Advanced Costing and Auditing

Transcription

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2 Advanced Costing and Auditing (As per the Revised Syllabus of Mumbai University for S.Y. BMS, Semester IV, ) Suraj Agarwala M.Com., SET, PGDFM, Assistant Professor, Birla College of Arts, Science & Commerce, Kalyan, (W), Dist. Thane. Rinky R. Rajwani M.Com., B.Ed., PGDFM, NET, Assistant Professor, Birla College of Arts, Science & Commerce, Kalyan (W), Dist. Thane. Dr. Shraddha M. Bhome M.Com., M.Phil. (Gold Medalist), MBA (Finance), Ph.D. in Commerce, Research Supervisor (Guide), Shri JJT University, Rajasthan, Visiting Faculty, Gurunanak Khalsa College, Matunga, Mumbai. Assistant Professor, S.M. Shetty College, Powai. MUMBAI NEW DELHI NAGPUR BENGALURU HYDERABAD CHENNAI PUNE LUCKNOW AHMEDABAD ERNAKULAM BHUBANESWAR INDORE KOLKATA GUWAHATI

3 Authors No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording and/or otherwise without the prior written permission of the publisher. First Edition : 2016 Published by : Mrs. Meena Pandey for Himalaya Publishing House Pvt. Ltd., Ramdoot, Dr. Bhalerao Marg, Girgaon, Mumbai Phone: / , Fax: himpub@vsnl.com; Website: Branch Offices : New Delhi : Pooja Apartments, 4-B, Murari Lal Street, Ansari Road, Darya Ganj, New Delhi Phone: , ; Fax: Nagpur : Kundanlal Chandak Industrial Estate, Ghat Road, Nagpur Phone: , ; Telefax: Bengaluru : No. 16/1 (Old 12/1), 1st Floor, Next to Hotel Highlands, Madhava Nagar, Race Course Road, Bengaluru Phone: , , , Hyderabad : No , Lingampally, Besides Raghavendra Swamy Matham, Kachiguda, Hyderabad Phone: , Chennai : New-20, Old-59, Thirumalai Pillai Road, T. Nagar, Chennai Mobile: Pune : First Floor, "Laksha" Apartment, No. 527, Mehunpura, Shaniwarpeth (Near Prabhat Theatre), Pune Phone: / ; Mobile: Lucknow : House No 731, Shekhupura Colony, Near B.D. Convent School, Aliganj, Lucknow Phone: ; Mobile: Ahmedabad : 114, SHAIL, 1st Floor, Opp. Madhu Sudan House, C.G. Road, Navrang Pura, Ahmedabad Phone: ; Mobile: Ernakulam : 39/176 (New No: 60/251) 1 st Floor, Karikkamuri Road, Ernakulam, Kochi Phone: , Mobile: Bhubaneswar : 5 Station Square, Bhubaneswar (Odisha). Phone: , Mobile: Indore : Kesardeep Avenue Extension, 73, Narayan Bagh, Flat No. 302, IIIrd Floor, Near Humpty Dumpty School, Indore (M.P.). Mobile: Kolkata : 108/4, Beliaghata Main Road, Near ID Hospital, Opp. SBI Bank, Kolkata , Phone: , Mobile: Guwahati : House No. 15, Behind Pragjyotish College, Near Sharma Printing Press, P.O. Bharalumukh, Guwahati , (Assam). Mobile: , , DTP by : Sunanda Printed at : Geetanjali Press Pvt. Ltd., Nagpur On behalf of HPH.

4 Dedicated to God, Our Parents, Our Gurus & Our Relatives

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6 Preface We are happy to present the book Advanced Costing and Auditing to the students of Semester IV of S.Y. BMS, to the teachers and the readers. This book is written according to the syllabus prescribed by the University of Mumbai. Outstanding Features: 1. As per the guidelines of University of Mumbai 2. Simple and lucid language 3. Bird s eye view boxes given in the text provides a snapshot of the subject matter covered 4. Diagrammatic representation of the content 5. Sufficient examples 6. Followed a method of simple to complex 7. Question paper pattern. Authors

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8 Acknowledgement Adding on to our efforts, this book would not have been in existence without the support put forward by many people. We wish to thank first and foremost to our parents and family members for their valuable support, belief, motivation to write this book and making this attempt a success. We express our special thanks to Mrs. Harsha Rajwani, Mrs. Jyotsna Agarwala, Ms. Rajeshwari Agarwala, Ms. Diya Rajwani, Ms. Juhi Rajwani and Mr. Jeet Joshi for their valuable support throughout. Heartfelt thanks to the Principal Dr. Naresh Chandra of Birla College. We also take this opportunity to thank Vice Principal of Birla College Dr. Avinash Patil. We are also thankful to the Professors of Birla College, Mr. Anil Tiwari, Mr. Anand Dharmadhikari, Mrs. Madhu Shukrey, Mrs. Sheetal Kejriwal, Dr. Chandra Iyer, Mrs. Akansha Thakur and Mr. Ganesh Kumawat. It is with immense gratitude that we acknowledge the support, help and inspiration of Professor Dr. Renuka Shewkani, CA Kishore Peshori, Mrs. Lakshita Soni and Mr. Shrichand Hinduja. We are thankful to Mr. Kailash Tharwani, Ms. Archana Rao, Mrs. Laksha Ailani, Mr. Manoj Bhatia, Mrs. Jyoti Jangir, Mrs. Kajal Bhojwani, Mr. Durgesh Kumar Dubey and Ms. Fluer Dsouza for their continuous motivation and inspiration. We are thankful to the staff members of Himalaya Publishing House Pvt. Ltd., especially Mr. S.K. Srivastava, Ms. Archana and Ms. Lalita for their continuous support and believe in us. Last but not the least, thanking to all those who have helped directly or indirectly in making this book a success. Please feel free to provide us with your valuable suggestions for the further improvement of the book. Authors

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10 Syllabus Learning Objectives: 1. The objective of this subject is to familiarize students with the various concepts and elements of cost. 2. The course allows intends to develop auditing skills among learners. Name of the Topic No. of Lectures Unit - 1 Unit - 2 Unit - 3 Unit - 4 Process Costing and Contract Costing Process Costing: Objectives, Process Cost Accounting Procedure, Basic Steps for Solution of Problems in Process Costing, Normal Loss, Abnormal Loss, Abnormal Gain. Typical Examples. Contract Costing: Learning Objectives, Features, Subcontracting, Cost Plus Contract, Profit on Incomplete Contract, Work Certified and Work Uncertified, Typical Examples. Standard Costing Standard Cost, Standard Costing, Variance Analysis Material, Labour Variances. Material Variance: Material Cost Variance, Material Price Variance, Material Usage Variance, Material Mix Variance, Material Yield Variance. Labour Variance: Direct Wages Variance, Direct Rate Variance, Direct Efficiency Variance, Direct Time Variance, Direct Yield Variance. Audit Concepts Basic, Financial System, Users of Financial Information, Definition of Auditing, Objectives of Auditing Primary and Secondary, Expression of Opinion, Detection of Frauds and Errors. Errors and Frauds, Definition, Reasons and Circumstances, Types of Errors Commission, Omission, Principle and Compensating, Types of Frauds, Risk of Frauds and Error in Audit. Internet Limitations of Audit, Auditor s Duties and Responsibilities in Respect to Fraud. Principle of Audit: Documentation, Planning, Audit Evidence Accounting System and Internal Control, Audit Conclusion and Reporting. Audit Concept: Materiality, Going Concern, True and Fair Independence. Vouching and Verification Vouching: Audit of Income and Audit of Expenditure Verification: Audit of Asset and Audit of Liabilities

11 Paper Pattern Duration: 1 2 Hours Maximum Marks: 75 2 Q.1. Unit 1 (Any 2 out of 3) (15 Marks) (a) (7.5 Marks) (b) (7.5 Marks) (c) (7.5 Marks) Q.2. Unit 2 (Any 2 out of 3) (15 Marks) (a) (7.5 Marks) (b) (7.5 Marks) (c) (7.5 Marks) Q.3. Unit 3 (Any 2 out of 3) (15 Marks) (a) (7.5 Marks) (b) (7.5 Marks) (c) (7.5 Marks) Q.4. Unit 4 (Any 2 out of 3) (15 Marks) (a) (7.5 Marks) (b) (7.5 Marks) (c) (7.5 Marks) Q.5. Practical Question (15 Marks)

12 Contents 1. Process Costing Contract Costing Standard Costing Audit Concepts Vouching and Verification

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14 CHAPTER 1 Process Costing Introduction Definition Features Advantages Limitations Important Terms Format of Process A/c Solved Sums Theory Questions Unsolved Sums Introduction Process costing is a method of allocating manufacturing cost to products to determine an average cost per unit. It is used by companies which mass produce identical or similar products. Since every unit is essentially the same, each unit receives the same manufacturing input as every other unit. Refineries, paper mills, and food processing companies are examples of businesses which use process costing. Process costing is a management accounting function. Business owners use this function to accurately calculate and apply the business costs for producing specific types of goods. Process costing provides a costing system for homogeneous goods, which usually have little differentiation from one item to the next. Paper, petroleum, chemical, textile, lumber and food processing industries commonly use process costing. The weighted average method is the most common process costing system used in practice. This method includes a few basic steps when costing products. Definition 1. Method for determining the total unit cost of the output of a continuous production run (such as in food processing, petroleum and textile industries) in which a product passes through several processes (or cost centers). It involves the following steps: (i) the total cost per process is computed by estimating the number of products passing through each process in a given period;

15 2 Advanced Costing and Auditing (ii) the unit cost per process is computed by dividing the total cost per process by the number of units passing through the process in the given period; (iii) the unit cost per process is charged to each unit as it passes through each process so that, at the end of the production cycle, each product will have received an appropriate charge for each process through which it has passed. 2. CIMA London defines process costing as that form of operation costing which applies where standardized goods are produced Features of Process Costing Continuous in nature Homogeneous product Output of one process becomes raw material of another process The output of the last process is transferred to finished stock Both direct and indirect costs are accumulated in each process If there is a stock of semi-finished goods, it is expressed in terms of equivalent units The total cost of each process is divided by the normal output of that process to find out cost per unit of that process. Standarised process Determination of cost process wise Advantages of Process Costing Periodical determination of cost process wise It is simple and involves less clerical work than job costing It is easy to allocate the expenses to processes in order to have accurate costs. It is useful in preparation of tender quotations Since cost data is available for each process, operation and department, good managerial control is possible. Limitations Cost obtained at each process is historical cost It is based on average cost method, which is not suitable for performance analysis, evaluation and managerial control. Work-in-progress is generally done on estimated basis which leads to inaccuracy in total cost calculations. Where more than one type of products is manufactured, computation of average cost is more difficult and a division of the cost element is necessary. This is not relable process for those companies, where different products arise in the same process and common costs are prorated to various costs units.

