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Normal loss
Normal loss is the expected amount of loss in a process. It is the level of loss or
waste that management would expect to occur under normal operating conditions.
Normal loss is not given a cost. The cost of producing these units is borne by the
good units.
Abnormal loss
Abnormal loss is the amount by which the actual loss exceeds the expected or
normal loss in a process. It can also be defined as the amount by which actual
production is less than normal production.
Abnormal loss is given a cost like good units.
Abnormal Gain
Abnormal gain is the amount by which actual output from a process exceeds the
1
expected output. It is the amount by which actual loss is lower than expected loss.
Abnormal gain is given a value. The value of abnormal gain is calculated in the
same way we calculate the cost per unit of abnormal loss. It is calculated as the
cost of production divided by the expected units of output.
a)
Step 1
Units
Actual loss 140
Normal loss (10% of 1,000) 100
Abnormal loss 40
Step 2
Costs incurred
Expected output
= $4,500
900 units
= $5 per unit
Step 3
Step 4
Complete accounts
Process account
Units cost Units cost
Cost incurred 1,000 4,500 Normal loss 100 0
2
Output (finished
Goods a/c) 860 (x$5) 4,300
Abnormal loss 40 (x $5) 200
b)
Units
Actual loss 80
Normal loss (10% of 1,000) 100
Abnormal gain 20
Costs incurred
Expected output
$4,500
900 units
$5 per unit
Process account
Units $ Units $
Cost incurred 1,000 4,500 Normal loss 100 0
3
Abnormal gain a/c 20 (x $5) 100 Output (finished
goods a/c) 920 (x$5) 4,600
1,020 4,600 1,020
4,600
Units $ Units $
Process a/c 20 100 profit and loss a/c 20 100