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Test Questions-Process Costing

TEST QUESTIONS 

  1. What is meant by process costing ?
  2. Define process costing.
  3. Explain the applications of process costing in different industries.
  4. Describe the features of process costing.
  5. Briefly explain the advantages of process costing.
  6. What are the limitations of process costing.
  7. What are the differences between process costing and job costing ?
  8. List out any five industries in which process costing is use.
  9. Name the four important aspects of process costing.
  10. What is Normal loss ? How is it treated in cost accounts.
  11. What does abnormal loss/gain arises ? How will you treat on these in cost accounts ?
  12. Give the main objectives of inter-process profit. 

PROBLEMS AND SOLUTIONS 

Problem 1. A product passes through two distinct processes A and B and then to finished stock. The output of A, passes direct to B and that of B passes to finished stock. From the following information you are required to prepare process account. 

Particulars                                                                                                      Process

A                                  B

Material Consumed                             ($)                                            12,000                         6,000

Direct Labour                                     ($)                                            14,000                         8,000

Manufacturing Expenses                     ($)                                            4,000                           4,000

Input in Process A                                                                               10,000 (units)

Input in Process A                               ($)                                            10,000 (value)

Output (units)                                                                                      9,400                           8, 300

Normal Wastage                                                                                 5%                               10%

Value of Normal Wastage

(per 100 units)                                     ($)                                            8                                  10 

No opening or closing stock is held in the process.

Solution-:                                                                                                      Process A Account

 

[ $ 40,000 - 40 = 39,960 / 9500 *100 = $420.6 ] i.e., $  421 

Process B Account

 

Problem 2. 50 units are introduced into process at a cost of $50. The total additional expenditure incurred by the process is $ 30. Of the units introduced 10% are normally spoilt in the course of manufacture but these possess a scrap value of $ 0.25 each. Owing to an accident, only 40 units are produced. You are required to prepare process account.

Solution:                                                                                                  Process Account 

Workings:

(i) Normal output 50 – 5 = 45

Actual output              40

Abnormal Loss            5 Units 

(ii) Cost per unit = (80 – 1.25) / 45 = $ 1.75

 

Problem 3. In process A, 100 units of raw materials were introduced at a cost of $ 1,000. The other expenditure incurred by the process is $ 600. Of the units introduced, 10% are normally scraped in the course of manufacture and they possess a scrap value of $ 7 per unit. The output of process A was only 75 units. Calculate the value of abnormal loss.

Solution:                                             Process A Account

 

Workings :

Value of Abnormal Wastage = Normal Output

Normal Cost of Normal Output

Normal Cost= $ 1,600 – 70 = $  1,530

Amount of Abnormal Units = 1530 / 90 * 15 = 255

Amount of Normal Units = (1530 / 90) * 75 = 1,275

 

Problem 4. In process A, 100 units of raw materials were introduced at a cost of $ 1,000. The other expenditure incurred by the process was $ 602. Of the units introduced, 10% are normally lost in the course of manufacture and they possess a scrap value of $ 3 each. The output of process A was only 75 units. Prepare process A Account and Abnormal / Loss account.

Solution :                                                                                              Process A Account

 

Working Notes:

Units entered                                     100

Less : Normal loss                                       10

Normal output                                              90

Actual output                                                 75

Units of Abnormal loss                               15

 

Value of Abnormal Loss

= Normal Cost of Normal Output / Normal Output * Units of Abnormal Loss =

= 1,572 / 90 * 15 = 262

=  [ 1,602- 30 / 100-10 * 15]

 

Abnormal Loss Account

 

Problem 5. The following details have been extracted from the costing records of an oil mill for the year ended 30.6.1996. The product passes through two distinct processes A arid B and then to finished stock. It is known from the past experience that wastage occurs in the process as under.

In process A 5% of the units entering and in process B, 10% of the units entering. The scrap value of the wastage in process A is $ 8 per 100 units and in process B is $ 10 per 100 units. 

The process figures are as follows. 

Material

Wages

Manufacturing Expenses

Factory Lighting

Sundry Expenses

5,000 units were introduced into process A costing

The output were

From process A : 4, 700 units

From process B : 4,150 units

Prepare process cost - Accounts showing cost of

Output per unit.

Solution:                                                                                                 Process A Account

NOTE:

(i)         Normal Output 5,000 – 250 units        = 4,750

Actual Output                                                 = 4,700

Abnormal Loss                                           50 units 

(ii)        Cost per unit

Total Cost – Value of Normal Wastage / Normal Output

(1,00,000 – 20) /4,750 = 99,980 / 4,750 = $ 210484

Abnormal Loss = 50 * 21.0484 = 1,052

Output = 4,700 * 21.0484 = 98,928

Process B Account

 

Workings:

(i)         Normal output 4700 – 470 = 4,230

But Actual output 4,150

Abnormal Loss 80

(ii) Cost per unit = 1,43,881- 47 / 4,230

Abnormal Loss 

(iii) Value of Finished Stock

Output * Cost per unit4,230

= $ 34.0144 per unit

= 80 * 34.0144

= 2,721

= 4,150 * 34.0144

= 1,41,160