16 Process Costing 3 Important Terms Flow of Process costing relies on a very distinct flow of units through the company and production system. Homogeneous goods usually flow through several various production processes. Each process has a specific amount of costs associated with producing products. Costs can include direct materials, production labor and manufacturing overheads. These items represent the direct costs related to the specific production of goods. Manufacturers may have different types of processes they use when producing goods. In the wine industry, production processes can include harvesting, crushing and pressing grapes, fermentation, aging, bottling, labeling and shipping. Normal Loss The loss that occurs in the course of converting an input raw material into finished products is known as process loss. Such a loss may occur because of the nature of the raw materials. This type of loss occurs in terms of the difference between the input quantity and the output quantity. The difference between the input quantity and the output quantity arising on account of production operation is called process loss. Process loss = Normal process loss + Abnormal process loss In other words, the loss that cannot be avoided or controlled is called normal loss, for example, evaporation of petrol and diesel spirit. Losses of this type should be absorbed by good units. Any value realizable on normal loss is credited to process account. Normal losses are unavoidable as they are losses arising due to the nature of the material or the process. The reasons for such losses in output can be the following: Evaporation Breakage Scrap due to the need for high quality Rejection on inspection Defective units Loss inherent in large-scale manufacturing Chemical change Residue material Examples of normal losses are metal turnings, off-cuts, metal borings, edges, shreddage and ends. The quantity of normal loss is anticipated based on past experience and the material specification. The specimen of the normal loss is as under: Normal Loss A/c To Process A xx xxx By Cash xx xxx To Process B xx xxx By Cash xx xxx To Process C xx xxx By Abnormal Gain xx xxx By Cash xx xxx xx xxx xx xxx

17 4 Advanced Costing and Auditing Abnormal Process Loss The loss realized over the normal loss is called an abnormal loss. Abnormal loss arises because of abnormal working conditions, bad working condition, carelessness, rough handling, lack of proper knowledge, low quality raw material, machine breakdown, accident, etc. Therefore, an abnormal loss is an unanticipated loss. Abnormal loss is a controllable loss and thus can be avoided if corrective measures are taken. Therefore, abnormal loss is also called avoidable loss. The value of an abnormal loss is assessed on the basis of the production cost with which the profit and loss account is charged. Value of abnormal loss = (Normal cost of normal output/normal output) Abnormal loss qty. The specimen of abnormal loss is as under: Abnormal Gain Abnormal Loss A/c To Process A xx xxx By Cash xx xxx To Process B xx xxx By Cash xx xxx By P/L - xxx xx xxx xx xxx More output over the expected or normal output realized is called an abnormal gain. Abnormal gain arises because of an abnormal effect in the use of raw material or efficiency in performance. Abnormal gain reduces the normal loss quantity as it comes in the form of profit to the industry. The value of an abnormal gain is assessed on the basis of production cost. Method of determining the value of abnormal gain: Value of abnormal gain = (Normal cost of normal output/normal output) Abnormal gain qty. The specimen of abnormal gain is as under: Abnormal Gain A/c To Normal Loss xx xxx By Process A xx xxx To P/L - xxx Items on the Debit Side of Process A/c Each process account is debited with: Cost of materials used in that process. Cost of labour incurred in that process. Direct expenses incurred in that process. xx xxx xx xxx Overheads charged to that process on some predetermined basis. Cost of ratification of normal defectives. Cost of abnormal gain (if any arises in that process).

18 Process Costing 5 Items on the Credit Side Each process account is credited with: Scrap value of normal loss (if any) occurs in that process. Cost of abnormal loss (if any occurs in that process). Cost of Process The cost of the output of the process (Total cost less Sales value of scrap) is transferred to the next process. The cost of each process is thus made up to cost brought forward from the previous process and net cost of material, labour and overheads added in that process after reducing the sales value of scrap. The net cost of the finished process is transferred to the finished goods account. The net cost is divided by the number of units produced to determine the average cost per unit in that process. Specimen of Process Account is as under: Simple Sums Process-A To Input xx xxx By Normal Loss xx xxx To Process Material - xxx By Abnormal loss xx xxx To Direct Labour - xxx By Sales xx xxx To Expenses - xxx By Process B xx xxx To Abnormal Gain xx xxx xx xxx xx xxx 1. YZ Ltd. manufactures a product which passes through two processes. The cost records shows the following particulars for the month ended on 31st March Input to Process I is ` 5 per Unit. Solution: Particulars Process-A Process-B Materials (`) 50,000 1,00,000 Labour (`) 30,000 80,000 Expenses (`) 20,000 20,000 Normal Loss () 5,000 5,000 Scrap Value Per Kg. (`) Actual Output () 25,000 20,000 You are required to prepare Process Accounts. Also show process cost per unit for each process In the books of YZ Ltd. Process-A To Input 30,000 1,50,000 By Normal Loss 5,000 50,000 To Process Material - 50,000 By Process B (WN1) 25,000 2,00,000 To Direct Labour - 30,000 To Expenses - 20,000 30,000 2,50,000 30,000 2,50,000

19 6 Advanced Costing and Auditing Process-B To Process I 25,000 2,00,000 By Normal Loss 5,000 1,00,000 To Process Material - 1,00,000 By Finished Stock (WN 2) 20,000 3,00,000 To Direct Labour - 80,000 To Expenses - 20,000 25,000 4,00,000 25,000 4,00,000 Working Notes: (i) Calculation of per unit and amount of the material transferred to Process B Total of Debit side 2,50,000 30,000 Less: Normal Loss 50,000 5,000 2,00,000 Per Unit = = = ` 8 25,000 2,00,000 25,000 Material Transferred to Next Process = Per Unit = 25,000 8 = ` 2,00,000 (ii) Calculation of per unit and amount of Finished Stock: Total of Debit side 4,00,000 25,000 Less: Normal Loss 1,00,000 5,000 3,00,000 Per Unit = = = ` 15 20,000 3,00,000 20,000 Material Transferred to Next Process = Per Unit = 20, = ` 3,00, Y Ltd. manufactures a chemical product which passes through three consecutive processes. The cost records shows the following particulars for the month ended on 30th June Input to Process I is ` 30 per Unit. Particulars Process-I Process-II Process-III Materials (`) 50,000 1,00,000 1,00,000 Labour (`) 30,000 80,000 75,000 Expenses (`) 5,000 20,000 25,000 Normal Loss (% on input) (%) 10% 10% 20% Scrap Value Per Kg. (`) Actual Output () 18,000 16,200 12,960 You are required to prepare Process Accounts. Also show process cost per unit for each process

20 Process Costing 7 Solution: In the books of Y Ltd. Process - I To Input 20,000 6,00,000 By Normal Loss (10% of 20,000) ` 1 2,000 2,000 To Process Material - 50,000 By Process II (WN1) 18,000 6,83,000 To Direct Labour - 30,000 To Expenses - 5,000 20,000 6,85,000 20,000 6,85,000 Process-II To Process I 18,000 6,83,000 By Normal Loss (10% of 18,000) ` 2 1,800 3,600 To Process Material - 1,00,000 By Process III (WN2) 16,200 8,79,400 To Direct Labour - 80,000 To Expenses - 20,000 18,000 8,83,000 18,000 8,83,000 Process-III To Process II 16,200 8,79,400 By Normal Loss (20% of 16,200) ` 3 3,240 9,720 To Process Material To Direct Labour - 75,000 To Expenses - 25,000-1,00,000 By Finished Goods (WN3) 12,960 10,69,680 16,200 10,79,400 16,200 10,79,400 Working Notes: (iii) Calculation of per unit and amount of the material transferred to Process II. Total of Debit side 6,85,000 20,000 Less: Normal Loss 2,000 2,000 Per Unit 6,83,000 = ` ,000 6,83,000 18,000 Material Transferred to Next Process = Per Unit = 18, = ` 6,83,000 (iv) Calculation of per unit and amount of the material transferred to Process III. Total of Debit side 8,83,000 18,000 Less: Normal Loss 3,600 1,800 8,79,400 16,200

21 8 Advanced Costing and Auditing Per Unit 8,79,400 = ` ,200 Material Transferred to Next Process = Per Unit = 16, = ` 8,79,400 (v) Calculation of per unit and amount of Finished Goods. Total of Debit side 10,79,400 16,200 Less: Normal Loss 9,720 3,240 Per Unit 10,69,680 12,960 10,69,680 = ` ,960 Finished Goods = Per Unit = 12, = ` 10,69,680 Normal and Abnormal Loss, Abnormal Gain 3. Om Industries Ltd. is manufacturing a product which passes through three consecutive processes, Process-I, Process- II and Process III. The following figures have been taken from their books for the month ended on 31st Jan., Quantitative Information Particulars Process-I Process-II Process-III Basic Raw Material at ` 10 per kg. (Kgs) 25, Output during the year (Kgs.) 24,000 23,200 22,250 Other Additional Information Process Material (`) 1,50,000 2,70,000 3,50,000 Direct Wages Factory Overheads 80% of Process Material 80% of Direct Wages 70% of Process Material 90% of Direct Wages 60% of Process Material 75% of Direct Wages Machine Overheads (`) 22,000 16,980 15,620 Normal Loss (% on input) (%) 2% 4% 4% Scrap Value Per Kg. (`) Solution: You are required to prepare Process Accounts. In the books of Om Industries Ltd. Process-I (March 2011, B.Com.) To Input 25,000 2,50,000 By Normal Loss (2% of 25,000) ,000 To Process Material - 1,50,000 By Process II (WN1) 24,000 6,24,000 To Direct Wages - 1,20,000 By Abnormal Loss (WN1) ,000 To Factory Overheads - 96,000

22 Process Costing 9 To Machine Overheads - 22,000 25,000 6,38,000 25,000 6,38,000 Process-II To Process I 24,000 6,24,000 By Normal Loss (3% of 24,0000) ,880 To Process Material - 2,70,000 By Process III (WN 2) 23,200 12,76,000 To Direct Wages - 1,89,000 To Factory Overheads - 1,70,100 To Machine Overheads To Abnormal Gain (WN2) - 16, ,800 25,000 12,78,880 25,000 12,78,880 Process-III To Process II 23,200 12,76,000 By Normal Loss (4% of 23,200) 5 To Process Material - 3,50,000 By Finished Goods (WN3) To Direct Wages - 2,10,000 By Abnormal Loss (WN3) To Factory Overheads - 1,57,500 To Machine Overheads - 15, ,640 22,250 20,02, ,980 23,200 20,09,120 23,200 20,09,120 Working Notes: (i) Calculation of per unit and amount of the material transferred to Process II and Abnormal Loss: Total of Debit side 6,38,000 25,000 Less: Normal Loss 1, Per Unit 6,37,000 24,500 6,37,000 = ` 26 24,500 Calculation of Abnormal Loss in = Input Normal Loss Material Transferred to Next Process = 25, ,000 = 500. Material Transferred to Next Process = Per Unit = 24, = ` 6,24,000 Abnormal Loss = Per Unit = = ` 13,000

