8.3 Losses with scrap value
Solution procedure:
1. Calculate the outputs and losse
2. Calculate the cost per unit (using the total cost over expected output units)
3. Total the process costs
4. Write up the process account and normal loss account
Example 3:
Inputs = 3000 units
Material = $11700
Conversion cost = $6300
Output = 2000 units
Normal loss = 20%
The units of loss could be sold for $1 eac
Process account
Unit
$
Unit
$
Material
3000
11700
Output
2000
14500
Conversion costs
6300
Normal loss
600
600
Abnormal loss
400
2900
3000
18000
3000
18000
Abnormal loss account
$
$
Process a/c
2900
Scrap value
400
P & L
2500
2900
2900
Scrap value
$
$
Normal loss
600
Cash
1000
Abnormal loss
400
1000
1000
There are two production processes: cutting pasting
Normal loss: 10% in each process
Scrapped units out of the cutting process sells for $3 per unit, whereas scrapped units out of the pasting process sell for $5 per unit.
Cutting process Pasting proces
Process 1 account
Unit
$
Unit
$
Materials
18000
54000
Output to pasting process
16000 x $5
80000
Conversion costs
32400
Normal loss
1800 x$3
5400
Abnormal loss
200 x $5
1000
18000
86400
18000
86400
?。?) Pasting process
1. Calculate the outputs and losses
Process 2 account
Unit
$
Unit
$
Materials from cutting process
16000
80000
Finished output
28000 x $10
280000
Added materials
14000
70000
Normal loss
3000
15000
Direct labour
135000
Abnormal gain
1000 x $10
10000
31000
295000
31000
295000
Abnormal loss account
Unit
$
$
Cutting process
200
1000
Output
600
P & L
400
1000
1000
Abnormal gain account
$
Unit
$
Scrap value
5000
Cash
P & L
5000
Pasting process
1000
10000
10000
10000
Scrap value
Unit
$
Unit
$
Normal loss
Cash
Cutting process
1800 x $3
5400
Sale of cutting process
?。?800 + 200) x $3
6000
Pasting process
3000 x $5
15000
Sale of pasting process
(3000- 1000) x $5
10000
Abnormal loss
600
Abnormal gain
5000
21000
21000
Conclusion:
● In the first process, total cost of output = total cost of input, though there are losses in process and those loss with certain scrap value
● The unit cost of abnormal loss and gain = the unit cost of good unit produced
● The scrap value of abnormal loss/gain is not accounted to the process account
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