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A company operates a process costing system. The following information is relevant for the last period for process 1:
Input: 12000 kg of raw material at $4 per kg.
Direct wages:6000 hours at $5 per hour.
Production overhead absorbed at $7 per labour hour.
Outputs: Normal loss is 10% of input
Transfer to process 2: 11050 kg
All losses have a scrap value of $1 per kg. There was no opening or closing inventory or work-in-progress.
Required:
a) The abnormal gain or loss for period was:
A. 108 kg loss
B. 250 kg gain
C. 950 kg gain
D. 1000 kg gainb) The cost per kg of output is:
A. $10
B. $11
C. $12
D. $13Could you not do either part of the question (or are you just setting me a question!) ?
The input is 12,000. The normal loss expected is 10% x 12,000 = 1,200
The actual loss is 12,000 – 11,050 = 950.
So there is an abnormal gain of 1,200 – 950 = 250 kg.The cost per unit is calculated based on the expected output and expected loss.
So total cost is (12,000 x $4) + (6000 x $5) + (6000 x $7) – (1200 x $1) = $118,800.
The expected output is 12,000 – 1,200 = 10,800.
So the cost per kg = 118800 / 10800 = $11
(The free lectures on process costing will help you)
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