Page 203 - F2 - MA Integrated Workbook STUDENT 2018-19

Process costing

Losses in a process

In many industrial processes, some input is lost or damaged during the production
process. This leads to the concept of normal losses (if the loss is as expected) and
abnormal losses or gains (if the loss is more or less than expected).

Flow of units

 Input + Abnormal gain* = Output + Normal loss + Abnormal loss*

 *Abnormal gain OR Abnormal loss

Normal loss

 Normal loss represents items that you expect to lose during a
process

 NL is valued at zero in the process account unless it can be sold
as scrap

Scrap value

 If normal loss can be sold it will be transferred to the scrap
account at the scrap value

– Cr Process account, Dr Scrap account

Average cost per unit (value of good output)

 = Net costs of inputs / expected output

 = (input costs – scrap value) / (input units – NL units)

Abnormal loss

 An abnormal loss is more loss than expected – any loss above
the normal loss

 AL is transferred to the AL account at the value of good output

– Cr Process account, Dr AL account

 AL is then transferred to the scrap account at the scrap value

– Cr AL account, Dr Scrap account

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