Process Costing

Question 1

Process costing system

Answer 1

A process costing system is used where there is a continuous production which involves the passing of materials through a process or series of processes

Question 2

Industries when process costing is used

Answer 2

Process costing is used in industries where masses of similar products are produced in the same manner and consume the same amount of direct costs and overheads

Question 3

Average cost per unit of output =

Answer 3

Number of units of output for the period

Question 4

Normal Losses

Answer 4

Losses which are expected as part of the production process e.g., liquids may evaporate , scraps of metal may be left over after cutting

Normal losses cannot be avoided, their cost is absorbed by good production

Question 5

Abnormal losses

Answer 5

Losses which are not expected to occur under efficient operating conditions

Abnormal losses are avoidable - their cost is recorded separately and treated as a period cost

Question 6

Sale proceeds from normal losses

Answer 6

The cost per unit needs to incorporate the sale proceeds from scrap by cost of production less scrap value of normal loss when working out CPU

Question 7

Sale proceeds from abnormal loss

Answer 7

Offset the scrap proceeds against the cost of the abnormal loss so cpu = input - (normal loss x scrap value) / output

Question 8

How to close Work in Progress

Answer 8

Convert WIP into finished equivalents
Estimate the % degree completion of WIP and multiple by number of units in progress.
E.g 2,000 units all 50% incomplete is equivalent production of 1,000 completed units