Process Costing

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:31AM in AAT student discussion
Could someone help me out with a wee query.

I have just been reading a book by Colin Drury on Costing and in it he transfers the scrap values made by abnormal losses to the debit side of the normal loss account as well as crediting them to the abnormal loss account. Osborne, only credits the abnormal loss account. Is this correct and would I be penalised in an exam for doing so.

Many thanks in anticipation

Simon Phillips

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Process Costing

    Hi,

    Don't know if this helps but I have been told the following:
    Normal Loss (if selling scrap): DR Scrap a/c, CR Process a/c
    Abnormal Loss: DR Scrap a/c, CR Abnormal Loss a/c
    Abnormal Gain: DR Abnormal Gain a/c, CR Scrap a/c

    Also, I'm sure that I have read in one of my books that sometimes the Normal Loss a/c can be called the Scrap a/c, will have another look and confirm this.

    Vicki
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Process Costing

    Hi,

    Don't know if this helps but I have been told the following:
    Normal Loss (if selling scrap): DR Scrap a/c, CR Process a/c
    Abnormal Loss: DR Scrap a/c, CR Abnormal Loss a/c
    Abnormal Gain: DR Abnormal Gain a/c, CR Scrap a/c

    Also, I'm sure that I have read in one of my books that sometimes the Normal Loss a/c can be called the Scrap a/c, will have another look and confirm this.

    Vicki
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Process Costing

    Hi

    I'm no expert but I think abnormal Loss should be a credit in the process a/c and then a debit in the abnormal loss a/c - this is at full cost of each unit.

    Then you should credit the abnormal loss a/c and debit the scrap a/c with the scrap value of the units.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Process Costing

    I agree with Frank
    this is the same approach that Drury uses

    I have never worked in a firm which uses process costing.

    I think this is worth thinking of in terms of the normal loss being a scrap account.
    Let's say
    Material input 1000kg
    Normal loss 10% (i.e. 100kg)
    Output 850 kg

    So we can see that there has been 50kg of abnormal loss.
    Scrap sold at £0.60 per kg
    Cost per unit of output £6.60

    Journals
    1. Normal Loss account DR 100kg x £0.60 = £60
    ..Process 1 account CR £60

    2. Abnormal Loss account DR 50kg x £6.60 = £330
    ....Process 1 account CR £330

    Now we want to consider the scrap sale
    the scrap man is coming and as we know there are 150kg of scrap

    So
    3. Normal Loss a/c DR 50kg x £0.60= £30
    ....Abnormal Loss a/c CR £30

    Now balance off the abnormal loss a/c to the P&L

    4. Profit and LossDR £300
    ...Abnormal LossCR £300

    Now sell the scrap to the scrap man for cash

    5. Bank DR 150kg x £0.60 = £90
    ..Normal Loss CR £90

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