23 10 Advanced Costing and Auditing (ii) Calculation of per unit and amount of the material transferred to Process III and Abnormal Gain: Total of Debit side (Except Abnormal Gain) 12,70,080 24,000 Less: Normal Loss 2, ,67,200 23,040 (iii) Per Unit 12,67,200 = ` 55 23,040 Calculation of Abnormal Gain in = Input Normal Loss Material Transferred to Next Process = 24, ,200 = 160. Material Transferred to Next Process = Per Unit = 23, = ` 12,76,000 Abnormal Loss = Per Unit = = ` 8,800 Calculation of per unit and amount of Finished Goods and Abnormal Loss: Cost Per Unit Total of Debit side 20,09,120 23,200 Less: Normal Loss 4, ,04,480 = ` 90 22,272 Calculation of Abnormal Loss in 20,04,480 22,272 = Input Normal Loss Finished Goods = 23, ,000 = 22. Finished Goods = Per Unit = 22, = ` 20,02,500 Abnormal Loss = Per Unit = = ` 1, Y Ltd. manufactures a chemical product which passes through three consecutive processes. The cost records shows the following particulars for the month ended on 30th June Input to Process I is ` 28 per Unit. Particulars Process-I Process-II Process-III Materials (`) 48,620 1,08,259 1,03,345 Labour (`) 32,865 84,553 77,180 Expenses (`) 2,515 10,588 16,275 Normal Loss (% on input) (%) 20% 15% 10%

24 Process Costing 11 Scrap Value Per Kg. (`) Actual Output () 18,000 16,000 15,000 You are required to prepare Process Accounts., Abnormal Loss A/c, Abnormal Gain A/c. Also show process cost per unit for each process (Oct. 2005, B.Com.) Solution: In the books of Y Ltd. Process-I To Input 20,000 5,60,000 By Normal Loss (20% of 20,000) 1 4,000 4,000 To Process Material - 48,620 By Process II (WN1) 18,000 7,20,000 To Direct Labour - 32,865 To Expenses - 2,515 To Abnormal Gain (WN1) 2,000 80,000 22,000 7,24,000 22,000 7,24,000 Process-II To Process I 18,000 7,20,000 By Normal Loss (15% of 18,000) 2 2,700 5,400 To Process Material - 1,08,259 By Process III (WN 2) 16,000 9,60,000 To Direct Labour - 84,553 To Expenses - 10,588 To Abnormal Gain (WN2) ,000 18,700 9,65,400 18,700 9,65,400 Process -III To Process II 16,000 9,60,000 By Normal Loss (10% of 16,000) 3 1,600 4,800 To Process Material - 1,03,345 By Finished Goods (WN3) 15,000 12,00,000 To Direct Labour - 77,180 To Expenses - 16,275 To Abnormal Gain (WN3) ,000 16,600 12,04,800 16,600 12,04,800 Working Notes: (i) Calculation of per unit and amount of the material transferred to Process II and Abnormal Gain: Total of Debit side (Except Abnormal Gain) 6,44,000 20,000 Less: Normal Loss 4,000 4,000 6,40,000 16,000

25 12 Advanced Costing and Auditing (ii) (iii) Per Unit 6,40,000 = ` 40 16,000 Calculation of Abnormal Gain in = Input Normal Loss Material Transferred to Next Process = 20,000 4,000 18,000 = 2,000. Material Transferred to Next Process = Per Unit = 18, = ` 7,20,000 Abnormal Gain = Per Unit = 2, = ` 80,000 Calculation of per unit and amount of the material transferred to Process III and Abnormal Gain: Total of Debit side (Except Abnormal Gain) 9,23,400 18,000 Less: Normal Loss 5,400 2,700 Calculation of Abnormal Gain in Per Unit = = 9,18,000 15,300 9,18,000 = ` 60 15,300 = Input Normal Loss Material Transferred to Next Process = 18,000 2,700 16,000 = 700. Material Transferred to Next Process = Per Unit = 16,000 6 = ` 9,60,000 Abnormal Loss = Per Unit = = ` 42,000 Calculation of per unit and amount of Finished Goods and Abnormal Loss: Total of Debit side (Except Abnormal Gain) 11,56,800 16,000 Less: Normal Loss 4,800 1,600 Per Unit = Calculation of Abnormal Loss in = 11,52,000 14,400 11,52000 = ` 80 14,400 = Input Normal Loss Finished Goods = 16,000 1,600 15,000 = 600. Finished Goods = Per Unit = 15,000 8

26 Process Costing 13 = ` 12,00,000 Abnormal Loss = Per Unit = = ` 48, A product passes through three processes. The following cost data have been extracted from the books of a company. Particulars Process A ` Process B ` Process C ` Process 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 The Following additional data is obtained. Process Output () % of Normal Loss to Input Value of Scrap A 3,850 2% 25 Paise per unit B 3,600 4% 50 Paise per unit C 3, % 60 Paise per unit 4,000 were initially introduced in Process A at a cost of ` 13,560. There was no stock of material or work in progress at the beginning or at the end. The output of each process passes directly to the next process and finally to finished stock. You are required to prepare: (a) Process A/c (b) Normal Loss A/c (c) Abnormal Loss A/c (d) Abnormal Gain A/c (Oct. 2009, B.Com.) Solution: In the books of A Ltd. Process-A To Input 4,000 13,560 By Normal Loss (2% of 4,000) 0.25 To Process materials - 12,000 By Abnormal 12 ` To Direct labour - 16,000 By Process B (WN1) 3,850 46,200 To Manufacturing expenses To Other factory expenses - 2,000-3,500 4,000 47,060 4,000 47,060 Process-B To Process A 3,850 46,200 By Normal Loss (4% of 3,850) To Process materials - 10,000 By Abnormal 18 ` 96 1,728 To Direct labour - 5,000 By Process C (WN2) 3,600 64,800

27 14 Advanced Costing and Auditing To Manufacturing expenses To Other factory expenses - 3,400-2,005 3,850 66,605 3,850 66,605 Process-C To Process B 3,600 64,800 By Normal Loss (2.5% of 3,600) 0.60 To Process materials - 9,000 By Finished Goods (WN3) To Direct labour - 4,900 To Manufacturing expenses - 3,590 To Other factory expenses - 2,004 To Abnormal Gain (WN3) ,520 84, Normal Loss A/c To Process A By Cash To Process B By Cash To Process C By Abnormal Gain 10 6 By Cash Abnormal Loss A/c To Process A By Cash To Process B 96 1,728 By Cash By P/L , ,568 Abnormal Gain A/c To Normal Loss 10 6 By Process C To P/L Working Notes: (i) Calculation of per unit and amount of the material transferred to Process B and Abnormal Loss: Total of Debit side 47,060 4,000 Less: Normal Loss ,040 3,920

28 Process Costing 15 Cost per Unit 47,060 3,920 ` 12 Calculation of Abnormal Loss in = Input Normal Loss Material Transferred to Next Process = 4, ,850 = 70. Material Transferred to Next Process = Per Unit = 3, = ` 46,200 Abnormal Loss = Per Unit = (ii) (iii) = ` 840 Calculation of per unit and amount of the material transferred to Process C and Abnormal Loss: Total of Debit side 66,605 3,850 Less: Normal Loss Cost per Unit Calculation of Abnormal Loss in 66,528 ` 18 3,696 66,528 3,696 = Input Normal Loss Material Transferred to Next Process = 3, ,600 = 96. Material Transferred to Next Process = Per Unit = 3, = ` 64,800 Abnormal Loss = Per Unit = = ` 1,728 Calculation of per unit and amount of Finished Goods and Abnormal Gain: Total of Debit side (except Abnormal Gain) 84,294 3,600 Less: Normal Loss Cost per Unit Calculation of Abnormal Gain in 84,240 ` 24 3,510 84,240 3,510 = Input Normal Loss Finished Goods = 3, ,520 = 10. Finished Goods = Per Unit = 3, = ` 84,480

29 16 Advanced Costing and Auditing Abnormal Gain = Per Unit = = ` A product passes through three Processes i.e. Process U, P and A. The following details are available from the books for the year ended 31st March Particulars Process-U Process-P Process-A No. of introduced ` 2, Cost per Unit ` Sundry Materials ` 10,400 7,920 11,428 Direct Labour ` 8,000 12,000 16,000 Direct Expenses ` 6,000 8,000 50% of Direct Labour Production Overheads 25% of Direct Labour 50% of Direct Labour 100% of Direct Labour Normal Loss (% of input of the process) 5% 10% 15% Scrap Value per unit ` Actual Output ` 1,900 1,680 1,470 The output of each process passes directly to the next process and finally to the finished stock. You are required to prepare: (April 2009 B.Com.) Solution: Process A/c, Normal Loss A/c, Abnormal Loss A/c, Abnormal Gain A/c In the books of Process-U To Input 2,000 24,000 By Normal Loss (5% of 2,000) ,000 To Sundry Materials - 10,400 By Process P (WN1) 1,900 49,400 To Direct Labour - 8,000 To Direct Expenses - 6,000 To Production O/H - 2,000 2,000 50,400 2,000 50,400 Process-P To Process U Stock 1,900 49,400 By Normal Loss (20% of 9,000) ,660 To Sundry Materials - 7,920 By Abnormal Loss 30 1,380 To Direct Labour - 12,000 By Process A (WN2) 1,680 77,280 To Direct Expenses - 8,000 To Production O/H - 4,000 1,900 81,320 1,900 81,320

30 Process Costing 17 Process-A To Process P Stock 1,680 77,280 By Normal Loss (15% of 1,680) 20 To Sundry Materials - 11,428 By Finished Goods (WN3) To Direct Labour - 16,000 To Direct Expenses - 8,000 To Production O/H - 8,000 To Abnormal Gain(WN3) 42 3, ,040 1,470 1,19,070 1,722 1,24,110 1,722 1,24,110 Normal Loss A/c To Process U 100 1,000 By Cash 100 1,000 To Process P 190 2,660 By Abnormal Gain To Process A 252 5,040 By Cash 190 2,660 By Cash 210 4, , ,700 Abnormal Loss A/c To Process P 30 1,380 By Cash By Costing P/L , ,380 Abnormal Gain A/c To Normal Loss By Process A 42 3,402 To Costing P/L - 2, , ,402 Working Notes: (i) Calculation of per unit and amount of the material transferred to Process U Stock A/c: Total of Debit side 50,400 2,000 Less: Normal Loss 1, ,400 Per Unit = = = ` 26 1,900 49,400 1,900 Material Transferred to Process P = Per Unit = 1, = ` 49,400

