Process Costing – Losses (part a)

1. says

The working that was given for this question was a bit confusing. It came from my ACCA text. Could you assist?

A chemical is manufactured in two processes, X and Y. Data for process Y for last month are as follows.

Material transferred from process X 2000 liters @ \$4 per litre
Conversion costs incurred \$12,240
Output transferred to finished goods 1600 liters
No losses occur in the process.

Closing work in progress is fully complete for material, but is only 50% processed.

What is the value of the closing work in progress (to the nearest \$)?

2. says

Hi sir
Could you explain how you can do the calculation without the output units

The following data relate to a process:

The normal loss is 3% of input and all losses are sold as scrap for \$8 per unit.

This period the actual loss is 80 units. There is no work-in-progress.

What is the total value of the finished units this period.

• says

You cannot do this without knowing how many units were output (or alternatively. how many units were input – you can then work out how many were output).
Also, of course, you need more information about the costs to be able to value the finished units!

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Hi sir
I saw this question in the mock exam on the open tuition mock exam and i did not see an option in the answer to say that the question needed more information.

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You have only typed a tiny bit of the question. The question says against materials how many units are input (and so you can calculate the output). The question also tells you all the costs.

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There is no other parts to the question just the options for the answers

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I have just checked – the whole question is there!

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I am just seeing that the question i posted did not include the top section showing the input units and costs. Sorry about that but in any case how is that calculation without the output units

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Since you know how many units were input, and you know how many were actually lost, then the difference is the output.

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So would this calculation be correct

Normal loss 2000* 3% = 60
Expected output 2000-60 = 1940

Abnormal loss 80-60 = 20

Cost per unit: (4000 – 60) + 3120/1940 = \$3.63

Value units
Out put 1940 * \$3.63 = \$7042, Normal loss 60 * \$8 = \$480, Abnormal loss 20 * \$8 = \$160
Therefore \$7042 + \$480 + \$160 = \$7682

• says

This question also came from the mock test.
I know that once the return on investment is lower than cost of capital then the residual income will decrease but do you reason out the return on investment part of it

An investment division earns a return on investment of 15% and a residual income of \$200,000. The cost of capital is 18%. A new project gives a return on capital employed of 16%.

If the new project is accepted, what will happen to the investment division’s return on investment and
residual income?

Could you provide guidance how to answer this question as well.
1. A company manufactures a single product. Budgeted production for the first three months of next year is as follows:

Each unit uses 4kg of raw material costing \$5 per kg.. The budgeted raw material inventory at the end of each months is to be 20% of the following month’s production.

What are the budgeted raw material purchases for month 2 of next year?

2. At the start of the year a company employed 2,000 employees.

During the year 400 employees left the company.

At the end of the year there were 2,200 employed.

What was the labour turnover rate for the year (to the nearest %)?

my issue was to determine the number of replacements with this one

3. What would be the effects on the EOQ and the total annual order cost of an increase in the holding cost per unit.

I can figure the EOQ section cause i plug in figures to help me but not sure about the annual holding cost bit

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Guidance on this well too. i figured P but cannot get Q at all.

Two investments are available. Investment P offers interest of 5% per year compounded half-yearly for a period of 4 years. Investment Q offers one interest payment of 18% at the end of its 4 year life.

What is the annual effective interest rate offered by each of the two investments?

It would have been nice if the system showed how the answers were derived so students can know where they went wrong in procedures.

• says

Process costing: If the question asks you to value the finished units, why have you valued the losses also?

Return on investment: The new project gives a return that is higher than the current ROI, so the ROI will increase.

Budgeting: you have not typed what the production is for the first three months of next year, so it is impossible to answer.

Employees: if 400 left, and there were more employees at the end of the year than at the beginning, it must mean that all 400 were replaced.

EOQ: The question does not ask about the annual holding cost – it asks about the annual order cost. Since the EOQ will be smaller, there will have to be more orders, so the annual order cost will increase.

Interest: If r is the annual interest rate, the (1+r)^4 = 1.18

PLEASE: do not post all these questions under a lecture on Process Costing. This section is for comments on the lecture.
If you have other questions then post them on the Ask ACCA Tutor forum.

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Sir
could you really please answer the process costing question cause i just cant seem to figure out hiw to derive the cost per unit

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I have figured it out now. Normal loss 2000 *3% = 60
Expected output 2000-60 =1940, output 2000-80 = 1920
Normal loss 60 * \$8 = 480. Cost per unit 4000 -480 +3120 + 1120/1940 = \$4
Finish goods 1920 *\$4 = 7680

• says

Sorry about the questions in the wrong forum. I valued the losses as that was the only i could come close to the correct answer given by the system. I am confused about it

3. says

John, you are the best! Many many thanks for the good lectures! They are truly helpful. God bless you very much.

4. says

you are the best teacher,i am so saturated by your lectures that i am only listening in to learn your upper class english accent.thanks a million and keep up the good work

• says

Thank you very much, but my accent is certainly not upper class!! I am originally from Manchester and we are not upper class in Manchester

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…so it isn’t only me then I totally agree. Killing two birds with one stone. Pleasure to listen to and a breeze to understand the topic (with a few giggles on the way). Superb!

5. says

should not be assumption there that 1 unit contains 1 kg of material(a unit=a kg)? Because, under heading kg you say units..

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@gahraman, I say at the beginning of the lecture that in this example it is in kg rather than in units. The same happens in the examination.

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@adnanaadi101, What loss account? There is no loss account unless there are abnormal losses or gains. Watch the later lectures where there are abnormal losses and gains.

6. says

Short Class very interesting with more simplicity .Thanks you Opentuition Team.

7. says

The course notes and the lecture both explain this.

In example 1, the losses have no sale value.
In example 2, the losses are sold for \$5 a kg and any sale proceeds of normal losses are subtracted from the costs (i.e. treated as a negative cost)

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Why we subtract scrap value? I don’t get the logic, because we are getting some money from it even it is loss? I am so confused

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The fact we are getting some money from it is why we subtract it from the costs – it reduces the cost of what is produced.

8. says

In the Example # 2 the 300 KG of Normal loss whose value will be 1500\$ (300* 5\$) but why this value 1500 \$ has been subtracted from the value 52800 \$? Explain this.Because in the example #1 the Value of Normal loss was not subtracted only the kg value was subtracted.