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5.1
PROCESS COSTING
1. Job costing assigns costs to each individual unit of output because
each unit consumes different quantities of resources.
2. Process costing does not assign costs to each unit of output because
each unit is identical. Instead, average unit costs are computed.
5.2a
5.2b
5.3a
Normal and abnormal losses
Normal losses cannot be avoided Cost is absorbed by good
production.
Abnormal losses are avoidable Cost is recorded separately
and treated as a period cost.
Example
Input
Normal loss
Actual output
CPU
Cost of completed
production
Cost of abnormal loss
5.3b
5.4a
Sale proceeds from normal losses
5.4b
5.5a
The sales value of the abnormal loss should be offset against the
cost of the abnormal loss.
5.5b
5.5c
5.6a
Abnormal gains
Example
Input
Output
Normal loss
Scrap value
5.6b
5.6c
5.7a
Nil
14 000
10 000
4 000
70 000
48 000
5.7b
5.8
Equivalent production and closing WIP
5.9a
Example
Opening WIP
Units transferred
Closing WIP *50% complete)
Completed units transferred to finished goods stock
Previous process cost
Conversion costs
Materials (introduced at end of process)
Nil
10 000
1 000
9 000
90 000
57 000
36 000
Note materials are zero complete and previous process cost 100% complete.
Use with Management and Cost Accounting 8e by Colin Drury
ISBN 9781408041802
2012 Colin Drury
5.9b
5.10
Previous process cost
5.11
Example to illustrate weighted average and FIFO
5.12
5.13
Note the weighted average method assumes that the opening WIP is
merged
with the units produced in the current period.
5.14a
5.14b
5.15a
Opening WIP FIFO method
5.15b
5.15c