31 18 Advanced Costing and Auditing (ii) Calculation of per unit and amount of the material transferred to Process Stock A and Abnormal Loss: Total of Debit side 81,320 1,900 Less: Normal Loss 2, ,660 1,710 78,660 PerUnit= = = ` 46 1,710 Calculation of Abnormal Loss in = Input Normal Loss Material Transferred to Process Stock Q = 1, ,680 = 30. Material Transferred to Process Stock A = Per Unit = 1, = ` 77,280 Abnormal Loss = Per Unit = = ` 1,380 (iii) Calculation of per unit and amount of Finished Goods and Abnormal Gain: Total of Debit side (Except Abnormal Gain) 1,20,708 1,680 Less: Normal Loss 5, PerUnit 1,15,668 1,428 1,15,668 1,428 ` 81 Calculation of Abnormal Gain in = Input Normal Loss Material Transferred to Process Stock R = 1, ,470 = 42. Finished Stock = Per Unit = 1, = ` 1,19,070 Abnormal Gain = Per Unit = = ` 3, A product passes through three processes. The following cost data have been extracted from the books of a manufacturing company. Particulars Total ` Process I ` Process II ` Process ` Process Materials 1,50,840 52,000 39,600 59,240 Direct Wages 1,80,000 40,000 60,000 80,000 Production Expenses 1,80, ,000 at ` 6 each, were initially introduced in Process I. There was no stock of material or work in progress at the beginning or at the end. The output of each process passes

32 Process Costing 19 directly to the next process and finally to finished stock. Production Overheads is recovered at 100% of Direct Wages. The Following additional data is obtained. Process Output () % of Normal Loss to Input Value of Scrap I 9,500 5% 4 II 8,400 10% 8 III 7,500 15% 10 Prepare Process A/c, Normal Loss A/c, Abnormal Loss A/c, Abnormal Gain A/c (Oct. 2007, B.Com.) Solution: In the books of A Ltd. Process-I To Input 10,000 60,000 By Normal Loss (5% of 10,000) ,000 To Process materials - 52,000 By Process II (WN1) 9,500 1,90,000 To Direct Wages - 40,000 To Production Expenses - 40,000 10,000 1,92,000 10,000 1,92,000 Process-II To Process I 9,500 1,90,000 By Normal Loss (10% of 9,500) ,600 To Process materials - 39,600 By Abnormal Loss (WN 2) 150 6,000 To Direct Wages - 60,000 By Process III (WN 2) 8,400 3,36,000 To Production Expenses - 60,000 9,500 3,49,600 9,500 3,49,600 Process-III To Process II 8,400 3,36,000 By Normal Loss (15% of 8,400) 10 1,260 12,600 To Process materials - 59,240 By Finished Goods (WN 3) 7,500 5,70,000 To Direct Wages - 80,000 To Production Expenses - 80,000 To Abnormal Gain (WN 3) ,360 8,760 5,82,600 8,760 5,82,600 Normal Loss A/c To Process I 500 2,000 By Cash 500 2,000 To Process II 950 7,600 By Cash 950 7,600 To Process III 1,260 12,600 By Abnormal Gain 360 3,600 By Cash 900 9,000 2,710 22,200 2,710 22,200

33 20 Advanced Costing and Auditing Abnormal Loss A/c To Process II 150 6,000 By Cash 150 1,200 By Costing P/L - 4, , ,000 Abnormal Gain A/c To Normal Loss 360 3,600 By Process III ,360 To Costing P/L - 23, , ,360 Working Notes: (i) Calculation of per unit and amount of the material transferred to Process I : (ii) (iii) Total of Debit side 1,92,000 10,000 Less: Normal Loss 2, Cost per Unit 1,90,000 9,500 1,90,000 9,500 ` 20 Material Transferred to Next Process = Per Unit = 9, = ` 1,90,000 Calculation of per unit and amount of the material transferred to Process II and Abnormal Loss: Total of Debit side 3,49,600 9,500 Less: Normal Loss 7, Cost per Unit = Calculation of Abnormal Loss in = 3,42,000 8,550 = ` 40 3,42,000 8,550 = Input Normal Loss Material Transferred to Next Process = 9, ,400 = 150. Material Transferred to Next Process = Per Unit = 8, = ` 3,36,000 Abnormal Loss = Per Unit = = ` 6,000 Calculation of per unit and amount of Finished Goods and Abnormal Gain: Total of Debit side (except Abnormal Gain) 5,55,240 8,400

34 Process Costing 21 Less: Normal Loss 12,600 1,260 Cost per Unit = = 5,42,640 7,140 5,42,640 7,140 Calculation of Abnormal Gain in = Input Normal Loss Finished Goods = 8,400 1,260 7,500 = 360. Finished Goods = Per Unit = 7, = ` 5,70,000 Abnormal Gain = Per Unit = = ` 27,360 Sales are Given 8. M/s Arun Enterprises Ltd. provides you the following information for the month of December, 2009 about processes X,Y, and Z Selling price per unit of the output sold at end of the process (`) You are required to prepare Process Accounts indicating clearly the profit or loss in each process and Costing P/ L A/c. (Oct. 2010, B.Com.) Solution: Particulars Process -X Process -Y Process -Z Raw Material introduced in the process () 20,000 3,480 2,875 Cost of Raw Material per Unit (`) Direct Expenses (`) 1,12,250 79,220 72,770 Labour Charges (`) 86,800 85,480 58,330 Factory Overheads (`) 25,750 28,620 39,650 Normal Loss (% on input) (%) 4% 5% 6% Scrap Value Per Unit (`) Output transferred to the Next Process (%) 60% 50% - Output sold at the end of the process (%) 40% 50% 100% In the books of Arun Industries Ltd. Process-X To Input 20,000 2,40,000 By Normal Loss (4% of 20,000) 5 To Direct Expenses - 1,12,250 By Process Y (20, ) 60%) (WN1) = ` ,000 11,520 2,74,480 To Labour Charges - 86,300 By Cash A/c (Sales) (WN1) 7,680 2,30,400 To Factory Overheads - 25,750 To Profit and Loss A/c (WN 1) - 46,080 20,000 5,10,880 20,000 5,10,880

35 22 Advanced Costing and Auditing Process-Y To Process X 11,520 2,76,480 By Normal Loss (5% of 15,000) ,000 To Direct Material 3,480 52,200 By Cash A/c 7,125 2,49,375 To Direct Expenses - 79,220 By Process Z (WN 2) 7,125 2,56,500 To Labour Charges - 85,480 By Profit and Loss A/c (WN 2) - 7,125 To Factory Overheads - 28,620 15,000 5,22,000 15,000 5,22,000 Process-Z To Process Y 7,125 2,56,500 By Normal Loss (6% of 10,000) ,000 To Direct Material 2,875 51,750 By Cash (sales) (WN 3) 9,400 5,17,000 To Direct Expenses - 72,770 To Labour Charges - 58,330 To Factory Overheads - 39,650 To Profit and Loss A/c (WN 3) - 47,000 10,000 5,26,000 10,000 5,26,000 Dr. Costing Profit and Loss A/c Cr. Particulars ` Particulars ` To Process Y A/c 7,125 By Process X 46,080 To Net Profit c/d 85,955 By Process Z 47,000 93,080 93,080 Working Notes: (i) Calculation of per unit and amount of the material transferred to Process Y and Profit and Loss A/c: Total of Debit side (except P/L) 4,64,800 20,000 Less: Normal Loss 4, Cost per Unit = = 4,60,800 19,200 4,60,800 19,200 = ` 24 Transferred to Next Process = ( Introduced Normal Loss) 60% = (20, ) 60% = 11,520 Sold = ( Introduced Normal Loss) 40% = (20, ) 40% = 7,680 Material Transferred to Next Process = Per Unit = 11,520 24

36 Process Costing 23 = ` 2,74,480 Cash Sales = Per Unit = 7, = ` 2,30,400 (ii) (iii) Profit on Cash Sales = Selling Price Cost Price = 2,30,400 (7,680 24) = 2,30,400 1,84,320 = ` 46,080 Calculation of per unit and amount of the material transferred to Process III and Abnormal Gain: Total of Debit side (except P/L) 5,22,000 15,000 Less: Normal Loss 9, Cost per Unit = = 5,13,000 14,250 = ` 36 5,13,000 14,250 Transferred to Next Process = ( Introduced Normal Loss) 60% = (15, ) 50% = 7,125 Sold = ( Introduced Normal Loss) 60% = (15, ) 50% = 7,125 Material Transferred to Next Process = Per Unit = 7, = ` 2,56,500 Cash Sales = Per Unit = 7, = ` 2,49,375 Loss on Cash Sales = Selling Price Cost Price = 2,49,375 (7,125 36) = 2,49,375 2,56,500 = ` 7,125 Calculation of per Unit and amount of Finished Goods and Abnormal Loss: Total of Debit side (except P/L) 4,79,000 10,000 Less: Normal Loss 9, Cost Per Unit 4,70,000 9,400 4,70,000 9,400 ` 50 Sold = ( Introduced Normal Loss) 60% = (10, ) 100% = 9,400

37 24 Advanced Costing and Auditing Selling Price = Per Unit = 9, = ` 5,17,000 Loss on Cash Sales = Selling Price Cost price = 5,17,000 (9,400 50) = ` 47, Jaya manufacturing co. supplies you the following information for the year ended 31st March 2009 (March 2003, B.Com) Particulars Processes A B C Raw Material introduce in the process () 12,000 2,440 2,600 Cost of Raw Material per unit (`) Direct Wages (`) 34,000 24,000 15,000 Production Overheads (`) 16,160 16, Normal Loss (% on Number of units entering to process having scrap values) Wastage (%on number of unit s entering to the process having scrap values) 4% 5% 4% 6% 5% 4% Scrap value per unit of wastage (`) Output transferred to subsequence process 70% 60% - Output sold at the end of the process 30% 40% 100% Selling price per unit of the output sold at the end of the process (`) You are required to prepare the process A, B and C accounts showing the profit earned at each process. Solution: In the books of Jaya Manufacturing Co. Process-A To Input 12,000 60,000 By Normal Loss (4% of 12,000) To Direct Wages - 34,000 By Wastage (6% of 12,000) 720 2,160 To Production Overheads - 16,160 By Sales 3,240 38,880 To Costing P/L - 6,480 Process B 7,560 75,600 12,000 1,16,640 12,000 1,16,640 Process-B To Process A 7,560 75,600 By Normal Loss (5% of 10,000) To Materials 2,440 12,200 By Wastage (5% of 10,000) 500 2,000 To Direct Wages - 24,000 By Sales 3,600 57,600 To Production Overheads - 16,200 By Process C 5,400 75,600 To Costing P/L - 7,200 10,000 1,35,200 10,000 1,35,200

