process & std. costingproblems final

7/27/2019 Process & Std. Costingproblems FINAL

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Compiled by: Chhaya SehgalThe Winning Edge

A PROBLEM ON PROCESS COSTING

Q4. Product P is manufactured by sequential processes I, II, III. From the followinginformation, prepare process I, II, and III A/cs and abnormal loss/gain A/c.

ITEM PROCESS - I PROCESS - II PROCESS - III

Misc material 8000 10000 3000

Wages 25000 18000 20000

Mfg Expenditure 15000 12000 10000

Normal Loss (% of

Input) 5% 8% 6%

Scrap Value of

Normal Loss Rs 8/unit - Rs 12/unit

Actual output 925 850 805

1000 units were introduced to process I @ Rs 40 per unit.

Solution.

Working Notes - Process I A/c

1. Normal Quantity = Input Normal Loss

= 1000 50 = 950 units

2. Net Cost = Input Cost Scrap Value of Normal Loss= 48000 + 40000 400 = 87600

3. Cost/unit = Net Cost /Normal Quantity

= 87600/(1000 -50) = 92.21

4. Abnormal Loss = Normal Qty Actual Qty= 950 925 = 25 units

Process I A/c

DR CR

INPUT UNITS AMOUNTOUTPUT UNITS AMOUNT

To units introduced@ Rs 40

1000 40000 By Normal Loss (5% of 1000 units

at Rs 8)

50 400

To Misc Material 8000 By Abnormal

Loss @ Rs 92.21

25 2305

To wages 25000 By Transfer toProcess - II @ Rs

92.21

925 85295

To ManufacturingExpenses

15000

Total 1000 88000 1000 88000

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Working Notes - Process II A/c

1. Normal Quantity = Input Normal Loss

= 925 74 = 851 units

2. Net Cost = Input Cost Scrap Value of Normal Loss= 125295 0 = 125295

3. Cost/unit = Net Cost /Normal Quantity

= 125295/851 = 147.234. Abnormal Loss = Normal Qty Actual Qty

= 851 850 = 1 unit

Process II A/c

DR CR

INPUT UNITS AMOUNT OUTPUT UNITS AMOUNT

To unitsTransferred from

process I @ Rs

92.21

925 85295 By normal Loss (8% of 925 units) 74 0

To Misc Material 10000 By Abnormal Loss

@ Rs 147.23

1 147

To wages 18000 By Transfer to

Process - III @ Rs147.23

850 125148

To Manufacturing

Expenses

12000

Total 925 125295 925 125295

Working Notes - Process III A/c

1. Normal Quantity = Input Normal Loss= 850 51 = 799 units

2. Net Cost = Input Cost Scrap Value of Normal Loss

= 158148 612 = 1575363. Cost/unit = Net Cost /Normal Quantity

= 157536/799 = 197.17

4. Abnormal gain = Normal Qty Actual Qty

= 799 805 = 6 units

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Process III Account

DR CR


To units

Transferred toProcess - III @ Rs147.23

850 125148 By normal Loss

@ 6% of 850

51 612

To Misc Material 3000 By Transfer tofinished goods @

197.17

805 158719

To wages 20000

To Mfg Expenses 10000

To abnormal gain

@ 197.17

6 1183

Total 856 159331 856 159331

Abnormal Loss A/c

DR CR


To process I A/c 25 2305 By scrap value @

Rs 8/-

25 200

To process II A/c 1 147 By scrap value 1 NIL

By Profit & LossA/c

2252

Total 26 2452 26 2452

Abnormal Gain A/c

DR CR


To Scrap Value

Process III A/c @Rs 12

6 72 By Process III A/c 6 1183

To Profit and LossA/c

1 1111

Total 6 1183 6 1183

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PROBLEM ON APPLICATION OF STANDARD COSTING FOR COMPUTING MATERIAL,

LABOUR, OVERHEAD VARIANCES

Illustration 5:

Standard cost of Product A:

1 Unit Rs Rs

Direct 60 units of X at Re.1 per unit 60

Materials: 40 units of Y at Re.1.5 per unit 60100 120

10 Normal loss 10%

90 units 120Scrap value at Re.1 per unit (10) 110

Direct Process 1 3 hours at Rs.10 per hour 30

Wages:

Process 2 1 hour at Re.10 per hour 10

Process 3 2 hours at Re.5 perhour 10 50

Variable Process 1 Rs.3 per unit of A 3

overheads: Process 2 Rs.3 per unit of A 3Process 3Rs.4 per unit of A 4 10

Fixed overhead @ 20% of wages cost 10

PRODUCTION COST 180

ADMINISTRATION COSTS 10

190

SELLING AND DISTRIBUTION COSTS 10TOTAL COST 200

PROFIT 50SELLING PRICE 250

If during a period, 1000 units of product A are manufactured and sold, and the actual costs are ascertained as

below, the standard costs and actual costs could be compared as follows:

Total Variances

Product A 1,000 units

VariancesElement of cost Standard Actual (F) (A)

Rs Rs. Rs. Rs.

Direct material 1,10,000 1,40,000 30,000Direct wages 50,000 55,000 5,000

PRIME COST 1,60,000 1,95,000 35,000

Variable overhead 10,000 8,000 (2,000)

Fixed overhead 10,000 18,000 8,000

Administration 10,000 12,000 2,000

Selling and 10,000 15,000 5,000

DistributionTOTAL COST 2,00,000 2,48,000 (2,000) 50,000Profit 50,000 52,000 (2,000)

Sales varianceSales 2,50,000 3,00,000 (50,000)

(F) Favourable (A) Adverse

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The above illustration demonstrates the main advantage of a standard costing system: management is given

clear information to enable them to decide on future policy. It can be clearly seen that the total cost of product

A during the period was Rs.48,000 more than the standard set.

