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PROCESS COSTING
Q1. A product passes through three processes, A, B, and C. The normal wastage of each process
is as follows:
Process A – 3 percent
Process B – 5 percent
Process C – 8 percent
Wastage of Process A was sold at 25P. per unit, that of Process B at 50P. per unit and that of
Process C at Re. 1 per unit. 10,000 units were issued to Process A in the beginning of October
2020 at a cost of Re. 1 per unit. The other expenses were as follows:
Process A Process B Process C
Rs. Rs. Rs.
Sundry Materials 1,000 1,500 500
Labour 5,000 8,000 6,500
Direct expenses 1,050 1,188 2,009

Actual output was:

Process A 9,500 units
Process B 9,100 units
Process C 8,100 Units
Prepare the Process Accounts, assuming that there were no opening or closing stocks. Also give
the Abnormal Wastage and Abnormal Effective Accounts.
Q2. The following particular related to two processes – X and Y for the month of Jan, 2020.
Process X Process Y
Total input (units) 50,000 1,000
@ Rs. 1.50 p. u.
Normal loss (% of input) 10% 5%
Additional Costs incurred:
Materials - 3,600
Direct Labour 35,000 45,000
Overheads 27,500 39,500
Realisable value of scrap per Re. 0.50 Re. 2
unit
Output (units) 43,000 43,000

The entire output of process X was transferred to process Y. The entire output of process Y was
sold at Rs. 6 per unit. Assume, there was no opening or closing stock of any type in process X or
Y. You are required to prepare the necessary accounts for the period.
Q3. The product of a company passes through three different processes – A, B, and C. It is
ascertained from past experience that wastage in each process is incurred as under:

Process A : 2%
Process B : 5%
Process C : 10%
The percentage of wastage in each case is computed on the basis of number of units entering the
process concerned. The wastage of each process has a scrap value. The wastage of process A and
B is sold at Re. 1 per unit and that of process C at Rs. 4 per unit.
The company gives you the following information for the month of July, 2019:
2,000 units of crude material were introduced in process a at a cost of Rs. 8 per unit. Besides this
the following were other expenses:

Process A Process B Process C

Rs. Rs. Rs.
Material consumed 8,000 3,000 2,000
Direct Labour 12,000 8,000 6,000
Direct expenses 2,000 1,000 3,000

Output units units Units

Stock: July 1 1,950 1,925 1,590
July 31 200 300 500
Stock Valuation on 19 27 36.5
July 1, per unit

Stocks on 31st July, 2019 are to be valued at cost as shown by month’s production accounts.
Prepare the process accounts.

Q4. A product passes through three processes – A, B and C. The details of expenses incurred on
the three processes during the year 1998 were as under:
Process A Process B Process C
Units isuued/ 10,000
introduced cost per
unit Rs. 100
Rs. Rs. Rs.
Sundry Materials 10,000 15,000 5,000
Labour 30,000 80,000 65,000
Direct expenses 6,000 18,150 27,200
 Sellin price per unit 120 165 250
of output

Management expenses during the year were Rs. 80,000 and selling expenses were Rs. 50,000.
These are not allocable to the process.
Actual output of the three processes are:
A – 9,300 units, B – 5,400 units and C – 2,100 units. Two-thirds of the output of process A and
one-half of the output of Process B was passed on the next process and the balance was sold. The
entire output of Process C was sold.
The normal loss of the three processes, calculated on the input of every process was:
Process A – 5%, B – 15%, C – 20%.
The loss of Process A was ols at Rs. 2 per unit, that of B at Rs. 5 per unit and of process C at Rs.
10 per unit.
Prepare the three Processes Accounts and the Profit and Loss Account.

Q5. The following details have been extracted from the costing records of an Oil Mill for the
year ending on March 31, 2020:

Purchase of 1,000 tonnes of copra Rs. 4,00,000

Crushing Refining Finishing

Rs. Rs. Rs.
Cost of Labour 5,000 2,000 3,000
Electric Power 1,200 720 480
Sundry Materials 200 4,000 -
Repairs of Machinery 560 660 280
Steam 1,00 900 900
Factory Expenses 2,640 1,320 440
Cost of Casks 15,000

600 tonnes of crude oil were produced.

500 tonnes of oil were produced by the refining process.
496 tonnes of refined oil were finished for delivery.
Copra sacks sold for Rs. 800
350 tonnes of copra residue sold for Rs. 22,000
Loss in weight in crushing 50 tonnes.
90 tonnes of by-products obtained from the refining process valued at Rs. 13,500.
You are required to show the account in respect of each of the following stages of manufacturing
for the purpose of arriving at the cost per tonne of each process, and the total cost per tonne of
finished oil:
(a) Copra Crushing Process
(b) Refining Process
(c) Finishing Process (including Casking)

Q6. A factory producing article P also produces a by-product Q which is further processed into
finished product. The joint cost of manufacture are given below:

Rs.
Material 5,000
Labour 3,000
Overheads 2,000
Total 10,000

Subsequent costs are given below:

P (Rs.) Q (Rs.)
Material 3,000 1,500
Labour 1,400 1,000
Overheads 600 500
Total 5,000 3,000

Selling price are:

P – Rs. 16,000
Q – Rs. 8,000

Estimated profits on selling prices are 25% for P and 20% for Q.
Assume that selling and distributing expenses are in proportion of sales prices. Show how you
would apportion joint cost of manufacture and prepare a statement showing cost of production of
P and Q.