38 Process Costing 25 Process-C To Process B 5,400 75,600 By Normal Loss (3% of 8,000) To Materials 2,600 13,000 By Wastage (4% of 8,000) 320 1,600 To Direct Wages - 15,000 By Sales 7,440 1,26,480 To Production Overheads - 9,600 To Costing P/L - 14,880 Working Notes: (i) Calculation of per unit at every stage (ii) 8,000 1,13,080 8,000 1,13,080 Particulars Process A Process B Process C ` ` ` Total of Debit side (Except Costing P/L) 1,10,160 1,28,000 1,13,200 Less: Normal Loss Less: Wastage (2,160) (2,000) (1,600) (A) 1,08,000 1,26,000 1,11,600 Total of Debit side 12,000 10,000 8,000 Less: Normal Loss (480) (500) (240) Less: Wastage (720) (500) (320) (B) 10,800 9,000 7,440 Cost per Unit (A/B) ` 10 ` 14 ` 15 Calculation of units transferred to the next process, sales and the amount of Costing P/L Particular Process A (10,800 ) Process B (9,000 ) Process C (7,440 ) Transfer to Process B Sales Process C Sales % Transferred ,560 3,240 5,400 3,600 Rate per Unit ` 7,560 38,880 75,600 57,600 Profit per Unit Costing P/L - 2 6, ,200 Sales 100 7, , , A product passes through three processes A,B and C. 10,000 units at a cost of ` 1.10 per unit were issued to process A. The other direct expenses were as follows: Particulars Process A (`) Process B (`) Process C (`) Sundry materials 1,500 1,500 1,500 Direct labour 4,500 8,500 6,500 Direct expenses 1,000 1,000 1,000 The wastage of process A was 5% and in process B was 4% of inputs. The wastage of process A was sold at ` 0.25 per unit and that of process B at Re.0.50 per unit and that of process C at Re.1.00 per unit.

39 26 Advanced Costing and Auditing Solution: The overhead charges were 160% of Direct labour. The final product was sold at ` 10 per unit fetching a profit of 20% on sales. Prepare all process accounts. (Oct. 2004, TYB.Com.) In the books of Process- A To Input 10,000 11,000 By Normal Loss (5% of 10,000) 0.25 To Materials - 1,500 By Process B (WN1) To Direct Labour - 4,500 To Direct Exp - 1,000 To 16% of Labour - 7, ,500 25,075 10,000 25,200 10,000 25,200 Process- B To Process A 9,500 25,075 By Normal Loss (4% of 9,500) To Materials - 1,500 By Process C (WN2) 9,120 48,185 To Direct Labour - 8,000 To Direct Exp. - 1,000 To 16% of Labour - 12,800 9,500 48,375 9,500 48,375 Process - C To Process B 9,120 48,185 By Normal Loss (WN3) To Materials - 1,500 By Finished Goods(WN) 8,424 67,392 To Direct Labour - 6,500 To Direct Exp. - 1,503 To 16% of Labour - 10,400 9,120 68,088 9,120 68,088 Working Notes: (i) Calculation of per unit and amount of the material transferred to Process B : Total of Debit side 25,200 10,000 Less: Normal Loss Cost Per Unit 25,075 9,500 ` 25,075 9,

40 Process Costing 27 Material Transferred to Next Process = Per Unit = 9, = ` 25,075 (ii) Calculation of per unit and amount of the material transferred to Process C : (iii) Total of Debit side 48,375 9,500 Less: Normal Loss Cost per Unit = = 48,185 9,120 48,185 9,120 = ` 5.28 Material Transferred to Next Process = Per Unit = 9, = ` 48,185 Calculation of per Unit and amount of Finished Goods: Particulars % Cost Price 80 8 Add: Profit (20% of sales) 20 2 Sales Cost Per Unit Total of Debit Side Normal Loss Total of Debit side NormalLoss () 8 68,088 N.L 1 9,120 N.L 8 (9,120 N.L.) = 68,088 N.L. 72,960 8 N.L. = 68,088 N.L. 72,960 68,088 = 7 N.L.() Normal Loss () = 696 Total of Debit side 68,088 9,120 Less: Normal Loss Cost Per Unit 67,392 8,424 67,392 8,424 ` 8 Finished Goods = Per Unit= 8,424 8 = ` 67, Tea Estate Ltd. manufactures flavored Tea which passes through three processes. The following particulars are available for the year ended : Particulars Process I II III Raw material (kg.) 10,000 4,600 1,500 Cost of raw materials (per kg. `) Direct wages (`) 24,000 18,000 12,250

41 28 Advanced Costing and Auditing Solution: Direct expenses (`) 15,200 10,736 8,590 Factory expenses (`) 20,960 6,000 4,255 Normal loss (%) 4% 8% 5% Weight loss (%) 6% 2% Nil Scrap sale Value per kg. (`) Output transferred to next process 60% 50% Nil Output sold 40% 50% 80% Selling price of output per kg Transferred to finished stock Nil Nil 20% % of normal loss and % of weight loss are based on total input in the process. Prepare Process Account and profit and loss A/c. In the books of Tea Estate Ltd. Process-I (Oct. 2006, B.Com) To Materials 10,000 50,000 By Normal Loss (4% of 10,000) To Wages - 24,000 By Weight Loss (6% of 10,000) To Direct Expenses - 15,200 By Process II (WN1) 5,400 65,664 To Factory Expenses - 20,960 By Sales (WN 1) 3,600 50,400 To Costing P/L - 6,624 10,000 1,16,784 10,000 1,16,784 Process-II To Process I 5,400 65,664 By Normal Loss (8% of 10,000) ,000 To Materials 4,600 27,600 By Weight Loss (2% of 10,000) To Wages - 18,000 By Process III (WN2) 4,500 72,000 To Direct Expenses - 10,736 By Sales (WN 2) 4,500 63,000 To Factory Expenses - 6,000 To Costing P/L - 9,000 10,000 1,37,000 10,000 1,37,000 Process-III To Process II 4,500 63,000 By Normal Loss 300 1,200 (5% of 6,000) 4 To Materials 1,500 12,000 By Finished Stock (WN 3) 1,140 19,779 To Wages - 12,250 To Costing P/L - 1,596 To Direct Expenses - 8,590 By Sales (WN 3) 4,560 77,520 To Factory Expenses - 4,255 6,000 1,00,095 6,000 1,00,095

42 Process Costing 29 Working Notes: (i) Calculation of per Unit and amount of the material transferred to Process II,the amount of sales and the costing profit : Total of Debit side(except P/L) Less: Normal Loss Per Unit 1,09, ,000 ` ,10, , ,09, ,000 (ii) Transfer to Next Process Sales 60% 40% 5,400 3,600 Material Transferred to Process II = Per Unit = 5, = ` 65,664 Sales = Per Unit = 3, = ` 50,400 Profit on Cash Sales = Selling p rice Cost price = 50,400 (3, ) = ` 6,624 Calculation of per unit and amount of the material transferred to Process Stock III, the amount of sales and the costing profit: Total of Debit side (Except P/L) 1,28,000 10,000 Less: Normal Loss 2, Per Unit 9,000 1,26, ,26, ` 14 9,000 Transfer to Next Process Sales 50% 50% 4,500 4,500

43 30 Advanced Costing and Auditing (iii) Material Transferred to Process III = Per Unit = 4, = ` 63,000 Sales = Per Unit = 4, = ` 72,000 Profit on Cash Sales = Selling price Cost price = 72,000 (4,500 14) = ` 9,000 Calculation of per Unit and amount of Finished Goods: Total of Debit side 10,0095 6,000 Less: Normal Loss 1, Per Unit Opening Stock and Closing Stock are Given 98, ,895 5,700 ` Finished Stock = Per Unit = 1, = ` 19,779 Sales = Per Unit = 4, = ` 77,520 Loss on Cash Sales = Selling price Cost price = 77,520 (4, ) = 77,520 79,116 = ` 1, V.B. Industries Ltd. is manufacturing a product which passes through three consecutive Processes i.e. Process P, Q and R. The following figures have been taken from their books for the year ended 31st March Particulars Process-P Process-Q Process-R No. of introduced ` 10, Rate per Unit of Introduced (`) Output during the Year () 8,500 7,500 6,500 Normal Loss (% on units introduced in each process) 10% 20% 15% Scrap Value per unit (`) Process Stock Opening () 1,500 2,000 1,500 Closing () 1,000 1,500 1,000 Value of Opening Stock per unit (`) ,200 Process Materials (`) 8,00,000 7,27,000 9,42,000 Wages (`) 3,25,000 3,75,000 4,09,000 Manufacturing Overheads (`) 2,85,000 3,26,000 2,13,000

44 Process Costing 31 Closing stock is to be valued at respective cost of each process. You are required to prepare: (a) Process A/c (b) Process Stock A/c (c) Normal Loss A/c (d) Abnormal Loss A/c (e) Abnormal Gain A/c (April 2010, B.Com.) Solution: In the books of V.B. Industries Ltd. Process-P To Input 10,000 40,00,000 By Normal Loss (10% of 10,000) 100 1,000 1,00,000 To Process Materials - 8,00,000 By Process P Stock (WN1) 8,500 50,15,000 To Wages - 3,25,000 By Abnormal Loss (WN1) 500 2,95,000 To Manufacturing Overheads - 2,85,000 10,000 54,10,000 10,000 54,10,000 Process-P Stock A/c To Opening 550 1,500 8,25,000 By Process Q 9,000 52,50,000 To Process P 8,500 50,15,000 By Closing stock 1,000 5,90,000 10,000 58,40,000 10,000 58,40,000 Process-Q To Process P Stock 9,000 52, 50,000 By Normal Loss (20% of 9,000) 150 1,800 2,70,000 To Process Materials - 7, 27,000 By Process Q Stock (WN2) 7,500 66,75,000 To Wages - 3, 75,000 To Manufacturing Overheads - 3, 26,000 To Abnormal Gain(WN2) 300 2,67,000 9,300 69, 75,000 9,300 69,75,000 Process-Q Stock A/c To Opening 850 2,000 17,00,000 By Process R (*) 8,000 70,40,000 To Process Q 7,500 66,75,000 By Closing 890 1,500 13,35,000 9,500 83,75,000 9,500 83,75,000 Process-R To Process Q Stock 8,000 70,40,000 By Normal Loss (15% of 8,000) 200 1,200 2,40,000 To Process Materials - 9,42,000 By Process R Stock (WN3) 6,500 79,95,000 To Wages - 4,09,000 By Abnormal Loss (WN3) 300 3,69,000

45 32 Advanced Costing and Auditing To Manufacturing Overheads - 2,13,000 8,000 86,04,000 8,000 86,04,000 Process-R Stock A/c To Opening 1,200 1,500 18,00,000 By Finished Stock 8,000 85,65,000 To Process R 6,500 79,95,000 By Closing 1,230 1,000 12,30,000 8,000 97,95,000 8,000 97,95,000 Normal Loss A/c To Process P 1,000 1,00,000 By Cash 1,000 1,00,000 To Process Q 1,800 2,70,000 By Abnormal Gain ,000 To Process R 1,200 2,40,000 By Cash 1,500 2,25,000 By Cash 1,200 2,40,000 4,000 6,10,000 4,000 6,10,000 Abnormal Loss A/c To Process P 500 2,95,000 By Cash ,000 To Process R 300 3,69,000 By Cash ,000 By Costing P/L - 5,54, ,64, ,64,000 Abnormal Gain A/c To Normal ,000 By Process Q 300 2,67,000 To Costing P/L - 2,22, ,67, ,67,000 Working Notes: (i) Calculation of per unit and amount of the material transferred to Process P stock A/c and Abnormal Loss: Total of Debit side 54,10,000 10,000 Less: Normal Loss 1,00,000 1,000 Per Unit = Calculation of Abnormal Loss in 53,10,000 9,000 53,10,000 = = ` = Input Normal Loss Material Transferred to Process Stock = 10,000 1,000 8,500 = 500.

