Chapter 3 PROCESS COSTING



Q1. A chemical product passes through two different processes to completion. During the month ending on 31st December, 2008, 5,000 units of materials valued at Rs 5 per unit were put into production. The other relevant information is as under:
Particulars

Process A

Process B

Sundry Material

Rs 2,500

Rs 9,000

Labour

Rs 17,500

Rs 9,500

Direct Expenses
Rs 500
Rs 500
Cost of Containers

Rs 10,000

Normal Wastages

10%
2.50%
Actual Output
4,000 units
4,000 units
Sale value of wastage per unit
Re 1
Rs 10
Prepare process cost accounts to show:
i.                 Total cost of production
ii.                Cost per unit at each stage

Q.2 The product of a company passes through three distinct processes called A, B and C. From the past experience, it is ascertained that wastage is incurred in each as under:
Process A – 2%, Process B – 5%, Process C – 10%
The percentage of wastage is computed on the number of units entering process concerned. The wastage of each process possesses a scrap value. The wastage of Process A and B is sold at Rs 5 per 100 units and that of Process C at Re 0.20 per unit.
The following information was obtained for the month of March, 2009.
20,000 units of crude material were introduced in Process A at a cost of Rs 8,000.

Process A

Process B

Process C

Particulars

Rupees

Rupees

Rupees

Material Consumed

4,000

1,500

1,000

Direct Labour

6,000

4,000

3,000

Manufacturing Expenses
640
225
2,405

Units

Units

Output in units

19,500
19,250
15,900

Finished Product Stock:




On March 1, 2009
2,000
3,000
5,000
On March 31, 2009
1,500
4,000
?
Stock valuation on 1st March, 2009 per unit Re 1, Rs 1.50, Rs 1.80. Stocks on 31st March are to be valued as per valuation as on 1st March, 2009. Draw Process accounts A, B C and Process Stock Accounts of A, B and C.

Q3. The product of a Company passes through two process called I and II. From the past experience the percentage of wastage which is computed on the number of units entering process concerned is ascertained as under:
Process I – 2%, Process II – 5%
The wastage of each process possesses a scrap value. The wastage of Process I is sold at Rs 10 per 100 units and Process II at Rs 20 per 100 units.
The following information is available for the year ended December 2008.
40,000 units of crude material were introduced in Process I at a cost of Rs 16,000.

Process I

Process II

Particulars

Rupees

Rupees

Material Consumed

8,000

2,800

Direct Labour

12,200

14,000

Manufacturing Expenses
3,080
1,000

Units

Units

Finished Products:

39,000
38,500

Stock:



On January 1
4,000
6,000
On January 31
3,000
8,000
Stock valuation January 1 (per unit)
Rs 0.90
Rs 1.47
Stock at 31st December, is to be at the cost as shown by the years process accounts. Prepare necessary accounts.

Q4. Product ‘P’ passes through three process to completion. Following are the relevant details:


PROCESS

Total
No. 1
No. 2
No.3

Particulars

Rupees

Rupees

Rupees
Rupees
Direct Material
8,482
2,000
3,020
3,462
Direct Labour
12,000
3,000
4,000
5,000
Direct Expenses
726
500
226
Nil
Production Overheads
6,000
1,500
2,000
2,500
Ø  1,000 units at Rs 5 each were issued to Process No. 1. Output of each process was:
Process No. 1 – 920 units,           Process No. 2 – 870 units,           Process No. 3 – 800 units
Ø  Normal loss per process was estimated as:
Process No. 1 – 10% of units introduced,
Process No. 2 – 5% of units introduced,
Process No. 3 – 10% of units introduced
Ø  The loss in each process represented scrap, which could be sold to a merchant at value as follows:
Process No. 1 – Rs 3 per unit,      Process No. 2 – Rs 5 per unit,      Process No. 3 – Rs 6 per unit
Ø  There was no stock of materials or work-in-progress in any department at the beginning or end of the period. The output of each process passes directly to the next processes and finally to finished stock. Production overheads allocated to each process on the basis of 50% of the cost of direct labour.
Prepare Process Accounts, Normal and Abnormal Loss & Abnormal Gain Account. 

