Help!! - Abnormal losses

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
Hi<BR><BR>I'm pulling my hair out trying to answer Q6.7 on page 48 of the Osborne Costing & Reports workbook.<BR><BR>I just can't seem to get the correct cost per unit of the expected output for the abnormal loss of 250 kg in Process 1.<BR>Using the 'input cost - scrap value of normal loss divided by expected output' equation I get a figure of £0.73 to the nearest penny. <BR>This puts my Process 1 T account out of balance by £17.50 on the credit side.<BR><BR>Can anybody help me with my understanding of this question??<BR><BR>Any replies gratefully received as I need to hand this in and get this section signed off in my portfolio next Wednesday.<BR>Thanks

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    Help!! - Abnormal losses

    I havent got the workbook on me at the moment, but as i teach it i thought maybe i could help off the top of my head. With the cost per unit are you putting the total input costs - normal loss units x scrap value on the top and the number of units you were expecting to get before you even started the process on the bottom.<BR><BR>I try and get my students to work out the cost per unit before "the machine is switched on" so to speak. In other words they dont even know how many units have been made. This is because they commonly put the number of units they DID make on the bottom, rather than the number of units they EXPECTED to make.<BR><BR>Hope this helps.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Help!! - Abnormal losses

    Thanks for your reply.<BR><BR>I'm sure that I'm using the correct figures to get the cost per unit of expected output.<BR><BR>The costs for Process 1 are £2000 for direct materials (5000kg), £1000 for direct labour & £500 overheads. The normal loss is 5%, output is 4500 kgs and scrap value of all losses is £0.20 per kilo.<BR><BR>Based on these figures my calculations are:<BR><BR>£3500 minus £50 (5% of 5000 kgs = 250 kgs x £0.20 = £50) equals £3450<BR><BR>5000kgs minus 250kgs (the normal loss) equals 4750kgs<BR><BR>So 3450 divided by 4750 equals cost per unit of expected output as £0.73 (to nearest penny).<BR><BR>So on the credit side of my Process 1 account I'm left with £50 normal loss value (250kgs x £0.20), £3285 to Process 2 (4500kgs x £0.73) and £182.50 abnormal loss (250kgs x £0.73).<BR><BR>This leaves me with a total of £3517.50 on the credit side against my input costs of £3500.<BR><BR>Sorry if I'm being totally thick but I just can't work out where I'm going wrong!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Help!! - Abnormal losses

    its all in the rounding. If you dont actually round the figure to 73p in your calculator and then use the unrounded figure in the calculation for the 250 abnormal loss you get £181.58 and if you use the unrounded figure for the 4500 good production you get £3268.42. With the £50 from the scrap this makes £3,500 again.<BR><BR>I know its stupid to have to round for the T account and then use the unrounded figures, but that is the only way i can get it to balance.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Help!! - Abnormal losses

    pintsizedmoo you are a star! - Thanks very much.<BR>

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