46 Process Costing 33 (ii) (iii) Material Transferred to Process Stock = Per Unit = 8, = ` 50,15,000 Abnormal Loss = Per Unit = = ` 2,95,000 Calculation of per unit and amount of the material transferred to Process Stock Q and Abnormal Gain: Total of Debit side (Except Abnormal Gain) 66,78,000 9,000 Less: Normal Loss 2,70,000 1,800 Per Unit 64,08, ,08,000 7,200 ` 890 Calculation of Abnormal Gain in = Input Normal Loss Material Transferred to Process Stock Q = 9,000 1,800 7,500 = 300. Material Transferred to Process Stock Q = Per Unit = 7, = ` 66,75,000 Abnormal Gain = Per Unit = = ` 2,67,000 Calculation of per unit and amount of material transferred to Process Stock R and Abnormal Loss: Total of Debit side 86,04,000 8,000 Less: Normal Loss 2,40,000 1,200 Per Unit 83,64,000 6,800 83,64,000 6,800 ` 1,230 Calculation of Abnormal Loss in = Input Normal Loss Material Transferred to Process Stock R = 8,000 1,200 6,500 = 300. Material Transferred to Process Stock R = Per Unit = 6,500 1,230 = ` 79,95,000 Abnormal Loss = Per Unit = 300 1,230 = ` 79,95,000

47 34 Advanced Costing and Auditing 13. Solution: Particulars Process-A ` Process-B ` Process-C ` Indirect material 1,00,000 18,750 16,550 Direct Wages 56,250 35,000 44,900 Direct Expenses 51,250 6,875 11,500 Value of Opening Stock per unit Scrap Value per unit Output 9,750 9,625 8,000 Stock of process output: ,500 1,375 2, ,250 2,000 1,000 (%) (%) (%) Wastage ,000 of Direct Material were introduced in Process A at rate of ` 5 per unit. The percentage of wastage is computed on the number of units entering the process concerned. From the above information of DE Enterprise prepare: (i) Process A/c (ii) Process Stock A/c (iii) Normal Loss A/c (iv) Abnormal Loss A/c (v) Abnormal Gain A/c. Value closing stock at the respective process cost. (April 2006, B.Com.) Process-A To Input 10,000 50,000 By Normal Loss (2% of 10,000) ,700 To Process Materials - 1,00,000 By Process A Stock (WN1) 9,750 2,53,500 To Wages - 56,250 By Abnormal Loss (WN1) 50 1,300 To Direct Expenses - 51,250 10,000 2,57,500 10,000 2,57,500 Process-A Stock A/c To Bal. b/d 1,500 37,500 By Process B 10,000 2,58,500 To Process A 9,750 2,53,500 By Bal c/d 1,250 32,500 11,250 2,91,000 11,250 2,91,000 Process-B To Process A Stock 10,000 2,58,500 By Normal Loss (5% of 10,000) ,625 To Process Materials - 18,750 By Process B Stock (WN2) 9,625 3,17,625 To Wages - 35,000 To Direct Expenses - 6,875

48 Process Costing 35 To Abnormal Gain (WN2) 125 4,125 10,125 3,23,250 10,125 3,23,250 Process-B Stock A/c To Bal. b/d 1,375 42,625 By Process C 9,000 2,94,250 To Process B 9,625 3,17,625 By Bal c/d 2,000 66,000 11,000 3,60,250 11,000 3,60,250 Process-C To Process B Stock 9,000 2,94,250 By Normal Loss (10% of 9,000) ,900 To Process Materials - 16,550 By Process C Stock (WN3) 8,000 3,44,000 To Wages - 44,900 By Abnormal Loss (WN3) 100 4,300 To Direct Expenses - 11,500 9,000 3,67,200 9,000 3,67,200 Process-C Stock A/c To Bal. b/d 2,000 80,000 By Finished stock 9,000 3,81,000 To Process C 8,000 3,44,000 By Bal c/d 1,000 43,000 10,000 4,24,000 10,000 4,24,000 Normal Loss A/c To Process A 200 2,700 By Cash 200 2,700 To Process B 500 5,625 By Abnormal Gain 125 1,406 To Process C ,900 By Cash 375 4,219 By Cash ,900 1,600 27,225 1,600 27,225 Abnormal Loss A/c To Process A 50 1,300 By Cash (A) To Process C 100 4,300 By Cash (B) 100 2,100 By Costing P/L 2, , ,600 Abnormal Gain A/c To Normal Loss 125 1,406 By Process B 125 4,125 To Costing P/L - 2, , ,125

49 36 Advanced Costing and Auditing Working Notes: (i) Calculation of per unit and amount of the material transferred to Process A stock A/c and Abnormal Loss: (ii) (iii) Total of Debit side 2,57,500 10,000 Less: Normal Loss 2, Per Unit 2,54,800 9,800 2,54,800 9,800 ` 26 Calculation of Abnormal Loss in = Input Normal Loss Material Transferred to Process Stock = 10, ,750 = 50. Material Transferred to Process Stock = Per Uni = 9, = ` 2,53,500 Abnormal Loss = Per Unit = = ` 1,300 Calculation of per unit and amount of the material transferred to Process Stock B and Abnormal Gain: Total of Debit side (Except Abnormal Gain) 3,19,125 10,000 Less: Normal Loss 5, Per Unit = = 3,13,500 9,500 3,13,500 9,500 = ` 33 Calculation of Abnormal Gain in = Input Normal Loss Material Transferred to Process Stock B = 10, ,625 = 125. Material Transferred to Process Stock B = Per Unit = 9, = ` 3,17,625 Abnormal Gain = Per Unit = = ` 4,125 Calculation of per unit and amount of material transferred to Process Stock C and Abnormal Loss: Total of Debit side 3,67,200 9,000 Less: Normal Loss 18, ,48,300 8,100

50 Process Costing 37 Per Unit 3,48,300 8,100 Calculation of Abnormal Loss in = Input Normal Loss Material Transferred to Process Stock C ` 43 = 9, ,000 = 100. Material Transferred to Process Stock C = Per Unit = 8, = ` 3,44,000 Abnormal Loss = Per Unit = = ` 4, A product passes through three processes and 40,000 units were introduced in process a at cost of ` 30,000. The following further information is available :- Particulars Process A (`) Process B (`) Process C (`) Sundry Materials 20,000 4,000 2,000 Direct Labour 6,000 3,000 1,500 Direct Expenses 1,920 5,600 4,200 Output 38,000 37,000 34,000 Opening stock 6,000 3,000 4,000 Closing stock 4,000 5,000 9,500 Opening stock valuation (per unit) ` % of normal wastage % Scrap sale price (per unit) ` Solution: The closing stock in each process is valued at respective process cost. Prepare Process Accounts and Process Stock Accounts. Process-A (March 2005, B.Com.) To Input 40,000 30,000 By Normal Loss (4% of 40,000) , To Materials - 20,000 By Process A Stock (WN1) 38,000 57,000 To Direct labour - 6,000 By Abnormal Loss (WN1) To Direct Expenses - 1,920 40,000 57,920 10,000 2,57,500 Process-A Stock A/c To Op. Stock 6,000 8,400 By Process B 40,000 59,400 To Process A 38,000 57,000 By Cl ,000 6,000 44,000 65,400 44,000 65,400

51 38 Advanced Costing and Auditing Process-B To Process A Stock 40,000 59,400 By Normal Loss (5% of 40,000) 0.3 2, To Materials - 4,000 By Process B Stock (WN2) 37,000 69,520 To Direct labour - 3,000 By Abnormal Loss (WN2) 1,000 1,880 To Direct Expenses - 5,600 40,000 72,000 40,000 72,000 Process-B Stock A/c To Op. Stock 3,000 5,400 By Process C 35,000 65,520 To Process B 37,000 69,520 By Cl ,000 9,400 40,000 74,920 40,000 74,920 Process-C To Process B Stock 35,000 65,520 By Normal Loss (10% of 35,000) 0.4 3,500 1,400 To Materials - 2,000 By Process C Stock (WN3) 34,000 77,520 To Direct labour - 1,500 To Direct Expenses - 4,200 To Abnormal Gain (WN3) 2,500 5,700 37,500 78,920 37,500 78,920 Process-C Stock A/c To Op. Stock 4,000 10,000 By Finished Stock 28,500 65,860 To Process B 34,000 77,520 By Cl ,500 21,660 38,000 87,520 38,000 87,520 Working Notes: (i) Calculation of per unit and amount of the material transferred to Process A stock A/c and Abnormal Loss: Total of Debit side 57,920 40,000 Less: Normal Loss 320 1,600 Per Unit 57,600 38,400 = ` 66,75,000 ` ,600 38,400 Calculation of Abnormal Loss in = Input Normal Loss Material Transferred to Process Stock = 40,000 1,600 38,000

52 Process Costing 39 (ii) = 400. Material Transferred to Process Stock = Per Unit = 38, = ` 57,000 Abnormal Loss = Per Unit = = ` 600 Calculation of per unit and amount of the material transferred to Process Stock B and Abnormal Loss: Particulars ` ` (iii) Total of Debit side 72,000 40,000 Less: Normal Loss 600 2,000 Per Unit 71,400 38,000 71,400 38,000 ` 1.88 Calculation of Abnormal Loss in = Input Normal Loss Material Transferred to Process Stock B = 40,000 2,000 37,000 = 1,000. Material Transferred to Process Stock B = Per Unit = 37, = ` 69,520 Abnormal Loss = Per Unit = 1, = ` 1,880 Calculation of per unit and amount of material transferred to Process Stock C and Abnormal Gain: Total of Debit side (Except Abnormal Gain) 73,220 35,000 Less: Normal Loss 1,400 3,500 Per Unit 71,820 31,500 ` ,820 31,500 Calculation of Abnormal Gain in = Input Normal Loss Material Transferred to Process Stock C = 35,000 3,500 34,000 = 2,500. Material Transferred to Process Stock C = Per Unit = 34, = ` 77,520 Abnormal Gain = Per Unit = 2, = ` 5,700

