Help with Process Costing needed

Hi all. I have been watching these forums for a while and have decided to join rather than cyberstalk everyone. I have been meaning to join and get involved for a while now but am a bit of a serial procrastinator. Hence, I would like to introduce myself now and say hello to all the new and old members. My name is Natalie, I live in London and I am studying for my level 3. I am on the lookout for a study buddy or just a study mate who I can e-mail every now and again. If there is anyone who is interested and who feels like getting in touch then please PM me and I can give you my Yahoo address if you would like it (I have messenger).

I am having problems with two difficult questions that I have only managed to partially complete from the Kaplan Financial Costs and Revenues text/workbook. I would greatly appreciate any help and insight.
My problems are with the drawing up of the normal and abnormal loss accounts.

Question 1:
Y PLC have the following process costs:

Materials (1,000 litres) @ £5,000
Labour and overheads @ £427

Normal losses and gains:
Normal loss is at 10% so the normal loss is 100 litres.
The expected output is thus 1,000 litres - 100 litres = 900 litres.
The actual output is 920 litres.
920 litres - 900 litres = 20 litres abnormal gain

The normal loss scrap value is £0.27 per litre thus the normal loss scrap proceeds =
100 litres x £0.27 = £27

Output value:
£5,427 (cost of inputs) - £27 (scrap proceeds) = £5,400
£5,400/900 litres (expected output) = £6 per litre
Abnormal gain = 20 litres x £6 = £120
Output (includes abnormal gains) = 920 litres x £6 = £5,520

I am required to prepare a process account, a normal loss account and an abnormal loss account. I have managed to produce a process account with no trouble. However, I am unable to draw up the abnormal loss account and the normal loss account.


Question 2

Company x manufacture a product that which goes through two processes. The information is as follows:

Process A:

Direct materials (2,000kg) @ £10,000
Direct labour hours @ £7,200
Process costs @ £8,400
Overheads @ £4,320
Total = £29,920

Normal and abnormal losses:
Normal loss is at 20% so the normal loss is 400kg. The scrap value of the normal loss is £0.50 per litre so the normal loss scrap proceeds = £0.50 per kg x 400kg = £200
The expected output is 2,000kg - 400kg = 1,600kg
The actual output is 1,400kg so,
1,400kg - 1,600kg = (200kg) This is an abnormal loss

Output value:
£29,920 (input costs) - £200 (scrap proceeds)/1,600kg = £18.575 per kg
Abnormal loss = 200kg x £18.575 = £3,715
Output (including abnormal loss) = 1,400kg x £18.575 = £26,005

Process B:

Input from process A (1,400kg) @ £26,005
Input materials (1,400kg) @ £16,800
Factory overheads @ £2,520
Direct labour hours @ £4,200
Process costs @ £5,800
Total = £55,325

Normal losses and abnormal gains:
Normal loss is at 10@ so the normal loss is 280kg. The expected output is therefore 2,800kg - 280kg = 2,520kg.
The actual output is 2,620kg so,
2,620kg - 2,520kg = 100kg abnormal gain

The normal loss scrap value is £1.825 per kg. The scrap proceeds are therefore 280kg x £1.825 = £511

Output value:
£55,325 (input costs) - £511 (scrap proceeds)/2,520kg (expected output) = £21.7515
Output = 2,620kg x £21.7515 = £56,989 (rounded up)
Abnormal gain = 100kg x £21.7515 = £2,175 (rounded up)

I am again required to draw up a process account, a normal loss account and an abnormal gain account as with the previous question. I have however, likewise only managed to draw up a process account.
In one instance I have managed to compile two of the other accounts and confirm the answers however, I am unable to come to any logical reasoning as to WHY the answers are what they are and not the way that I would have expected them to be.

If somebody in the community could help me then I would be extremely grateful.




  • ariadne
    ariadne Registered Posts: 218
    I can't help with costing yet but I am about to begin the module. I'm in London too. I have used Kaplan books but have found some mistakes and it seems more long winded and lacking info to help answer the questions at times. I'm using BPP for costing and might start tonight. If I get to this bit in time I will see if I can have a look. I'm a little scared but also excited that it may be more challenging. Are you self studying or do you have a distance provider? I'm self studying but take the exams with Kaplan as they seem to have better availability.
  • NatalieK
    NatalieK Registered Posts: 9
    Hi Ariadne. I have actually noticed the same thing with Kaplan books. I have gone through selected chapters with a fine tooth comb, studied them to the letter and yet 1 or 2 questions will be unanswerable because Kaplan have left some details out (there aren't many of these questions mind you). Nevertheless, I'm not sure whether these questions are unnecessary and slightly higher level (a kind of, further reading if you will) and the information given by the chapter is actually all that is required by the AAT exams. Kaplan do every now and then like to add in some killer questions.
    I have also found a few mistakes but I think that instead of being a negative thing, it actually helps keep you on your toes and spurs you to think.

