When we start the production of goods through different processes, normal loss and abnormal loss will happen with this. Due to this our total cost of production will increase.
If we do not treat the normal and abnormal loss, our total cost of production will less than exact cost of production. Due to this, our sale price will not estimate correctly. So, for making good plan of selling and controlling our losses, we need to treat the normal loss and abnormal loss in process accounts.
1. Treatment of Normal Loss in Process Accounts
Normal losses are those which we can not stop. These are natural wastage.
For example, if you doing the business of timber on the basis of their weight. It is sure that after cutting of tree, weight of wood will decrease. So, this loss is normal loss. In process account’s credit side, we just show the normal loss’s units. Now, our total produced units will decrease. This will increase our cost of production per unit in any process. For example: If total cost of process A is Rs. 10,000. When we produce 100 units in A process, we have checked that due to natural reasons, we have just 90 units. Now, in A Process Account, we will show 100 units in debit side and 10 units of normal loss in credit side without writing its amount. Due to this our total cost of Rs. 10,000 will of 90 units. It means, cost per unit has increased from Rs. 100 per unit to Rs. 111 per unit.
2. Treatment of Abnormal Loss in Process Accounts
All those losses which happen due to abnormal reasons are called abnormal losses. Following are its main example.
1. If you use bad quality raw material in the production, there is big risk of wastage in production. So, use of bad quality raw material is the reason of abnormal loss.
2. Careless is also reason of abnormal loss. For example, due to the careless of worker, 5 units waste the products during production. So, loss of 5 units is the abnormal loss.
3. All those losses which are not normal will be the abnormal loss. For treating the abnormal loss in the process account, we need to calculate the value of abnormal loss.
a) When there is not any normal loss
Abnormal loss = Normal cost at normal production / normal output X units of abnormal loss
b) When there is normal loss
Abnormal loss = {Normal cost at normal production / (Total output – normal loss units)} X Units of abnormal loss. Example : In process A 100 units of raw materials were introduced at a cost of Rs. 1000. The other expenditure incurred by the process was Rs. 602 of the units introduced 10% are normally lost in the course of manufacture and they possess a scrap value of Rs. 3 each. The output of process A was only 75 units. Prepare process A account.
Process A Account
* Calculation of Abnormal loss in units and in value
Total input========== 100 units
Less normal loss in units== 10 units
--------------------------------------
Normal Output ======== 90 units
actual output of A process = 75 units
--------------------------------------
Abnormal loss in units ==== 15 units
==========================
Value of Abnormal Loss
= Cost of Total Output - scrap sale of normal loss/ Normal Output X Units of Abnormal loss
= 1602 - 30 / 90 X 15 = Rs. 262
Related : Process Costing
If we do not treat the normal and abnormal loss, our total cost of production will less than exact cost of production. Due to this, our sale price will not estimate correctly. So, for making good plan of selling and controlling our losses, we need to treat the normal loss and abnormal loss in process accounts.
1. Treatment of Normal Loss in Process Accounts
Normal losses are those which we can not stop. These are natural wastage.
For example, if you doing the business of timber on the basis of their weight. It is sure that after cutting of tree, weight of wood will decrease. So, this loss is normal loss. In process account’s credit side, we just show the normal loss’s units. Now, our total produced units will decrease. This will increase our cost of production per unit in any process. For example: If total cost of process A is Rs. 10,000. When we produce 100 units in A process, we have checked that due to natural reasons, we have just 90 units. Now, in A Process Account, we will show 100 units in debit side and 10 units of normal loss in credit side without writing its amount. Due to this our total cost of Rs. 10,000 will of 90 units. It means, cost per unit has increased from Rs. 100 per unit to Rs. 111 per unit.
2. Treatment of Abnormal Loss in Process Accounts
All those losses which happen due to abnormal reasons are called abnormal losses. Following are its main example.
1. If you use bad quality raw material in the production, there is big risk of wastage in production. So, use of bad quality raw material is the reason of abnormal loss.