53 40 Advanced Costing and Auditing Transfer to Warehouse 15. M/S XYZ and company manufacture a chemical which passes through three Processes. The following particulars gathered for the month of January 2009: Solution: Particulars Process - I Process-II Process-III Materials (Litre) Material Cost (`) 38,400 18,800 6,000 Wages (`) 7,680 7,600 2,200 Normal Loss (% of input of the process) Scrap sale Value (`) - ` 3 Per Litre - Output transferred to next process % 50% 40% - Output transferred to Warehouse % 50% 60% 100% Overheads are 50% of Direct Wages You are required to prepare Process A/c In the books of M/S XYZ Process- I (April 2007, B.Com.) To Materials ,400 By Normal Loss (4% of 400) To Wages - 7,680 By Process II (WN1) ,960 To Overheads - 3,840 By Trans. to warehouse (WN 1) , , ,920 Process-II To Process I ,960 By Normal Loss (5% of 400) To Materials ,800 By Process III (WN2) ,040 To Wages - 7,600 By Trans. to warehouse (WN 2) ,060 To Overheads - 3, , ,160 Process-III To Process II ,040 By Normal Loss (5% of 320) To Materials 168 6,000 By Trans. to warehouse (WN 3) ,340 To Wages - 2,200 To Overheads - 1, , ,340

54 Process Costing 41 Working Notes: (i) Calculation of per unit and amount of the material transferred to Process I A/c : Total of Debit side 49, Less: Normal Loss - 16 Per Unit = = 49,920 = ` , (ii) Transfer to Next Process Transfer to Warehouse 50% 50% Material Transferred to Process II = Per Unit = = ` 24,960 Material Transferred to Warehouse = Per Unit = = ` 24,960 Calculation of per unit and amount of the material transferred to Process Stock II: Total of Debit side 55, Less: Normal Loss , Per Unit = = 55, = ` (iii) Transfer to Next Process Transfer to Warehouse 40% 60% Material Transferred to Process II = Per Unit = = ` 22,040 Material Transferred to Warehouse = Per Unit = = ` 33,060 Calculation of per unit and amount of Finished Goods: Total of Debit side 31, Less: Normal Loss ,

55 42 Advanced Costing and Auditing Per Unit = = 31, = ` Finished Stock = Per Unit = = ` 31,340 Sale of By-product 16. In an Oil refinery, the product passes through three different processes, viz., Crushing, Refining and Finishing. The following information is available for the month of March 2009: Solution: Particulars Crushing Refining Finishing Raw Material (500 tons Copra) 9,00, Wages 32,000 23,600 23,500 Power 4,800 4,000 6,000 Sundry Materials 2,000 7,600 - Factory Expenses 2,400 4,000 3, tons of oil cake was sold for ` 60,000 and 275 tons of crude oil was obtained from crushing process.25 tons of byproduct of crushing process fetched ` 3, tons of byproduct of refining process was sold for ` 3,600 and 250 tons of refined oil was obtained. 10 tons of finished oil was sold for ` 4,800 and 240 tons of finished oil was stored in drums. The establishment expenses for the month amounted to ` 14,000 which is to be charged to the three processes in the proportion of 3:2:2 The cost of the drums for storing finished oil was ` 84,100. Prepare accounts for all three processes. (April 2004, B.Com) In the books of Crushing Process Particulars Tons ` Particulars Tons ` To Raw Material 500 9,00,000 By Sale of Oil Cake ,000 To Wages - 32,000 By Sale of By- Products 25 3,600 To Power - 4,800 By Refining Process 275 8,83,600 To Sundry Material - 2,000 To Factory Expenses - 2,400 To Establishment Exp. - 6, ,47, ,47,200 Refining Process Particulars Tons ` Particulars Tons ` To Crushing process 275 8,83,600 By Sale of By- Products 25 3,600 To Wages - 23,600 By Finishing Process 250 9,23,200 To Power - 4,000 To Sundry Material - 7,600 To Factory Expenses - 4,000

56 Process Costing 43 To Establishment Exp. - 4, ,26, ,26,800 Finishing Process Particulars Tons ` Particulars Tons ` To Refining Process 250 9,23,200 By Sale of Oil 10 4,800 To Wages - 23,500 By Finished Stock (Cost of Oil) ,39,800 To Power - 6,000 To Sundry Material - 3,800 To Factory Expenses - 4,000 To Establishment Exp. - 84, ,44, ,44,600 Working Notes: (i) Calculation of per unit and amount of the material transferred to Process Refining : Total of Debit side Less: Sale of Oil Cake Less : Sale of By-product 9,47,200 60,000 3, ,8, ,83,600 Cost Per Unit ` 3, Material Transferred to Next Process = Per Unit = 275 3, = ` 8,83,600 (ii) Calculation of Per Unit and amount of the material transferred to Process Finishing : (iii) Total of Debit side 9,26, Less : Sale of By-product 3, ,23, ,23,200 Cost per Unit ` 3, Material Transferred to Next Process = Per Unit = 250 3, = ` 9,23,200 Calculation of per unit and amount of Finished Goods: Cost per Unit Total of Debit side 10,44, Less : Sale of Oil 4, ,39, ` 4, ,39, Finished Goods = Per Unit = 240 4, = ` 10,39,800

57 44 Advanced Costing and Auditing University Sums 17. Product X is obtained after it is processed through three processes. The following information is available for the month of March 2009: Solution: Particulars Total (`) Process A (`) Process B (`) Process C (`) Materials Consumed 22,500 10,400 8,000 4,100 Direct Labour 29,320 9,000 14,720 5,600 Production Overheads 29, ,000 were initially introduced in Process A. Production Overhaeds to be distributed as 100% on direct labour. The actual output and normal loss of the respective processes are: Process Output () % of Normal Loss to Input Value of Scrap A 1, B 1, C 1, There was no stock of material or work in any process. You are required to prepare Process A/c (Oct. 1998, B.Com.) In the books of Process- A To Input 2,000 8,000 By Normal Loss (10% of 2,000) To Materials - 10,400 By Process B (WN1) 1,800 36,000 To Direct Labour - 9,000 To Production Overheads - 9,000 2,000 36,400 2,000 36,400 Process- B To Process A 1,800 36,000 By Normal Loss (20% of 36,000) ,440 To Materials - 8,000 By Abnormal 50 ` 80 4,000 To Direct Labour - 14,720 By Process C (WN 2) 1,360 68,000 To Production Overheads - 14,720 1,800 73,440 1,800 73,440 Process - C To Process B 1,360 68,000 By Normal Loss (25% of 1,360) ,700 To Materials - 4,100 By Finished Goods (WN 3) 1,080 86,400 To Direct Labour - 5,600 To Production Overheads - 5,600 To Abnormal Gain (WN 3) 60 4,800 1,420 88,100 1,420 88,100

58 Process Costing 45 Working Notes: (i) Calculation of per unit and amount of the material transferred to Process B : (ii) (iii) Total of Debit side 36,400 2,000 Less : Normal Loss Cost Per Unit 36,000 1,800 36,000 ` 20 1,800 Material Transferred to Next Process = Per Unit = 1, = ` 36,000 Calculation of per unit and amount of the material transferred to Process C and Abnormal Loss: Total of Debit side 73,440 1,800 Less : Normal Loss 1, Cost Per Unit 72,000 1,440 ` 50 72,000 1,440 Calculation of Abnormal Loss in = Input Normal Loss Material Transferred to Next Process = 1, ,360 = 80. Material Transferred to Next Process = Per Unit = 1, = ` 68,000 Abnormal Loss = Per Unit = = ` 4,000 Calculation of per unit and amount of Finished Goods and Abnormal Gain: Total of Debit side (except Abnormal Gain) 83,300 1,360 Less: Normal Loss 1, ,600 1,020 Cost Per Unit 81,600 1,020 ` 80 Calculation of Abnormal Gain in = Input Normal Loss Finished Goods = 1, ,080 = 60. Finished Goods = Per Unit = 1, = ` 86,400 Abnormal Gain = Per Unit = = ` 4,800

59 46 Advanced Costing and Auditing Theory Questions Q.1. Q.2. Q.3. Q.4. Q.5. Q.6. Q.7. Q.8. State any four features of process costing. Define process costing, What do you mean by normal loss? How is it treated in process cost accounts? What do you mean by abnormal loss? How is it treated in process cost accounts? Distinguish between normal loss and abnormal loss. What do you mean by abnormal effect? How is it treated in process cost accounts? Explain the advantages of process costing. Explain the disadvantages of process costing. Unsolved Sums Q.1. ABZ Ltd. manufactures a product which passes through two processes. The cost records shows the following particulars for the month ended on 31st March 2013 Input to Process A is ` 5 per Unit. Q.2. Q.3. Particulars Process-A Process-B Materials (`) 1,00,000 1,10,000 Labour (`) 45,000 55,000 Expenses (`) 55,000 65,000 Normal Loss () 5,000 5,000 Scrap Value Per Kg. (`) Actual Output () 45,000 40,000 You are required to prepare Process Accounts. Also show process cost per unit for each process AY Ltd. manufactures a chemical product which passes through three consecutive processes. The cost records shows the following particulars for the month ended on 30th June Input to Process I is ` 60 per Unit. Particulars Process-A Process-B Process-C Materials (`) 1,00,000 2,00,000 2,00,000 Labour (`) 60,000 1,60,000 1,50,000 Expenses (`) 10,000 40,000 50,000 Normal Loss (% on input) (%) 10% 10% 10% Scrap Value Per Kg. (`) Actual Output () 36,000 32,400 29,160 You are required to prepare Process Accounts. Also show process cost per unit for each process Jai Industries Ltd. is manufacturing a product which passes through three consecutive processes, Process-A, Process- B and Process C. The following figures have been taken from their books for the month ended on 31st Jan., Quantitative Information Particulars Process-I Process-II Process-III Basic Raw Material at ` 10 per kg. (Kgs) 50, Output during the year (Kgs.) 48,000 46,400 44,500