Q5. Product X is obtained after it passes through three distinct processes. You are required to prepare Process Accounts from the following information:

Process I

Process II

Process III

Particulars

Rupees

Rupees

Rupees

Material

5,200

3,960

5,924

Direct Wages

4,000

6,000

8,000

Production overheads are 100% of Direct Wages. 1,000 units were introduced in Process I @ Rs 6 per unit. Actual output in units, Normal Loss and Value of scrap per unit is as under:

 

Particulars

 

Output

 

Loss

Scrap Value per unit

Process I

950

5%

4

Process II

840

10%

8

Process III

750

15%

10


Q6. The product of a company passes through three distinct processes to completion. These processes are known as A, B and C.
From the past experience it is ascertained that loss incurred in each process is as under:
Process A – 2%,               Process B – 5%,               Process C – 10%
Scrap value of loss of each process was Rs 5 per 100 units of A and B & Re 0.20 per unit for C.
The output of each process passes immediately to the next process and form process C to finished stock.
The following information is available.

Process A

Process B

Process C

Particulars

Rupees

Rupees

Rupees

Material Consumed

6,000

4,000

2,000

Direct Labour

8,000

6,000

3,000

Manufacturing Expenses

1,000

1,000

1,000

20,000 units have been issued to Process A at cost of Rs 10,000 and output of each process was:
Process No. A – 19,500 units,      Process No. B – 18,000 units,     Process No. C – 16,000 units
No work-n-progress was there in any process.
Prepare Process Accounts, Normal Loss and Abnormal Loss Account. 
Calculations to be made to the nearest rupee.

Q7. The product of manufacturing unit passes through two distinct processes. From past experience the incidence of wastage is ascertained as under:
Process A - 2%,                        Process B - 10%
In each case the percentage of wastage is computed on the number of units entering the process concerned. The sales realisation of wastages in Process A and B are Rs 25 per 100 units and Rs 50 per 100 units respectively.
The following information is obtained for the month of April, 2009: 40,000 units of crude material were introduced in Process A at a cost of Rs 16,000.

Process A

Process B

Particulars

Rupees

Rupees

Other Material

16,000

5,000

Direct Labour

9,000

8,000

Direct Expenses
8,200
1,500

Units

Units

Output

39,000
36,500

Finished Product Stock:



On April 1
6,000
5,000
On April 30
5,000
8,000
Value of Stock per unit on April 1st
Rs 1.20
Rs 1.60
Stocks are valued and transferred to subsequent process at weighted average cost. Prepare respective Process Accounts and Stock Accounts.

Q8. A product passes through two distinct processes. The product of the First Process less wastage and by-product becomes the raw material for the second process. All by-products are sold directly from the factory. The following information is obtained from the factory records.

First Process

Second Process

Raw Materials

1,000 tonnes at Rs 30 per ton

 

Wages

Rs 25,000

Rs 20,000

Direct Charges

Rs 4,200

Rs 3,030

Factory Overheads
80% of Wages
75% of Wages
Wastage

10 tonnes

15 tonnes

Sale of By-product

90 tonnes at Rs 20 per ton
85 tons at Rs 20 per ton
Give ledger accounts for the First Process and Second Process showing in each process the cost per unit.

Q9. A factory manufactures a commodity, which passes through three processes A, B and C. The finished product of Process A becomes the raw material of Process B and the finished product of Process B forms the raw material of Process C which delivers the end product. The by-products of Process A and B are sold directly from the factory.

PROCESS
Particulars
A (Rs)
B (Rs)
C (Rs)
Materials

1,000 tonnes at Rs 12 per ton

700
600
Wages
Rs 10,000
20,000
 36,000
Factory Overheads (% of Wages)
75%
60%
50%
Wastage (of no sale value)
2 tons
3 tons
2 tons
Sale proceeds of by-product produced
8 tons @ Rs 30 per ton
5 tons @ Rs 24 per ton
Nil
Draw up process accounts and by-product recoveries accounts assuming that by-products are valued at estimated market price of Rs 25 per ton for Process A and Rs 20 per ton for Process B at the point of above separation.

Q10. M/s Uday Workshop is producing a product, which passes through two different processes. The by-product results out of the process and all of them are sold directly from workshop. From the following particulars give ledger accounts of two processes.

