- This topic has 7 replies, 2 voices, and was last updated 9 years ago by
.
- Posts
4000Kg of raw material are input to a chemical process. Normal losses are expected to be 10% of input and because of their toxic nature will incur a disposal cost of $2 per kg.
The Process cost $11800 and actual output was 3550kg.What is the total cost of abnormal loss(to the nearest $)?
A. $53
B. $153
C. $175
D. $275Please do not simply set test questions and expect someone to provide an answer!
You must have the answer in the same book in which you found the question, and so you should ask about whatever in the answer is puzzling you.Abnormal losses are valued at the expected cost per unit.
The expected/normal loss is 400 kg, and therefore the expected production is 3,600 kg.
The expected cost of the expected production is 11,800 + (400 x 2) = 12,600.Therefore the cost per unit = 12,600/3,600 = $3.50
The abnormal loss is 50 Kg and therefore the value of it is ((50 x 3.50) + (50 x 2)) = $175
I suggest that you watch our free lectures on process costing. Our lectures are a complete course for Paper F2 and cover everything you need to be able to pass well.
Correct answer is D. 275.
I didnt get why they added 100 with 175 as $2 is already included while calculating cost per unit…. I watched all the videos on process costing but losses with disposal value is not there in the lectures..So, as u said lectures r complete course for paper f2 i guess I wont be asked such questions in the exam…Sorry – I wrote correctly, but I made a typing error.
((50 x 3.50) + (50 x 2)) = $275 (I typed 175 by mistake)
Of course losses with a disposal value are covered in the lectures!!!!
Every example in Chapter 11 (except for the first one) has losses with a disposal value _ suggest that you watch the lecture again!!The ‘trick’ in this question is that the losses have a negative disposal value – they are not sold for $2, but they have to pay $2 to dispose of them. If they were sold for $2 then this is subtracted, but since they have to pay out $2 it is added (just as if they sell them for minus $2).
Our lectures do cover everything needed for the exam. The exam deliberately sometimes has questions with little tricks in them (like this one) to check that you understand what you are doing!
Thanx John, I did watch all the lectures on process costing, it was scrap value there rather than disposal cost as u correctly said! Here, could u please tell me why we added $2 per kg again for 50kg and added it with 175? My pointed is we already took $2 when calculating avg. cost so why taking $2 again?
We calculate the unit cost using the revenue (or cost in this case) that we are expecting from the normal loss,
Having calculated a cost per unit, we call any abnormal loss at that same cost per unit, but the eventual loss has to either add any revenue from the abnormal losses or (in this case) after subtracting any costs involved from the abnormal losses.
We calculate the unit cost using the revenue (or cost in this case) that we are expecting from the normal loss,
Having calculated a cost per unit, we call any abnormal loss at that same cost per unit, but the eventual loss has to either add any revenue from the abnormal losses or (in this case) after subtracting any costs involved from the abnormal losses.
- You must be logged in to reply to this topic.