Process Costing

sarahuk3 · October 2009

Hi,
I was wondering if anyone can help me with this please.
I am working from the osborne work book so if anyone has this handy, page 48, Question 6.7

I have drawn up a ledger for process one account.
I have the following info:
Direct materials (5000 Kilo's) £2000
Labour £1000
Overhead £500
Normal loss in process of input 5%
Output 4500 Kilos
Scrap Value of all losses £0.20 per kilo

I have entered the inputs on debit side, totalled cost column - £3500.

On the credit side have entered normal loss at 250 kilos at .20 cost = 50
have entered output of 4500 kilos and abnormal loss of 250 kilos.
Now this is where i get a bit stuck/confused....... to work out the unit cost of the output and abnormal loss i take £3500 - 50(normal loss) = 3450
3450 / 4750 (4500 output + 250 abnormal loss) = 0.73 per unit
but when i enter the two unit costs against the output and abnormal loss =
4500 X 0.73 = 3285
250 X 0.73 = 182.50

my total column on credit side totals
3285 + 182.50 + 50 = 3517.50 where this is supposed to be 3500? how have i managed to go over the total??
When i looked at answer it says that the output (4500 kilos) total cost is 3268?????

Sorry this is so long!!
Any help or advise would be much appreciated!!
Thanks
Sarah

SandyHood · October 2009

Step One
Balance the inputs and output in physical terms (no money)

I have the following info:
Direct materials (5000 Kilo's)

Normal loss in process of input 5%
Output 4500 Kilos

Debit........................... kgs...........................Credit ........................... kgs
Direct materials.............. 5000.................Normal Loss...........................250
......................................................Next process .............................4500
......................................................Abnormal loss (balancing figure)...... 250
Total............................5000...........................Total...........................5000

SandyHood · October 2009

Step Two
Add the values

Debit........................... ...£...............Credit ........................................£
Direct materials.............. 2000............Normal Loss..................................50
Direct labour...................1000............Next process ............................. ????
Overheads.......................500............Abnormal loss (balancing figure)...... ????
Total.............................3500............Total.........................................3500

SandyHood · October 2009

Step Three

Total cost £3,500 less scrap value of normal loss £50
So the cost of the expected output was £3,450

Expected output 95% of input = 4,750

So unit cost £0.726316

x 4500 produced = £3268
x 250 abnormal loss = £182

Put them into your T account
Debit........................... ...£...............Credit ........................................£
Direct materials.............. 2000............Normal Loss...................................50
Direct labour...................1000............Next process ............................. 3268
Overheads.......................500............Abnormal loss ............................. .182
Total.............................3500............ Total.........................................3500

SandyHood · October 2009

Why is my answer different from yours?

You rounded too early.
Look at the cost per unit you produced:
£0.73
whereas I used a slightly lower unrounded amount

Does it matter? - hardly at all
You are £17 over the top (a rounding error, nothing else)
and if such a question appeared on your paper
1. I'd be very surprised
2. Just say "rounding-error" (as you would if you tried to reconcile an AVCO stock card and found it didn't quite agree with the closing balance)

Instead of being worried you ought to be very proud of yourself

sarahuk3 · October 2009

Ah!! I see!
Thank you ever so much for the explanation!!

Sarah

Process Costing

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