Process Costing (part 2) – Abnormal Gains and Losses – ACCA Management Accounting (MA)
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If normal losses are built in to costing but abnormal losses are calculated at full cost, then is that full cost subtracted from how much the units are worth at the end?
So like do we subtract the abnormal loss of the units from the overall value of the units? But then if we sell them at scrap price anyway and add that money back in then how is that any different from normal losses?
Please can you explain
Hello sir,
Why there is no Process costing – Work in progress part 1 and part 2 videos here on Open tuition?
My question too there is no lecture video for chapter 13 under process costing WORK IN PROGRESS .
Work in progress has been removed from the syllabus as is clearly stated in the current edition of our free lecture notes.
Dear John,
The Question Say’s: “Losses are sold as scrap for $9 per kg”,
Why isn’t the Abnormal Loss of 50Kg Sold as Scrap?
It is! That is why the proceeds are subtracted to arrive at the net loss.
I’m Sorry,
I meant why isn’t it used when calculating the Cost Per/Kg, along with the Normal loss of (-100Kg x $9)
Why didn’t we subtract (-150Kg x $9) = -($1,350) from the 1,000Kg/$40,500?
We do the costing based on what we expect to produce (i.e. after any expected/normal loss). Otherwise we would be changing the unit cost every months because some months the actual production will be less than expected and some months it would be more than expected.
Hiii Sir,
(1) Can you explain that what is the reason for valuing abnormal loss in full cost and selling with scrap value???
(2) Evan though abnormal loss happened, in the final day normal or abnormal all are equal losses nah? then why we are calculating them differently?? we can calculate together 150 loss * $9 and get the answer nah?
Normal losses are taken into account in the unit costing because we expect them to occur as part of the process. Abnormal losses and gains are not expected to occur and so they are valued at full cost.
If losses can be sold for scrap, then all losses will be sold for scrap whether they are expected or not.
Understood sir, thank you
Hello Sir, Why is the abnormal gani and abnormal loss not price at the same cost for the profit/ loss in the Loss account?
They are. The loss account also takes into account any scrap proceeds either received or lost.
Hello sir,
Could you please elaborate further on the definition and difference between normal loss and abnormal loss using the example of a Desk manufacturing factory – what would turn out as normal loss here and what as abnormal loss ?
Secondly, why abnormal loss is to be valued at full value ? Is it because normal loss is known before production, and abnormal discovered after cost spread out and production completed ? So even if production got completed, we have yet to even sell one unit to customer, all products are still within factory – why not just redistribute the total cost over the goods units by taking it away from the bad units (abnormal loss).
A normal loss is expected loss. There are unlikely to be normal losses is a desk making factory, but if it were the case that the nature of the manufacturing process meant that on average (say) 5% of desks proved to be defective and therefore had to be thrown away or sold as scrap, then that would be the normal loss. Obviously, month by month the actual loss is not going to be exactly 5% – some months it will be more and the extra is an abnormal loss; some months it will be less and that is an abnormal gain.
Abnormal gains and losses are costed at full value because in the long run they should not occur.
I do explain all of this in the lectures.
“ Abnormal gains and losses are costed at full value because in the long run they should not occur.”
I just want to understand the effect of valuing at full cost. What happens if you dont value abnormal losses at full value as per your definition and explaination.
The only reason I can grasp is if there was a difference in what was being considered a loss. A normal loss would be the tiny pieces of wood gathered as by products while manufacturing the Desk, whereas Abnormal Loss or gain would be if the Desk was indeed produced and turned into a salable item, and then the abnormal results occurred (extra unit produced (gain) of damaged unit produced (loss)) , so it would make sense to value it at full cost – as the item has completed manufacturing stage, so the gain or loss is valued at full cost.
That is not what I wrote. It has nothing to do with ‘tiny pieces of wood’.
If something goes wrong in production and a defective desk is made, then that desk has to be scrapped. That is called a loss.
Please read again what I wrote in my previous reply.
Hello sir, I don’t understand why did you debit abnormal gain while crediting abnormal loss, they are both revenues no? Also, are we always supposed to switch the entries under debit and credit when doing loss account? Thank you!
Hi John!
A doubt regarding the Abnormal Loss and Abnormal Gains,we are first calculating them with cost per unit and than with the scrap value. If we have deducted them on full price i.e cost per unit,what is the need to deduct them as scarp again.Wouldnt that be like deducting the those units twice ?
Indeed so helpful..thank you so much…
You are welcome 🙂
Hi John!
A doubt regarding the Abnormal Loss and Abnormal Gains,we are first calculating them with cost per unit and than with the scrap value. If we have deducted them on full price i.e cost per unit,what is the need to deduct them as scarp again.Wouldnt that be like deducting the those units twice ?
please reply, i am looking to hearing from you
Thanks for the very helping lectures sir!
You are welcome 🙂
Thank you for your comment 🙂
I really enjoyed the lecture the presentation so impacting.