Q7. Product A yields by products B and C. The joint expenses of manufacture are:
Material Rs. 5,000; Labour Rs. 4,000, Overheads Rs. 4,500, Total Rs. 13,500.

Subsequent costs are given below:

A (Rs.) B (Rs.) C (Rs.)

Material 1,000 800 900
Labour 1,200 700 850
Overheads 1,300 500 750
Total 3,500 2,000 2,500

The selling prices are Rs. 21,000; Rs. 10,000; Rs. 9,000
The estimated profits on sales are: A – 50%, B – 50% and C – 33.33%
How would you apportion the joint expenses of manufacture? Prepare the accounts also.

RECONCILIATION OF COST AND FINANCIAL ACCOUNTS

Q1. A cycle manufacturing company, which commenced business on 1st January, 2020, supplies
you with the following information and asks you to prepare a statement showing the profit per
cycle sold. Wages and materials are to be charged at actual cost, works overhead at 80% on
wages and office overhead at 20% on works cost. You are also required to prepare a statement
reconciling the profit as shown by the Profit and Loss Account for the year ended 31st December,
2020, with that shown in the cost accounts.
Two types of cycles are manufactured, namely Model A and Model B. there were no cycles in
stock or in course of manufacture at the end of the year, and the number of cycles sold during the
year were Model A 1,200 and Model B 840:
The particulars given are as under:

Model A (Rs.) Model B (Rs.)

Materials per cycle 80 100
Wages per cycle 40 60
Selling price per cycle 200 300

The works indirect expenses were Rs. 80,000 and the office indirect expenses were Rs. 70,000.

Q2. From the following particular prepare (a) profit and loss account, (b) a statement showing
the cost of manufacture and percentage of each item of cost of total cost, calculating factory
overheads at 25% on prime cost and office overheads at 75% on factory overheads, (c) a
statement reconciling the profit shown by the cost accounts with that shown by the profit and
loss account.
The selling price is fixed at cost + 25%.

Stocks 1st Jan, 2020 Rs.

Raw Materials 4,000
Finished Articles 8,000
Stocks 31st Jan, 2020 Rs.
Raw Materials 6,000
Finished Articles 2,000
Purchases of Raw Material 24,000
Wages 10,000
Sales 65,000
Works Expenses 7,750
Office Expenses 6,100

Q3. Seema Engineering Co. manufactures two sizes of machine components, Size A and Size B,
the following data refer to the year ended 31st December 2019.

Size A Size B
Production 125 units 400 units
Sales 120 units 360 units
Rs. Rs.
Wages cost per unit 40 30
Material Cost per unit 15 12
Selling price per unit 125 90

All expenses other than wages and materials are analysed under “Works overheads”, which
during the year amounted to Rs. 9,000 and ‘Office Overheads’ which amounted to Rs. 10,000.
In fixing the selling price it was estimated that works overhead should be taken at 50% on wages
and office overheads expenses at 33.3% on works cost. You are required to compute the
following:
(a) The total cost of each unit on the basis of the above overhead percentages.
(b) The net profit for the year shown by the financial accounts, valuing unsold stocks at
actual material and wages cost plus works overheads at 50% on wages.
(c) The reconciliation of net profit in (b) above, with the estimated total net profit based on
cost figures.

Q4. In factory, two types of radios are manufactured; viz., ‘Jhankaar’ and ‘Swarlahari’ models.
From the following particulars, prepare a statement showing cost per radio and profit per radio
sold.
There is no opening or closing stock.
 Jhankaar (Rs.) Swarlahari (Rs.)
Materials 81,900 1,08,680
Labour 46,80 62,920

Works overhead is charged at 80% on Labour and office overheads is taken at 15% on works
cost. Jhankaar radios sold during the period are 234 at Rs. 1000 each and Swarlahari Radios sold
are 286 at Rs. 1,100 each. Ascertain the total profit as per cost books from the above particulars.
If the work expenses are Rs. 87,000 and office expenses Rs. 58,000, find out the actual profits
made and prepare a reconciliation statement to reconcile the cost profit with the profit disclosed
by the financial books.

Q5. The following figures are extracted from the financial accounts of Selwel ltd. From the year
ending 31st December, 2019.
Selwel Ltd. (Rs.)
Sales (20,000 units) 50,00,000
Materials 20,00,000
Wages 10,00,000
Factory overheads 9,00,000
Selling and distribution 5,20,000
overheads
Finished goods (1,230 units) 3,60,000
Work in progress - 1,40,000
Material Rs. 60,000
Labour Rs. 40,000
Factory overheads Rs. 40,000
Goodwill written off 4,00,000
Interest paid on capital 40,000

In the costing records, factory overheads is charged at 100% of wages. Administration overhead
at 10% of factory cost and selling and distribution overhead @ Rs. 20 per unit sold. Prepare a
statement reconciling the profit per cost as per cost records with the profit as per financial
records.