2. Careless is also reason of abnormal loss. For example, due to the careless of worker, 5 units waste the products during production. So, loss of 5 units is the abnormal loss.
3. All those losses which are not normal will be the abnormal loss. For treating the abnormal loss in the process account, we need to calculate the value of abnormal loss.
a) When there is not any normal loss
Abnormal loss = Normal cost at normal production / normal output X units of abnormal loss
b) When there is normal loss
Abnormal loss = {Normal cost at normal production / (Total output – normal loss units)} X Units of abnormal loss. Example : In process A 100 units of raw materials were introduced at a cost of Rs. 1000. The other expenditure incurred by the process was Rs. 602 of the units introduced 10% are normally lost in the course of manufacture and they possess a scrap value of Rs. 3 each. The output of process A was only 75 units. Prepare process A account.
Process A Account
| Debit Side | Units | Amount in Rs. | Credit Side | Units | Amount in Rs. |
| Raw material | 100 | 1000 | Normal Loss | 10 | - |
| Other Expenses | - | 602 | Sale of Scrap of normal wastage 10 units X Rs. 3 each | - | 30 |
| *Abnormal Loss | 15 | 262 | |||
| Process B ( Output ) - balancing figure | 75 | 1310 | |||
| 100 | 1602 | 100 | 1602 |
* Calculation of Abnormal loss in units and in value
Total input========== 100 units
Less normal loss in units== 10 units
--------------------------------------
Normal Output ======== 90 units
actual output of A process = 75 units
--------------------------------------
Abnormal loss in units ==== 15 units
==========================
Value of Abnormal Loss
= Cost of Total Output - scrap sale of normal loss/ Normal Output X Units of Abnormal loss
= 1602 - 30 / 90 X 15 = Rs. 262
Related : Process Costing
i need the email for accounting education
ReplyDeleteemail of accounting education is vinod@svtuition.org and svtuition@gmail.com
DeleteExtra Cost of Sales
ReplyDeleteOpening Stock 221,983,990 91,256,642
Purchases Raw Materials 589,183,341 394,996,679
Port agent Bo-Charges 7,792,319 10,740,650
Electricity Bill 11,864,603 8,691,857
Wages, Overtime & bonus 7,996,409 10,600,455
Spairs & Maintenance 841,764 1,650,675
839,662,426 517,936,958
Less: Closing Stock 360,188,433 221,983,990
479,473,993 295,952,968
how to adjust here normal loss and abnormal loss to show the value of production cost . please help to solve
e-mail:ipcb.bd@gmail.com
What if in a situation where the percentage of normal loss is not given.
DeleteIf a % of normal loss is not given.then their might be given the percentage or value of total loss .and also their is the point of abnormal loss.
DeleteYou can calculate the normal loss by lessing the abnormal loss through total loss
Materials issued : 1000units@₹150/unit
ReplyDeleteWages :₹30000
Over heads :₹10000
Normal loss : 5% of input
Actual out put : 900units
How to prepare process account
Process Account
DeleteMaterial 1000Units 150,000 Finished Goods 900Units 157,500
wages 900Units 30,000 WIP Closing 100Units 17,500
Overheads 900Units 10,000 Loss 50 7,500
sales* 150 7,500
190,000 1000Units 190,000
assumed sale unit lost price= 150
Abnormal loss is spread on good unit of production.is this statement true or false? Give reason.
ReplyDeletea normal lost unit, how does it affect the total cost explain and support your answer with computation?
ReplyDeleteThe following expenses were incurred for the production of 1500 units of a durable products.
ReplyDeleteMaterial - ₹350000
Wages - ₹120000
Overheads - ₹80000
Normal wastage in the process is 2% of the input and the scrap value is ₹300 per unit. You are required to prepare process account, assuming there was no abnormal loss or gain.
Sorry how to illustration the normal loss, abdormal loss anda abdormal gan?
ReplyDelete