    I am self-studying the AAT. I don't have a distance learning provider but I am considering opting for one for my level 4. I know that the level 4 builds on the level 3 and having a phone tutor will at least allow me to discuss and consolidate knowledge that I already have.
    I may try the BPP books as I have never tried them before. I have heard that they are very good. How are you finding them? Where in London are you based roughly?
  • ariadne
    ariadne Registered Posts: 218
    I'm just coming up to process costing, hopefully will do the chapter today and see if the above makes sense to me after that. Although it feels like I need to finish the whole module to know how to pull all the pieces together for costs and revenues. I had a search for how hard the exam was and saw someone recommend Kaplan over BPP for it. I might look for a copy on ebay and use it to revise. It's definitely the most detailed module I've done so far, comparable to AP1 which I got half way through but wanted to start a new module as I was losing motivation. I have kaplan for the AP modules and I do like it when they teach something and say it isn't needed for the exam, or make it clear what is needed. I liked the kaplan engage facility too. BPP apparently has similar but I've only used secondhand books so far. BPP seems more wordy than Kaplan but so far it seems ok. With all the books it can be difficult to understand the descriptions before trying an example myself.

    I will definitely buy new books for L4, it's not worth the risk if I go for it. I'm a little scared of going it alone for L4 and might look at colleges nearby. I'm in west London so plenty of options here and over the river. It's very expensive though and I'd probably have to wait until September. I've heard some modules are easier than others so some could be done self study and others I could buy the module distance or even classroom. And there seems to be plenty of revision workshops.

    Which modules have you done and how did you find them?
  • SandyHood
    SandyHood Registered, Moderator Posts: 2,034 mod
    Dear Natalie

    You have done all the hardwork on q1 YPlc

    Start two accounts

    1 The normal loss account
    Debit the £27.00 from the process account

    2 The abnormal gain account
    Credit the £120 from the process account

    The next step is to deal with the consequence of the abnormal gain. Normal production should lead to a loss of 100 litres, but on this job only 80 litres (100 Normal Loss less 20 Abnormal gain) were lost. These are entered in both the abnormal gain and the normal loss accounts using the normal loss value per litre.

    1. The normal loss account
    Credit 20 litres at £0.27 £5.40

    2 The abnormal gain account
    Debit 20 litres at £0.27 £5.40

    Then balance off.
    1. The normal loss account has a debit balance b/f of 80 litres at £0.32 worth £21.60
    2. The abnormal gain account has a credit balance of 0 litres and £114.60. At the period end there would be a debit for this amount and it would be credited to the profit or loss statement.

    I hope this helps

  • NatalieK
    NatalieK Registered Posts: 9
    Hi Ariadne,

    I like the Kaplan books also. I'm glad that you mentioned that BPP books are more wordy than Kaplan as I was considering trying some of the other books that people have been recommending and I would rather go for the book that uses as few words as possible and plenty of worked examples. Sometimes you can get lost in descriptions of complicated concepts where a diagram or an example would have sufficed or even explained it better. Sometimes a picture is worth a thousand words. Also I think that text with a myriad of details is very easy to forget unless you have as many examples as possible to 'glue' it all together. I also find that some books go at length to explain self-explanatory diagrams which is quite frustrating. I find diagrams much easier to remember and level 3 is also wordy enough (in my opinion)!
    I have done AP1 and I am currently doing three other units together. I am studying for AP2, Professional Ethics and Costs and Revenues. I didn't find AP1 so bad, as there aren't a huge amount of details to learn, a lot of what you do is common sense and with the diagrams that you learn, many of the details come flooding back to mind anyway. Costs and Revenues I am finding to be the most interesting and enjoyable module so far as it is easier to relate to the real world and is not so abstract. Also, the chapters aren't very similar to one another so the module doesn't become confusing with detail and the module is more about techniques which again brings all the details together and allows you to see things as a whole. I've tried some exam questions and I quite like this module. It's challenging but do-able.

    The module that I am finding gruelling is Professional Ethics. The book is probably less than half the thickness of the AP1 book but there is a lot of terminology to learn, many definitions and similar details and no shortcuts. I find this difficult because I think that there is a lot more to learn unlike AP1 which is more about repetition. For me personally, the tasks also require more thought because rather than just applying techniques that you've practiced many times before, you're applying concepts and ideas from the syllabus to varied tricky and novel ethical situations that try to catch you out. You need to know the syllabus quite well because I think that one question will test you on more of the syllabus than other modules and also you might think that the answer is obvious and on remembering a detail a few chapters back you may have a eureka moment and realise that you were completely wrong.

