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Chapter 9

6.4 Abnormal gain and scrap value

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 950 kg.

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

Input = Output + Loss

1,000kg + 50kg (AG) = 950kg + 100kg (NL)

Step 2 – consider the costs

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

NL 100kg × $1.80 = $180

Net costs = $20,700 + $180 = $20,520

Step 3 – calculate the average cost per unit

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

The cost per unit = $20,520 ÷ (1,000kg × 90%) = $22.80 per unit

Step 4 – value the output and complete the process account
Process account

Kg $ Kg $
Materials 1,000 18,000 Output 950 21,660

Labour 1,800 Normal loss 100 180
Overheads 900

Abnormal gain 50 1,140
––––– –––––– ––––– ––––––

1,050 21,840 1,050 21,840
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