service departments is called _________________ method of

allocation. 0.5 marks

2. choose the appropriate answer from the followings:

i) Stores service expenses are to be apportioned in the ratio of

a. Floor area
b. Direct wages
c. Value of material consumed
d. No. of employees 0.5 marks

3. In a manufacturing company, there are two production(P1, P2) and two service departments(S1,
S2). The overheads collected for them are given below:

P1 P2 P3 S1 S2
Manufacturing overhead 180000 120000 140000 70000 60000
Machine hour 30000 18000 12000 500
Floor area 5000 2000 3000 2000 500

Using direct method allocate the costs of support departments to the production departments and
calculate the POHR using the machine hour. 2 marks

4. Which statement is wrong

a. Normal loss is due to inherent nature of product

b. Normal loss is avoidable in nature
c. Normal loss is recovered from the customer
Chapter 4 Process Costing

d. Normal loss is unavoidable in nature 0.5 marks

5. Find out the cost per kilogram of product in a process industry after process 1, using the following
data:

700 kilograms of material, costing Rs. 54,000 is introduced and processing cost incurred Rs.30000
during the processing. 5% is normal loss(no scrap realisation). The output was 660 kilograms. Also
find out the value of abnormal loss/gain.(No Accounts but calculations will form part of answer).