1. avatar says

    And sir i never do understand the double entries of management accounting so i just somehow make sense out of them so is it ok?
    I mean management accounting doesn’t even follow double entry rules properly.

    Like in process account or loss account they just abandon the double entry rules of F3.

  2. avatar says

    Sir it might sound silly but in the loss a/c when u write abnormal gain as 1760, why do not we write gain’s net value that was 1400 apart from the reason we copy it from the process a/c in which gain is 1760.

  3. avatar says

    Can you please check my answer:

    W&B Ltd produce a breakfast cereal that involves several processes. At each stage in the process, ingredients are added, until the final stage of production when the cereal is boxed up ready to be sold.
    In Process 2, W&B Ltd have initiated a quality control inspection. This inspection takes place before any new ingredients are added into Process 2. The inspection is expected to yield a normal losses of 5% of the input from Process 1. These losses are sold at $1 per kg.
    Following information is for Process 2 for the period just ended:

    Units $
    Transfer From Process 1 500 kg 750
    Material Added in Process 2 300 kg 300
    Labour 200 hrs 800
    OH – 500

    Actual Output 755 Kg

    Required: Prepare the process , abnormal Loss and gain and Scrap Acc. for process 2 for the period just ended.


    Kg Amount Kg Amount
    Input from Process 1 500 750 Normal Loss 25 25
    Material 300 300 Abnormal Loss 20 60
    Labour 800 Finished Good 755 2265
    OH 500

    800 2350 800 2350

    Avg. Cost Per Unit: 3


    Kg Amount Kg Amount
    Input from Process 1 500 750 Normal Loss 25 25
    Material 300 300 Abnormal Loss 20 30 (At Process 1 Cost)
    Labour 800 Finished Good 755 2295
    OH 500

    800 2350 800 2350

    Avg. Cost Per Unit: 3.04

    I am confused do we need to calculated the average cost after deducting the all the losses actual amount of at NO-Total/Expected No of Output.

    Please help me..

  4. Profile photo of elle says

    Something I don’t understand. (using the beer example) We pay our suppliers $ 81 000 for costs. We expect 1800 units. Thus costs p.u. = $ 45 Instead we make 1840 units. For me, actual costs were $ 81000/1840 = $44.00 p.u. Thus from 1840 x $ 45 = $ 82 800 charged to costs of production with actual costs having been approx. 1840 x $44.00 = $ 80960.00. Total Costs overcharged with approx. $ 1840. Anything else done doesn’t make sense to me. What am I missing? In my mind we have received supplier invoices for costs of $ 81 000. Our output was 1840 units… I don’t understand the value Abnormal gain has for us. Please help

    • Profile photo of John Moffat says

      Remember that we are preparing management accounts, not financial accounts, and therefore we are normally preparing them monthly.

      Although on average we might lose (say) 10% each month, obviously some months we will lose more and some months we will lose less.

      If we did it your way, then the cost per unit would change each month which would be very confusing (we need the cost to (for example) determine the selling price and a different cost each month would start causing problems). So, we determine the cost per unit using the ‘average’ loss that we expect (the normal loss). In months where we lose more or less, we do not change the unit cost of what we produce – instead we regard it as an abnormal loss or gain.

      • Profile photo of elle says

        Also, how does abnormal gain affect our profit since we debit it to the process account? If costs incurred was for example $ 29070, Abnormal gain $ 1615, Total in process account debited is thus $ 30 685. I don’t understand what the total of $ 30 685 means. Did our costs increase? Did it decrease our profit? Did we thus have an abnormal gain that decreased our profits? What does it mean to say that Abnormal gain becomes a negative cost?

      • Profile photo of John Moffat says

        How can a gain mean less profit???

        We debit the process account with the abnormal gain, and credit the Income Statement. This increases the profit.

      • Profile photo of John Moffat says

        The abnormal gain or loss is effectively the ‘missing figure’ on the account. If less units come out than went in, we have an abnormal loss and the missing figure is on the credit side; if more units come out then we have an abnormal gain and the missing figure is on the debit side.
        Whether it is abnormal gain or loss, it is valued at full cost per unit, and the double entry will be to the Statement of Profit or Loss.

        I really would not worry too much about the t-account. Management accounting is not really about t-accounts. More important is the costing of the output, and the gains or losses.

  5. avatar says

    Hup! my solution on the T account form is jumped up. Ok let me put it in a table form

    Material 3000 9000
    concertion 11970
    total 20970
    Add Abnormal gain 200 ?…………………1415………….=20970-450=20520 x (200/2900)=1415
    Total Debit amount 22385
    less abnormal loss 300 @ 1.50 450
    Bal at Cr side (Output Value) 2900 7.56 21935

    • Profile photo of John Moffat says

      No – your answer is wrong.

      We always cost out based on what we would expect to produce (the input less the normal loss), and treating the expected proceeds from the normal loss as a ‘negative’ cost.

      The output and any abnormal gain or loss are both valued at the full cost per unit.

      The only correct answer is the one in the Course Notes.

      (and for this question, producing a t-account in your workings is wasting time – the question only wants the value of the output and so in the exam do not waste any time at all calculating anything else :-) )

  6. avatar says

    I adapted a different approach to ascertain the output cost which results a little bit slightly from your approach. can you confirm the correctness of this approach>

    using Q6.
    Procees a/c
    mat 3000 9000 Normal loss(scrap) 300 @ 1.50 450
    Convertion cost 11970 Output (w3) 2900 = 21935.17
    total 20970
    Abnormal gain (w2) 200 @ 7.08 1415.17
    Total 3200 22385.17 total 22385.17

    working 1. Therefore Actual cost=20970-450=20520
    working 2. Hence Abnormal gain=(200/2900)*20520=1415.17
    working 3. therefore Output= 22385.17-450

  7. avatar says

    To Martinras
    Abnormal loss/Gain is always accounted for full production cost(in this case 7.6)in the process account. the scrap is dealt with in another account called LOSS account and in that account the difference goes into the Income statement either as profit or loss depending on which side the balance is.

  8. avatar says

    In the last test if I proceed I get an abn. gain of 200*7,6=1.520, less cost (scrap) of 200*1,5=300$ = a total of 1.220$

    When I make the Process account, why do I then Debet the 1.520$ and not the 1.220$?

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