Page 205 - F2 - MA Integrated Workbook STUDENT 2018-19

Process costing

Example 2

At the start of a heating process 1,000 kg of material costing $18 per kg is
input. Normal loss is expected to be 10% of input which can be sold for $1.80
per kg. Labour costs are $1,800 and overheads are $900. Output was 800
kg.

Step 1 – balance the units and determine any loss/gain

Input = Output + Loss

1,000kg = 800kg + 100kg (NL) + 100kg (AL)

Step 2 – value the normal loss

NL 100kg × $1.80 = $180

Step 3 – calculate the average cost per unit

The cost per unit = net cost of inputs ÷ expected output

Inputs $18,000 + $1,800 + $900 = $20,700

Net costs = $20,700 – $180 = $20,520

Expected output = 1,000 units × 90% = 900 units

The cost per unit = $20,520 ÷ 900 units = $22.80 per unit

Step 4 – value the output and complete the process account

Process account
Kg $ Kg $

Materials 1,000 18,000 Output 800 18,240

Labour 1,800 Normal loss 100 180
Overheads 900 Abnormal loss 100 2,280
––––– –––––– ––––– ––––––

1,000 20,700 1,000 20,700
––––– –––––– ––––– ––––––

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