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Greetings sir.
I hope you are in bright spirits.8a.4, I have a very hard time swallowing the solution to this problem mentioned at the end of the book. Does not make sense why we needed Abnormal gains to get the answer – is there no other way around it? , and also the method via with which we found out the units for the Abnormal gain brings confusion to my reason.
Please help generously bring logic to the solution step by step. Greatly appreciate.
I assume that you mean question 8a.14 and not question 8a.4
I do explain how we deal with abnormal gains in detail in my free lectures.
The cost per unit here has been arrived at as 29,744/5,408 = $5.50.
In arriving at the cost per unit, we take the total cost of the input less expected scrap proceeds on the normal loss, and we divide this by the expected/normal production.
Given that they actually produced 5,408 units but there was an abnormal gain of 164 units, they were expecting to produce only 5,244 units. Given that the cost per unit is $5.50, the total cost of the input less expected scrap proceeds must have been 5,244 x $5.50 = $28,842.
The expected scrap proceeds on the normal loss were 276 x $2.50 = $690.Therefore the cost of the input was 28,842 + 690 = $29,532.
Yes, 8a.14
Sir, the question states that there exists Normal loss of 276units and Actual Loss, ie Abnormal Loss of 112 units. There is no mention of Abnormal gains. That is why I am confused.
The actual loss is not the abnormal loss – it is what is actually lost.
If they expected to lose 276 units but actually only lost 112 units, then there has been an abnormal gain of 164 units. I do suggest that you watch the relevant lectures again.
Looks like I just suffered from terminology brain freeze 🙂 Thankyou very much sir. Everything is clear now.
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