Process Costing
Process costing is used where there are homogeneous product
of either the product cannot be separated from the other product or there are a
large number of product with small value. The typical example is liquid product
like oil industry, paint industry and stationary items etc.
The paint and oil industry are the examples where the
product cannot be separated from each other and stationary industry is typical
example of small items are produced with small cost.
Normal Loss with no
scrape value
The normal is the expected loss in the process of
production. This is a loss which is expected in industry. This loss cannot be
avoided and therefore may be called as inherent loss. The accounting treatment
the normal loss is not valued at output. The process costing is done to assign
average value of per unit.in case of normal loss the average value is
calculated by actual cost by normal out i.e an output does not include the
normal loss. The normal output may also be called as expected output.
Example Normal Loss
with no scrape value
Input (material) 3000 units $ 5000
Labour $ 500
Overheads cost $ 500
Actual output is 2700 units
Solution
Out put
Units Cost Total Cost
Material
2,700 2.2 6000
Loss
300
Total 3000 6000
Total input Cost/
Normal output
= 6000/2700
= 2.2
Normal with Scrape
Value
When there is scrape value of normal loss than normal loss
is valued at given value. The average cost of per unit is reduced by that
value.
Average Cost per unit = Input Cost – Scrape value/Normal
Output
Example of normal loss with scrape value
Example Normal Loss
Input (material) 3000 units
$ 5000
Labour $ 500
Overheads cost $ 500
Actual output is 2700 units and normal loss is value at $ 3
per unit
Solution
= (6000- 900)/2700
= 1.889 Average cost
= 2700 unit X 1.889
= 5,100 (Output)
= 300 units X 3 = 900 (Normal
Loss)
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