Particulars

Process I

Process II

Raw Materials (1,000 tons)

15,000

 

Wages

12,500

11,280

Production Overheads

40% of Prime Cost

50% of Wages

Wastage
10 tons
20 tons
Sales of By-product

50 tons at cost plus 10%

30 tons at cost plus 20%

Q11. The following information has been obtained from the books of a chemical Manufacturer. The product passes through two processes before completion.

Particulars

Process I

Process II

Materials

20,000 Kgs @ Re 1 /kg

 

Wages

Rs 5,000

Rs 6,000

Factory Overheads as a % of wages

80%

70%

Normal Wastage (no sale value)
400 Kgs
300 Kgs
Sale price of By-product

Re 1 per kg

Rs 2 per Kg

By-products

2,000 Kgs
1,200 Kgs
Show the cost of production (total and per unit) of the final product for the two processes and also ascertain the profit (total and per unit) with the help of the following additional data:
Sales Price                                                                                             Rs 3 per Kg
Selling & Distribution Overheads             Rs 3,000
Units Sold                                                                                               15,000 Kgs

Q12. A firm has three processing stages viz. A, B and C. However, some of the goods can be sold immediately after the process A. Similarly, some can be sold after the 2nd process viz. B. You are required to prepare Process Accounts with the following information. Also calculate cost per quintal in each process.

Particulars

Process A

Process B

Process C

Raw Material Used (Quantity)

200 quintals

104 quintals

84 quintals

Total cot of raw material (Rupees)

19,200

9,400

3,000

Direct Wages (Rupees)

5,760

7,600

5,000

Direct Expenses
3,840
3,800
2,200
Overheads Rs 18,360 to be charged 100% of direct wages

 



Loss due to processing

4%
5%
5%
Proportion of output transferred to next process
50%
40%

Finished Stock Account
50%
60%
100%

Q13. Fertilisers Ltd. manufacturers & sells three brands of fertilisers. The necessary details are:

Particulars

Process A

Process B

Process C

Raw Materials :   Tons

200

71

264

            Cost per ton

100

300

250

Direct Wages (Rupees)

8,000

3,490

2,850

Direct Expenses
2,520
2,400
3,820
Finished Product sold

25%

50%
100%

Finished Product transferred to next process

75%
50%

Sale of scrap per ton (Rupees)
80
100
120
In each process 6% of the total weight is lost and 8% is scrap. All sales are made to show a gross profit of 20% on process cost. Prepare Process Cost Accounts.

Q14. Edible Oils Ltd. is a manufacturing concern. Their product passes through three processes viz Crushing, Refining and Finishing. Following figures were taken from their books for the month of March, 2009.

Crushing

Refining
Finishing

Particulars

Rupees

Rupees

Rupees

Wages

10,000

4,000

6,000

Power

2,400

1,440

970

Steam
2,400
1,800
1,800
Other Material

400

8,000

Plant Repairs

1,120
1,320
550

Sundry expenditure

5,280
2,640
900
2,000 tonnes of copra were consumed and the purchase price was Rs 400 per ton.
Output was 1,200 tonnes of crude oil, 850 tonnes of refined oil and 840 tonnes of finished product (in casks) ready for delivery.
The difference in tonnage in respect of crude oil is not all loss, 240 tonnes of crude oil is being sold as crude oil at cost plus 20%.
Copra was brought to the factory in heavy tins and those were sold for Rs 1,500.
600 tonnes of copra residue were sold for Rs 35,000 and 80 tonnes of waste from refining process were sold for Rs 9,500. The cost of casks used in finishing process was Rs 24,000. The casked oil was sold for Rs 1,000 per tonne.
You are required to prepare Process Cost Accounts, showing the cost per tonne of output at each stage of manufacture. Also calculate the total profit for the period.
Q15. A product passes through three processes A, B and C. 10,000 units at a cost of Re 1 were issued to Process A. The other direct expenses were:

Process A

Process B

Process C

Particulars

Rupees

Rupees

Rupees

Sundry Material

1,000

1,500

1,480

Direct Labour

5,000

8,000

6,500

Direct Expenses

1,050

1,188

1,605

The wastage of Process A was 5% and Process B 4%. The wastage of Process A was sold at Re 0.25 per unit, of B at Re 0.50 and of C at Re 1 per unit. The overheads charges were 168% of direct labour. The final product was sold at Rs 10 per unit, fetching a profit of 20% on sales. Find the percentage of wastage in Process C.