    I think that for my level 4 I will also self study a proportion of the modules and purchase a distance learning package for the remaining units. I generally find independent study a bit easier as you can mix and match more techniques, learn in different ways that work for you and go back to areas that you do not understand as many times a you want before moving on as well as fill in areas that helps make what you are learning clearer. I don't always find that lecturers make subjects clearer.

    Sandy thank you so much for answering my problem. I wrote your solutions down, entered the figures into t-accounts and had a think through the answers and your comments. I have no problems with this area anymore. I tried two different books and couldn't crack the answer so I am very grateful for your post.
  • ariadne
    ariadne Registered Posts: 218
    I'm glad you didn't find AP1 too bad, the book is enormous! I got five chapters in (seven to go) before I got bored but the break should help motivate me. I was happy to have a bit of double entry in C&R and you are right that it did come flooding back and I'm surprised how well it has stuck, like riding a bike. Hopefully the rest has stuck well too and the new stuff. I have two chapters left of C&R, long and short term decision making. I'm hoping it will be logical so I don't need to memorise anything more, and then I will start the revision, it's a big subject so lots of bits to pull together and remember. I will rejoin AAT on Monday and then book the exam - are you ready to book soon?

    I used Kaplan for ethics and revised with an Osbourne book. I'm sure there was a sentence in the Kaplan book that didn't actually make any sense at all. The work I've done has prepared me for that type of learning and I did a very wordy degree so I felt a bit more in my comfort zone. I used a few techniques to memorise the different elements like the PPCIO one, I'm afraid that knowledge isn't flooding back but I remember using the MyAAT resources with the different problems and identifying the threats which helped. I also printed off the full code off the website and read and highlighted it. It's very dry.

    How are you finding the AP2? That is one module I have no idea how it will look as I haven't peaked at the book yet and won't until AP1 is done. I hope to sit both on the same day, I'm told this is a good idea as they follow on from each other. I'll see how I get on once C&R is done as they will be the last exams to sit.

    Are you working in accounting at the moment? I'm not but have a little voluntary experience which I may go back to once I'm feeling better after an operation a few months ago. I also had a little work experience doing invoices, purchase orders, accruals and expenses. I really need to do a new CV.
  • SandyHood
    SandyHood Registered, Moderator Posts: 2,034 mod
    Dear Natalie

    Wileys published a book I wrote on cost accounting just over a year ago:
    Management and Cost Accounting For Dummies

    I used to have classes at Chichester College. When I did, I used the book for the following AAT units: Costs and Revenues (level 3), Financial Performance (level 4) and Budgeting (level 4).
    I think that more conventional text books have been replaced by specific unit based manuals from Osborne, Kaplan etc. But sometimes the wording in a text book can just help get over a stumbling block that you might have in your studies.

    If you go past a book shop or a library and fancy having a look at the book, you may find it a help. If you buy a copy, thank you. I think it would help supplement your understanding.

    Sorry, a bit of advertising.

  • NatalieK
    NatalieK Registered Posts: 9
    edited November 2014
    Hi Ariadne,

    I apologise for not replying to your post much sooner. I've had a bit of a hectic two weeks starting with my internet playing up and also learning, that I'm an auntie! I assume that you've already peeked at the AP2 book and no doubt concluded that there was nothing to be scared of! Have you taken your Costs and Revenues exam yet?
    I am not ready to book any exams yet but I think that I should be ready in less than a week. I will probably book my AP2 exam on Friday. I am currently doing a bit of revision with past papers and ticking off of the syllabus that I had printed off, any particular topics that I would like to brush up on. I don't normally pay attention to examiner's advice about 'favourite topics' as I think that a good grounding in all the topics of level 3 should make completing level 4 a lot easier. I also worry that neglected topics in level 3 exams could easily become the new favourite topics on the level 4 exams so I like to learn things to completion which shouldn't require that much more effort.
    How are you finding your other modules and what are you planning on booking next?
    Thank you for the advice with respects to the ethics module. I have finished about half the book and I am finding it very daunting. Learning the information is tough and as you mentioned, it doesn't all come flooding back either once you do. I suppose repetition and exposing yourself to as many different past exam questions outlining different scenarios is the best thing that you can really do. I printed out the AAT Code of Ethics like you suggested. I stuffed the papers in bound punched pockets and it now takes proud place on my bedside cabinet for me to brainwash myself with every night. It's slowly working. It is very dry as you mentioned and I am considering just writing a long essay about each topic in order to reason the different concepts to myself so that things make more sense, gel and become more memorable.
    I am not currently working in accountancy unfortunately and have very little experience in accounts. You certainly have much more experience than I do. I would like to take a part-time voluntary role in accounts which I will be trying to apply for soon and handing out an updated CV to as many small organisations as I can. I hope that you are feeling better after your operation and are recovering well and looking after yourself. It's inspiring that so soon after an operation that you are going out and taking exams.

