Process Costing (part 1) - Normal or Expected Losses - ACCA Management Accounting (MA)
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18 Comments
E
Emmanuel·
Sir, You stated that work in Progress(WIP) is not often asked in the exam. Is this still applicable??
J
John MoffatTutor·
Yes it is
M
Mannan·
Hi sir! you didn't prepare a loss account as it says in example 2. are we not supposed to make a loss account?
J
John MoffatTutor·
You cannot be asked to write up any accounts in the exam.
However there is a loss account shown in the printed answers that are in the free lecture notes.
H
Hadiqa·
you made it so easy !!!
T
TANYA·
examples 2 of this lecture we only prepared a Process T Account, why are we skipping the Loss Account?
J
John MoffatTutor·
Watch part 2 of the lecture.
(Obviously you cannot be asked to write up any of the accounts in the exam, but you can be expected to show that you understand them :-) )
A
ammar·
in examples 2 and 3 of this lecture it asks to prepare a Process Account and a (Loss Account) as well. But we only prepare a Process T Account. why are we skipping the Loss Account?
A
ammar·
I meant example 2 only.
F
Faith·
Thanks
R
rafapak·
I still don't get it . I put 1000 units into process. My total costs are 100.000 pounds. I produced 100 faulty units and threw them into dustbin plus I produced 900 good ones. It costed me 100x100.000/1000 to produce faulty ones (10.000 pounds ) and it costed me 900x100.000/1000 to produce good units (90.000 pounds ). It costed me fraction of total costs to produce good units-namely 90% of total costs. Why I should allocate 100% of all costs to good units when calculating cost per good unit ? It took me 90% of total costs to produce good units, not 100 % of total costs.
J
John MoffatTutor·
It didn't take 90% of the costs to produce the good units at all. If it is a normal/expected loss, then we always expect to have spent $100,000 to be able to produce 900 good units. All we are interested in is the cost of having produced each good unit.
There is no point at all in attributing part of the cost to units that are lost given that it is always going to happen as part of the process.
It is only for any abnormal/unexpected losses that we are concerned about attributing a cost to them, because they have not been built into the costings.
I suggest that you do watch the lectures again.
R
rafapak·
thanks, now I understand more
R
rafapak·
Dear Mr Moffatt
In your example we produced 100 faulty units and 900 good units. We incurred costs to produce faulty ones but they have no scrap value. I have troubles to understand why we don't substract costs we incurred to produce faulty units from total process costs when we calculate cost per good unit ? Can you help me to understand ?
R
rafapak·
I think it is assumed in this example that 100 units 'disappeared' therefore no costs were incurred to produce those 100 units therefore total process costs were spent only on good units. What if we have actualy produced 100 faulty units and they are not suitable for sale ? Should we exclude costs we incurred to produce faulty units from total process costs when we try to calculate cost per unit of good output ?
J
John MoffatTutor·
Assuming that is a normal (expected) loss then we spread the total cost of producing all of them over the good units. The total process costs are the costs of producing all of the units.
R
raven777·
This Lecture was so helpful. Thank you Open tuition.
However there is a loss account shown in the printed answers that are in the free lecture notes.
(Obviously you cannot be asked to write up any of the accounts in the exam, but you can be expected to show that you understand them :-) )
There is no point at all in attributing part of the cost to units that are lost given that it is always going to happen as part of the process.
It is only for any abnormal/unexpected losses that we are concerned about attributing a cost to them, because they have not been built into the costings.
I suggest that you do watch the lectures again.
In your example we produced 100 faulty units and 900 good units. We incurred costs to produce faulty ones but they have no scrap value. I have troubles to understand why we don't substract costs we incurred to produce faulty units from total process costs when we calculate cost per good unit ? Can you help me to understand ?