Q16. Model Ltd. processes a patent material used in building. The material is produced in three consecutive grades – soft, medium and hard.

Particulars

Process I

Process II

Process III

Raw Materials Used

1,000 tons

 

 

Cost per ton

Rs 200

 

 

Manufacturing Wages & Expenses

Rs 87,500

Rs 34,500

Rs 10,710

Weight lost (% of input of the process)
5%
10%
20%
Scrap (sale price Rs 50 per tonne )
50 tons
30 tons
51tons
Sale price per ton
Rs 350
Rs 500
Rs 800
Management expenses were Rs 17,500 and selling expenses Rs 10,000.
Two-thirds of the output of Process I and one-half output of Process II are passed on to the next process and the balance are sold out. The entire output of Process III is sold. Prepare the three process accounts and statement of profit.

Q17. Modern Process Ltd. makes and sells their chemicals manufactured to three consecutive processes. The products of these processes are dealt with as under:

Particulars

Process I

Process II

Process III

Transferred to next process

66⅔%

60%

 

Transferred to warehouse

33⅓%

40%

100%

In each process 4% of the weight put in is lost and 6% is scrapped, from which Process I realises Rs 3 per ton, from Process II and Process III Rs 5 and Rs 6 per ton separately.
The following information relates to July, 2007:

Particulars

Process I

Process II

Process III

Raw Materials Used

1,400 tons

160 tons

1,260 tons

Rates per ton

Rs 10

Rs 16

Rs 7

Wages & Other Expenses

Rs 5,152

Rs 3,140

Rs 2,895

Prepare process accounts showing cost per ton of each process.

Q18. A firm has three workshops and a wholesale warehouse. The following details are extracted from its books for the year ended on 31st December, 2008

Particulars

Workshop A

Workshop B

Workshop C

Raw Materials Used : Tonnes

250

152

145

Cost per ton (Rs)

120

80

50

Direct Wages (Rs)

85,800

20,250

10,560

Direct Expenses (Rs)

13,800

13,870

2,250

Loss of change due to processing

4%

5%

2.50%

Proportion of production transferred:

 

 

 

           To Workshop B at cost

20%

 

 

           To Workshop C at cost

 

50%

 

           To Wholesale Warehouse

80%

50%

100%

Wholesale Warehouse:

 

 

 

Stock on 1.1.2008 at cost ex-workshop (Rs)
2,500
2,000
4,000
Stock on 31.12.2008 at cost ex-workshop(in tons)
10
20
40
Sale of products (Rs)
4,00,000


Salaries (Rs)
40,000


Administrative Expenses (Rs)
20,000


The closing stock in the wholesale warehouse are to be valued at the prime cost per tonne during the year. You are required to:
a.     Prepare Cost Accounts for the year in respect of each workshop
b.     Calculate the prime cost per tonne of each process, and
c.     Prepare an account showing the net profit of the business for the year 2008

Q19. Prepare necessary accounts:
Particulars

Process A (Rs)

Process B (Rs)

Materials

10,000 @ Rs 10 per unit

 

Wages

5,000

2,000

Overheads
3,100
295
Normal Wastages
10%
10%

Scrap Value (per unit)

Re 1
Rs 2
Abnormal Wastages (units)
Half of normal wastage

Abnormal Gain (units)

Half of normal wastage
Output (units)
?
8,075
Q20. A product passes through three processes called A, B and C.
The following data was furnished to you for March, 2009.
Process

A

B

C

 

Units

Units

Units

Input of Raw Material

20,000

?

?

Stock of finished product:

 

 

 

   Opening
2,000
3,000
5,000
   Closing

1,500

4,000
?

Output Actual Output

19,500
19,250
15,900

Sales

-
-
16,900
Normal Process Scrap
2%
5%
10%

Rs
Rs
Rs
Input of Raw Material
8,000
-
-
Indirect Material
4,000
1,500
1,000
Direct Labour
6,000
4,000
3,000
Manufacturing expenses
640
225
2,405
Rates per unit



Process Scrap
0.05
0.05
0.20
Stock value of finished product:



   Opening
1.00
1.50
1.80
   Closing
1.00
1.50
?
Sales Price
-
-
2.50
Prepare:
i.       Process accounts to find the cost per unit at the end of each process;

ii.      Process stock accounts to find out the value at which transfers take place from one process to the next and the gross profit.