    Thanks for the heads up Sandy. I will have a look at the book. I was using Management and Cost accounting by Drury previously, in order to get a better and wider understanding around costs and revenues however I do find it a little indigestible and better to read for revision purposes rather than for learning as it is very wordy and I find personally, can make a topic of medium difficulty harder. It's not very 'basic' (in it's defence, it does help to seal the information in with it's explanations, case studies, diagrams and wide scope so it's good for revising and increasing your understanding of a topic that you already know).
  • ariadne
    ariadne Registered Posts: 218
    I haven't yet had a peek at AP2, although I have just a few chapters left of AP1 so I'm starting to build a picture. AP1 isn't so bad after all, I'm getting through it much quicker than Costs and Revenues - I passed the exam this weekend, exceeded all questions, phew. The exam was easier than the study itself, very much like the practice assessments in format. There are a couple of questions which could be one if two types of question so you learn more than you are tested on. Plus a few questions asked in new ways and formats which involve careful reading. I was surprised that there are few questions which go full into the process costing technique in the practice tests, so not much on abnormal losses/gains etc. and nothing except the EOQ for inventory calculations - I had a page of equations to learn and didn't need them for any of the online tests. Knowing which questions were likely in the exam just helped with the nerves, knowing what to expect. I have no idea why I was so worried, I should save it for L4, and then it's a six week wait for the results.

    Congratulations on becoming an aunty, much more fun than being a mum I'm sure! Good luck with finding some work/voluntary work and booking the exam.

    I have my AP1 exam in just under two weeks! I'll finish off studying the book tomorrow and then I have lots of revision to do. It's not helping my back all this study, but I should be doing it on the desk, not the sofa or bed. I'm not sure if I have much work experience really, the L3 college tutors didn't think much of it, I might be starting the voluntary role with the PTA at my eldest's school, but I doubt they do double entry! In fact I can't remember my work dates to write a CV which is terrible.

    If you have any tips for AP1 and the exam that would be helpful, plus let us know how AP2 goes. I have heard it's easier than AP1 but I'm not looking at the book until I'm happy I understand and can do everything for AP1.
  • NatalieK
    NatalieK Registered Posts: 9
    edited November 2014
    Hi Ariadne,

    It's really good that you've learnt more information than you've actually been tested on. You said that you should save the nerves for level 4 but through your extra learning, you've prepared yourself that bit more for level 4 which will save you more nerves than you would have had, had you saved the nerves for level 4! :D It's good that you've gained a broader perspective and are getting a solid foundation now for higher learning.

    It's alright to have a look at AP2. The first chapter of the Kaplan book is basically revision of all the chapters of AP1 so it will help to reinforce your learning. The only difference is learning how to construct a statement of financial position and a statement of profit or loss which isn't actually assessed in the AP1 exam.

    Good luck for your AP1 exam. My revision consisted of doing as many assessment questions as possible and memorising definitions across the syllabus such as the accounting concepts, the accounting equation as well as knowing different terminology such as the different errors that are found in a trial balance. Make sure that the assessments that you do cover the whole syllabus. What you get in the exam shouldn't vary too much from the study text assessment questions.
  • ariadne
    ariadne Registered Posts: 218
    I finished L3, all four exams remaining in four weeks. I don't recommend it but I was trying to get it done before the 2010 standards dropped and I had to retake ethics. I was far less nervous for the latter exams, cash management was the worst by far but that's been dropped from L3 now - it wasn't hard to learn but the exam wording was ambiguous on a couple of big tasks. I have two L4 books and can see where the L3 learning will really help from C&Rs. I'm planning to start with Financial Statements as I'm still in AP2 mode. Although I might not take the L4 exams, I might try ACCA F1-3 instead.

    Lots of practice was the best technique with these exams and it really helped. It doesn't really go in properly just reading and it seems more complicated. Once you understand how to do it through examples it is much easier.

    Which modules do you have remaining? It sounds like you've tackled the bigger topics first, I save those for last against the usual advice, although C&Rs helped me with AP1 when leaning about inventory bookkeeping.
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