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Hello Sir
Please help me with the below question .
During the month of December, a manufacturing process hours incurs material costs of $8000 and conversion costs of $4500.2000 kgs of material was input.There is a normal loss of 10% and all losses have a scrap value of $1.75 per kg.During the period,1700 kgs were output to finished goods.Opening and closing inventories in the process were nil.
What was the value of the normal loss written off in the statement of profit or loss?
Answer is $500
TIA
The value of the normal loss written off is zero. The normal loss is built into the costings as I explain in my free lectures on process costing.
I assume that either you have mistyped the question (or that there is a typing error in your book) and that it is the value of the abnormal loss that is being asked for.
The cost per finished unit is ((8,000 + 4,500 – (10% x 2,000 x 1.75)) / ((2,000 – (10% x 2,000)) = $5 per unit.
The actual loss is 300 units, the normal loss is 10% x 2,000 = 200, and therefore the abnormal loss is 100 units. 100 x $5 = $500.
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