60 Process Costing 47 Other Additional Information Process Material (`) 3,00,000 5,40,000 7,00,000 Direct Wages Factory Overheads 80% of Process Material 80% of Direct Wages 70% of Process Material 90% of Direct Wages 60% of Process Material 75% of Direct Wages Machine Overheads (`) 22,000 16,980 15,620 Normal Loss (% on input) (%) 2% 4% 4% Scrap Value Per Kg. (`) You are required to prepare Process Accounts. Q.4. Tractor Ltd. manufactures a chemical product which passes through three consecutive processes. The cost records shows the following particulars for the month ended on 31st March Q.5. Q.6. Input to Process I is ` 35 per Unit. Particulars Process-I Process-II Process-III Materials (`) ,825 1,03,345 Labour (`) ,520 75,645 Expenses (`) ,350 18,750 Normal Loss (% on input) (%) 5% 10% 5% Scrap Value Per Kg. (`) Actual Output () 23,000 20,000 19,500 You are required to prepare Process Accounts., Abnormal Loss A/c, Abnormal Gain A/c. Also show process cost per unit for each process A product passes through three processes. The following cost data have been extracted from the books of a company. Particulars Process I (`) Process II (`) Process III (`) Process Materials 1,25,000 1,60,000 1,90,000 Direct Labour 65,000 75,000 80,000 Manufacturing Expenses 15,000 20,000 20,000 Other Factory Expenses 15,000 15,000 20,000 The Following additional data is obtained. Process Output () % of Normal Loss to Input Value of Scrap A 10,000 2% 100 B 13,500 4% 105 C 13, % 120 4,000 were initially introduced in Process A at a cost of ` 52,000. There was no stock of material or work in progress at the beginning or at the end. The output of each process passes directly to the next process and finally to finished stock. You are required to prepare: Process A/c, Normal Loss A/c, Abnormal Loss A/c, Abnormal Gain A/c A product passes through three Processes i.e. Process I, II and III. The following details are available from the books for the year ended

61 48 Advanced Costing and Auditing Q.7. Particulars Process -I Process -II Process -III No. of introduced `4, Cost per Unit (`) Sundry Materials (`) 20,800 16,000 23,000 Direct Labour (`) 16,000 24,000 32,000 Direct Expenses (`) 12,000 16,000 40% of Direct Labour Production Overheads 25% of Direct Labour 50% of Direct Labour 80% of Direct Labour Normal Loss (% of input of the Process) 5% 10% 15% Scrap Value per unit (`) Actual Output () 3,800 3,360 2,940 The output of each process passes directly to the next process and finally to the finished stock. You are required to prepare: Process A/c, Normal Loss A/c, Abnormal Loss A/c, Abnormal Gain A/c A product passes through three processes A, B and C. The following cost data have been extracted from the books of a manufacturing company. Particulars Total (`) Process A (`) Process B (`) Process C (`) Process Materials 22,500 10,400 8,000 4,100 Direct Wages 29,320 9,000 14,720 5,600 Production Expenses 29, Q.8. 2,000 at ` 4 each, were introduced in Process A. Production Overheads is recovered at 100% of Direct Labour. The actual output and normal loss of the respective processes are: Process Output () % of Normal Loss to Input Value of Scrap A 1,800 10% 2 B 1,360 20% 4 C 1,080 25% 5 There is no stock or work in progress in any process. Prepare Process A/c. (Oct. 1998, T.Y. B.Com.) Ajay manufacturing Pvt. Ltd. provides you the following information for the month of March, 2009 Particulars Process-X Process-Y Process-Z Raw Material introduced in the process () 6,000 1,220 1,300 Cost of Raw Material per Unit (`) Labour Charges (`) 17,000 12,000 7,500 Manufacturing Overheads (`) 8,080 8,100 4,800 Normal Loss (% on number of units entering to the process having no realizable value) (%) Scrap Value (% on number of units entering to the pocess having no realizable value) 4% 5% 3% 6% 5% 4% Scrap Value Per Unit Output transferred to the Next Process (%) 70% 60% 100%

62 Process Costing 49 Output sold at the end of the process (%) 30% 40% - Selling price per unit of the output sold at end of the process (`) Q.9. Q.10. Q You are required to prepare Process Accounts indicating clearly the profit or loss in each process and Costing P/ L A/c. (April 1998, B.Com.) A Manufacturing Co. supplies you the following information for the year ended 31st March 2009 Particulars Processes A B C Raw Material introduce in the process () 24,000 4,880 5,200 Cost of Raw Material per unit (`) Direct Wages (`) 68,000 48,000 30,000 Production Overheads (`) 32,320 32,400 1,92,000 Normal Loss (% on Number of units entering to process having scrap values) Wastage (%on number of unit s entering to the process having scrap values) 4% 5% 4% 6% 5% 4% Scarp value per unit of wastage (`) Output transferred to subsequence process 70% 60% - Output sold at the end of the process 30% 40% 100% Selling price per unit of the output sold at the end of the process (`) You are required to prepare the process A, B and C accounts showing the profit earned at each process. A product passes through three processes A,B and C. 30,000 units at a cost of ` 20 per unit were issued to process A. The other direct expenses were as follows :- Particulars Process A (`) Process B (`) Process C (`) Sundry materials 20,000 25,000 30,000 Direct labour 15,000 20,000 18,000 Direct expenses 5,000 5,000 5,000 The wastage of process A was 5% and in process B was 4% of inputs. The wastage of process A was sold at ` 2 per unit and that of process B at ` 3 per unit and that of process C at ` 5 per unit. The overhead charges were 160% of Direct labour. The final product was sold at ` 10 per unit fetching a profit of 20% on sales. Prepare all process accounts. Coffee Ltd. manufactures flavored coffee which passes through three processes. The following particulars are available for the year ended :- Particulars Process I II III Raw material (kg.) 25,000 10,000 40,000 Cost of raw materials (per kg. `) 5 4 8

63 50 Advanced Costing and Auditing Q.12. Q.13. Direct wages (`) 12,000 16,000 10,000 Direct expenses (`) 12,200 18,000 15,000 Factory expenses (`) 21,000 12,000 8,000 Normal loss (%) 4% 8% 5% Weight loss (%) 6% 2% Nil Scrap sale value per kg. (`) Output transferred to next process 60% 50% Nil Output sold 40% 50% 80% Selling price of output per kg Transferred to finished stock Nil Nil 20% % of normal loss and % of weight loss are based on total input in the process. Prepare Process Account and profit and loss A/c. A Industries Ltd. is manufacturing a product which passes through three consecutive Processes i.e. Process P, Q and R. The following figures have been taken from their books for the year ended 31st March Particulars Process-P Process-Q Process-R No. of introduced 50, Rate per Unit of Introduced (`) 2, Output during the Year () 42,500 37,500 32,500 Normal Loss (% on units introduced in each process) 10% 20% 15% Scrap Value per unit (`) ,000 Process Stock Opening () 7,500 10,000 7,500 Closing () 5,000 7,500 5,000 Value of Opening Stock per unit (`) 2,750 4,250 6,000 Process Materials (`) 40,00,000 36,35,000 47,10,000 Wages (`) 16,25,000 18,75,000 20,45,000 Manufacturing Overheads (`) 14,25,000 16,30,000 10,65,000 Closing stock is to be valued at respective cost of each process. You are required to prepare: Process A/c, Process Stock A/c, Normal Loss A/c, Abnormal Loss A/c, Abnormal Gain A/c Particulars Process-A ` Process-B ` Process-C ` Indirect material 2,00,000 36,750 25,550 Direct Wages 76,250 45,000 54,900 Direct Expenses 61,250 8,875 10,500 Value of Opening Stock per unit Scrap Value per unit Output 12,750 10,625 9,000 Stock of process output:

64 Process Costing 51 Q ,500 1,375 2, ,250 3,000 3,000 (%) (%) (%) Wastage ,000 of Direct Material were introduced in Process A at rate of ` 10 per unit. The percentage of wastage is computed on the number of units entering the process concerned. From the above information of DE Enterprise prepare: i) Process A/c ii) Process Stock A/c iii) Normal Loss A/c iv) Abnormal Loss A/c v) Abnormal Gain A/c. Value closing stock at the respective process cost. A product passes through three processes and 80,000 units were introduced in process a at cost of ` 60,000. The following further information is available :- Particulars Process A (`) Process B (`) Process C (`) Sundry Materials 40,000 8,000 4,000 Direct Labour 12,000 6,000 3,000 Direct Expenses 3,840 11,200 8,400 Output 76,000 74,000 68,000 Opening stock 12,000 6,000 8,000 Closing stock 8,000 10,000 19,000 Opening stock valuation (per unit) ` % of normal wastage % Scrap sale price (per unit) ` The closing stock in each process is valued at respective process cost. Prepare Process Accounts and Process Stock Accounts. Q.15. A product of a company passes through three Processes, Process A, Process B and Process C, to obtain three consecutive grades of the product. The details relating to its production for the year 2008 are as follows: Q.16. Particulars Process-A Process-B Process-C Raw Materials used 1,000 tonnes - - Cost per tone ` Manufacturing Wages and Expenses ` 75,000 ` 41,000 ` 11,000 Weight Lost 5% 10% 20% Scrap sold at ` 50 per tone 50 tonnes 30 tonnes 51 tonnes Sale price per tonne Management expenses were ` 15,000, selling expenses were ` 10,000 and interest on borrowed capital was ` 5,000 Two third output of process A and one-half output of process B are passed on the next process and the balance was sold. You are required to prepare Process Cost accounts and Costing P/L for the year 2008 (Oct. 1995, B.Com.) Divine Oil Process Pvt. Ltd., submits the following information. The product passes through two processes viz. Filtering and Refining. The output of filtering process can be sold in the

65 52 Advanced Costing and Auditing Q.17. market as filtered oil or it can pass to next process. The output of Refining process is the final finished product. From the following information, prepare, Process Accounts, Abnormal Loss A/c, Abnormal Gain A/c and Costing P/L A/c to compute the amount of profit or loss for the month of March 2009 Particulars Filtering Refining Crude ` 30/- Per Liter Litres 80,000 - Process Materials consumed ` 4,40,000 6,38,000 Wages ` 8,57,200 12,18,500 Manufacturing Overheads ` 2,18,800 3,46,700 Normal Waste (% of Input) % 5 10 Scrap Value of waste per litre ` Filtered oil transferred to Refining Process Litres 51,000 - Output sold Litres 24,000 46,500 Sales price per litre ` (Oct. 2000, B.Com.) Product A is manufactured after it is passes through three processes. The following information is obtained from the records of the company, for the year ended 31st December 2008: Particulars Process I (`) Process II (`) Process III (`) Direct Materials 2,500 2,000 3,000 Direct Wages 2,000 3,000 4,000 Production Overheads are ` 9,000, 1,000 units at ` 5 each were introduced to Process I. There was no stock of material or work in progress at the beginning and at the end of the year. The output of each process passes direct to the next process and finally to the finished stock account. Production overheads are recovered on 100% on Direct Wages. Process Output () % of Normal Loss to Input Value of Scrap I II III any process. You are required to prepare Process Cost A/c, Abnormal Gain, Loss Accounts (April 1995, B.Com.)

66