Advice on costing ECR unit

Re:Advice on costing ECR unit

Hi Deborah

I just got to grips with this myself and as a student perhaps not best in the position to advise. But as no one replied to your query, here comes...

It is so much easier when broken down into sections.

Process costings takes into consideration expected normal losses, and this needs to be reflected in the unit price. This means that if the normal expected loss of raw material is 5% during the process of say 100 litres, than the 100 litres at the cost of say £100.00 is a debit entry and the 5 Litres (Units only) will be a credit entry in the process account.

The formula for cost per unit is : £Input Costs devide by Expected Output

In an ideal world we should now have a balance of 95 units produced at a cost of £100.00, which now increases the cost per unit to £1.05 as we have now acounted for the additional cost of expected losses.

If less than 95 units were produced at the end of the process, this then means that the loss was greater than expected. This is then called : Abnormal Loss, if more units were manufatured, then this element would be called : Abnormal gain.

Say: 94 Units were produced at the end of the process, which means that 94 Units @ £1.05 are journalled to Finished goods and 1 unit @ £1.05 is debited to the abnormal loss account. At the end of the accounting period, this is then sent to the P&L as a debit.

in summary :

Debit: 100 Units at £100
Credit: 5 Units of Normal Loss
1 Units of Abnormal Loss @ £1.05
94 Units @ £1.05 to Finished Goods

I hope I am making sense here and the above may be of some help

Catharina