1. Profile photo of onyxera says

    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.

  2. Profile photo of nzeadall says

    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.

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