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Process Costing: Losses (part b) Abnormal Losses
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wat are the equivalent units ?
The lecture explains what is meant by equivalent units. For example, 100 units which have had 20% work done on them is equivalent to have done the full work on 20 units (20% of 100)
I have one question that whether the final amount of loss is dependent on the extent to which the company would bear the normal loss.
@merryjxm, I am not sure that I understand your question.
The normal loss is the average/expected loss, and this is decided by the company.
The total loss is a matter of fact – some months they will lose more than expected and some months less. The difference is the abnormal loss or an abnormal gain.
thx OT!!!!
Very good explanation .I enjoy and the lecturer makes the course interesting
I enjoyed the lecture on process costing. Big thank you!!
gr8 work..
Excellent.
where did the $9 come from to get the cost for the abnormal unit of 50?
@desie86, Abnormal losses are valued at full cost per unit (i.e. at the same amount as finished units).
Hi,
Process costing is a costing technique where all you are trying to do is get cost per unit for similar items manufactured in processes (i.e. expected cost per unit).Abnormal losses are not expected hence they are excluded from the computation of cost per unit. The rule here is: to get cost per unit you only consider normal (expected) losses.
450 is not credited to the process account, it is rather credited to loss account.The accounting entry for cash from scrap is CR:Loss a/c, DR:Cash/Receivables.
Anyway, don’t let the a/c entries bug you. Learn the rule.
(1) Abnormal loss is not considered to get cost p.u
(2) Abnormal loss is the difference between expected output and actual output
(3) Abnormal loss is valued @ cost p.u
(4) Net loss is normal loss valued @ scrap value + abnormal loss valued @ cost p.u – total cash from scrap sales
(5) The credit entries in the process T- accounts are
(i) Actual output unit @ cost p.u.
(ii) normal loss unit @ scrap value
(iii) abnormal loss @ cost p.u
This is what I understood from the lectures and notes.
Thanks open tuition for the wonderful lectures and notes.
thanks buddy………….
very nice explanation, thank you very much Open Tuition, however I have one question, in the process a/c on the credit side, shouldn’t we credit the $450 for abnormal loss (scrap value) as well, it is an income that the company will eventually gain, right? so the cost per unit should be less? I was expecting $ 43.47 per unit instead of $ 44. I would be very grateful if someone would help me on this.
are there no boys in the class???
Fantastic explanation
Great Lectures
why we calculate abnormal loss with full cost of 44, there is loss of material.. as normal loss why we dont treat abnormal one.
@bilalqureshi, due to it not being expected, so that balance would be right as normal loss is a projection on what the company might lose.
nicely explained
Excellent job.
What’s wrong with the video??? it disappears in a moment.