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    Process Costing - Lost Units

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    Gm Besacruz
    This document discusses process costing and accounting for lost units. It defines loss units as missing units at the end of processing, which can be evaporation loss from normal decreases or spoilage loss from unwanted destruction. Spoilage loss is classified as normal if it is inherent and within tolerance limits, or abnormal if it exceeds normal limits. Equivalent units of production are calculated for lost units, and the cost of normal lost units is either absorbed by good units or charged to overhead, while abnormal lost units are charged to a loss account.

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    Process Costing - Lost Units

    Uploaded by

    Gm Besacruz
    129 views2 pages
    This document discusses process costing and accounting for lost units. It defines loss units as missing units at the end of processing, which can be evaporation loss from normal decreases or spoilage loss from unwanted destruction. Spoilage loss is classified as normal if it is inherent and within tolerance limits, or abnormal if it exceeds normal limits. Equivalent units of production are calculated for lost units, and the cost of normal lost units is either absorbed by good units or charged to overhead, while abnormal lost units are charged to a loss account.

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    Process Costing - Lost Units(1) (2)

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    This document discusses process costing and accounting for lost units. It defines loss units as missing units at the end of processing, which can be evaporation loss from normal decreases or spoilage loss from unwanted destruction. Spoilage loss is classified as normal if it is inherent and within tolerance limits, or abnormal if it exceeds normal limits. Equivalent units of production are calculated for lost units, and the cost of normal lost units is either absorbed by good units or charged to overhead, while abnormal lost units are charged to a loss account.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    129 views2 pages

    Process Costing - Lost Units

    Uploaded by

    Gm Besacruz
    This document discusses process costing and accounting for lost units. It defines loss units as missing units at the end of processing, which can be evaporation loss from normal decreases or spoilage loss from unwanted destruction. Spoilage loss is classified as normal if it is inherent and within tolerance limits, or abnormal if it exceeds normal limits. Equivalent units of production are calculated for lost units, and the cost of normal lost units is either absorbed by good units or charged to overhead, while abnormal lost units are charged to a loss account.

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    PROCESS COSTING

    ACCOUNTING FOR LOST UNITS

    I. Loss units defined


    II. Equivalent units of production of lost units
    III. Cost of lost units
    IV. Absorbing unit for normal lost units.

    LOSS UNITS refers to missing units at the end of the processing. Loss units are classified
    into evaporation loss and spoilage loss. Evaporation loss refers to the normal decrease in
    units or volume which is necessary or inherent in processing. Spoilage loss refers to
    unwanted destruction or breakage of units during processing. Loss can discrete or
    continuous. Discrete production loss is a reduction in units that occurs at a specific point
    in a production process. If not specifically identifiable, discrete loss is assumed to have
    occurred at the end of process. Continuous loss is any reduction in units that occurs
    uniformly throughout a production process.

    Classification of spoilage loss


    1. Normal loss – lost units which are inherent, usual, or expected by the nature of
    operations and within tolerance limits set by the company for human and machine
    errors and therefore, it cannot be avoided. Normal lost units are expected under
    efficient operating conditions and are uncontrollable.
    2. Abnormal loss – defined as lost units which are unusual, or unexpected or even
    though expected but it exceeds the normal limits. A company does not expect such
    spoilage during the efficient operating conditions and can more likely prevent (or
    avoid) abnormal loss than normal loss.

    EUP COMPUTATION
    1. Evaporation Loss is ignored and is not assigned EUP as if not placed into process and
    is not valued.
    2. Spoilage Loss (normal or abnormal) is assigned an equivalent unit of production and is
    separately valued.

    DISPOSITION OF THE COST OF SPOILAGE LOSS


    1. Normal loss units
    a. If the FOH application rate includes an estimate of spoilage, the cost of normal
    loss units is debited to FOH Control up to the extent of estimated spoilage cost
    charged to the units; the excess is debited to loss
    b. If the FOH application rate does not include an estimate of spoilage, the cost of
    normal loss is added to the cost of good units. Good units are those that
    surpassed the point of inspection.

    2. Abnormal loss units


    - The cost of abnormal loss units is debited to Loss.
    A. Equivalent Units of Production
    Stage of Inspection Work Done
    Start of the Production Zero. Under the theory of neglect, any lost units
    discovered at the start of production are treated as if
    they were never put into production because they are
    already expected even before the actual production.
    During the production Zero. Lost units discovered during the production are
    (point of inspection is not assumed to have been discovered at the start of the
    identified) production because difficulties might arise finding the
    right stage of completion for lost units.
    End of production 100%. Because they are already completed when
    they were discovered.

    B. Cost of Normal Lost Units


    1. First Department
    a. Start/during the No cost of lost units, because manufacturing cost
    production elements were not introduced in the production.
    b. End of production Unit cost this department multiplied by Equivalent Units
    of Production (EUP) of Normal Lost.

    2. Subsequent
    Department
    a. Start/during the Unit Cost from Preceding Department multiplied by the
    production Actual Normal Lost Units.
    b. End of production (Unit Cost from the Preceding Department plus Unit cost
    this Department) multiplied by the Equivalent Units of
    Production of Normal Lost

    C. Absorbing Units
    Start/During End
    1. FIFO Method
    In process, beginning, X
    Completed & Transferred
    Started/Received, X X
    Completed and Transferred
    In process, end X
    Computation of Unit Cost Total Cost of Normal Lost Total Cost of Normal
    for Lost Units Units divided by Lost Units divided by
    Started/(Received, Finished (In process, beginning,
    and Transferred plus In Finished &
    process, end) Transferred plus
    Started/Received,
    Finished and
    Transferred)

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