Process accounting

Question 1

what 3 components does inventory in the statement of financial position consist of

Answer 1

raw materials,
work in progress,
finished goods

Question 2

what is process costing

Answer 2

a costing method suited to mass production, where the goods produced from each process are indistinguishable from each other

Question 3

equation for average unit cost

Answer 3

average unit cost = cost of production / expected (normal) output

Question 4

what are normal losses

Answer 4

certain losses are inherent in the production process and cannot be eliminated, they are often expressed as a percentage of the input

Question 5

why are there normal losses

Answer 5

cutting round circles from sheets of metal for example (inherent losses within production process)

Question 6

equation for average cost per unit

Answer 6

(total cost of inputs - scrap value of the normal loss) / (units input - normal loss)

Question 7

when do abnormal gains/losses arise

Answer 7

arise when actual losses are more or less than expected

Question 8

what happens with abnormal gains/losses for process accounting

Answer 8

are not absorbed into the cost of good production, but are shown as losses or gains in the accounts and go through the income statement

Question 9

where does an abnormal gain go in the process acount

Answer 9

on the left side as an input

Question 10

how do you work out what to value abnormal gain/loss and the output to process 2/fg (in process account) **

Answer 10

work out the cost per unit (by doing the equation) then multiply by the number of units

Question 11

are abnormal loss and normal loss valued the same way **

Answer 11

no, abnormal loss is valued at same price as output,

normal loss is valued as told in the question

Question 12

how is abnormal loss/gain valued in the scrap account *

Answer 12

valued at scrap value per unit,

Question 13

where does an abnormal loss/gain go in the scrap account

Answer 13

abnormal loss on the left,

abnormal gain on the right

Question 14

where does an abnormal loss/gain go in the process account

Answer 14

abnormal gain on the left,

abnormal loss on the right

Question 15

how do you calculate the abnormal loss or gain to be included in the income statement

Answer 15

abnormal gain as valued in the process account
less the proceeds recovered from scraping it,
add this value to the cos as an additional cost

Question 16

how do you work out the abnormal loss/gain **

Answer 16

opening wip
input for period
total input

transferred to p2/finished goods
closing wip 
normal loss 
abnormal loss/(gain) (balancing figure) 
total,

the two totals should be equal (TQ5 good example)

Question 17

in the equivalent unit table what are the headings *

Answer 17

cost, opening wip(£), current cost(£), total cost(£), complete units (units), closing wip (units), abnormal loss (units), total equivalent units (units), cost per unit (£)

Question 18

what are the rows in the equivalent unit table (process 1) **

Answer 18

materials,
less scrap,
total mats,
conversion,
total

Question 19

what are the rows in the equivalent unit table for process 2 **

Answer 19

previous processes,
less normal loss,
mats,
conversion,
total