The adverse variance of Rs.30,000 on direct material should be closely investigated.

Despite adverse costs, profit is marginally higher than anticipated, due to selling prices exceeding thosebudgeted.

Quick look of the Variances under Material, Labour and Overhead Cost

Material Cost Variance: The difference between the standard cost of material specified and the

actual cost of material used.

Material Usage Variance: The portion of the material cost variance which is due to the difference

between the standard quantity specified and the actual quantity used.

Material Price Variance: The portion of the material cost variance which is due to the difference

between the standard price specified and the actual price paid.

Material Mix Variance: The portion of the usage variance which is due to the differencebetween the standard and the actual composition of a mixture.

Material Yield Variance: The difference between the standard yield specified and the actual yield

obtained.

Labour Cost Variance: The difference between the standard wages specified and the actual

wages paid.

Labour Efficiency Variance: The portion of the labour cost variance, which is due to the difference the

standard labour hours specified and the actual labour hours expended.

Labour Rate Variance: The portion of the labour cost variance which is due to the

difference Between the standard rate specified and the actual rate paid.

Labour Mix Variance: The portion of the Labour efficiency variance which is due to the

Difference between the standard and actual composition of labour component.

Labour Yield Variance: The difference between the standard yield specified and the actual yieldobtained.

Controllable Variance: The portion of the overhead variance which is due to the difference

between the flexible budget based on actual production and the actual

overhead incurred.

Volume Variance: The portion of the overhead variance which is due to the difference

between the flexible budget based on the actual production and theapplied overhead.

Spending Variance: The portion of the controllable variance which is due to the difference

between the flexible budget based on inputs and the actual overhead

incurred.

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Efficiency Variance: The portion of the controllable variance which is due to the difference

between the flexible budget based on outputs and the flexible budget

based on inputs.

Overhead Variance: The difference between the standard overhead specified and the actualoverhead incurred.

Q 6. Calculate RM, Labour and Variable Overhead Variances

Standard for 100 Units of Finished Goods

RMs 1500 Kgs @ Rs 3/- = Rs 4500/-

Labour 600 Hrs @ Rs 4/- = Rs 2400/-

Variable Overhead 600 Hrs @ Rs 1.50 = Rs 900/-

Total Variable Cost for Standard 100 Units = Rs 7800/-

Actual for 2500 Units of finished goodsRMs 37250 Kgs @ Rs 3.10 = Rs 115475/-

Labour 15260 Hrs @ Rs 4.15 = Rs 63329/-

Variable Overhead 15260 Hrs @ Rs 1.40 = Rs 21364/-

Total Variable Cost for Actual production = Rs 200168/-

Sol. Raw Material Cost Variance = (Actual RM Cost RM cost for actual production at Standard

rates)

= (115475 2500x45)

= 2975 (A)

Raw Material Rate Variance = Actual Quantity (Actual Rate Standard Rate)= 37250 (3.1 3.0)

= 3725 (A)

Raw Material Usage Variance = Standard Rate (Actual RM Usage Standard usage for actual

production)

= 3.0 (37250 2500 x 15)

= 750 (F)

Labour Cost Variance = Labour Cost for Actual Production Labour cost for actual

production at standard rates= (63329 2500 x 6 x 4)

= 3329 (A)

Labour Efficiency Variance = Standard Labour Rate (Actual hrs Standard Hrs for actual

production)

= 4 (15260 2500 x 6)

= 1040 (A)

Labour Rate Variance = Actual Hours (Actual Rate Standard Rate)

= 15260 (4.15 4)= 2289 (A)

Variable overhead Variance = Actual Variable Overheads Overheads for actual production

at standard rates

= (21364 2500 x 6 x 1.5)

= 1136 (F)Variable Overhead Rate Variance = Actual Hrs (Actual Rate Standard Rate)

= 15260 (1.4 1.5)

= 1526 (F)

Variable Overhead Efficiency Variance = Standard Rate (Actual Overhead Hours Hrs required at

Standard Rate for Actual Production)= 1.5 (15260 15000)

= 1.5 (260)

= 390 (A)

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Statement of Variances

Material Cost Variance Rs 2975/- (A)

Material Price/Rate Variance Rs 3725/- (A)

Material Usage Variance Rs 750/- (F)

Labour Cost Variance Rs 3329/- (A)Labour Rate Variance Rs 2289/- (A)

Labour Efficiency Variance Rs 1040/- (A)

Variable Overhead Cost Variance Rs 1136/- (F)

Variable Overhead Rate Variance Rs 1526/- (F)

Variable Overhead Eff. Variance Rs 390/- (A)

Humour Break

Once a man went to a Veterinary Doctor in India and said: Doctor I have come on vacation for a month so

that I can get myself treated fully within this period.

Doctor: I think you should go to the Doctor opposite to my clinic, see that board.

Man: No, Doctor, I have come to you only.

Doctor: But, gentleman I am a Veterinary Doctor. I am an animal specialist. I do not treat human beings.

Man: I know, Doctor very well and that is why I have come to you only...

Doctor: I can not - because you speak like me, think like me, talk like me which means you are a human

being and not an animal.

Man: I know I am a human but listen to my complaints first;

Doctor: OK. Tell me.

Man: I sleep vigilantly like dog thinking about my work load whole night. I get up in the morning like a horse

I go to work running like a deer. I work all the day like a donkey. I run around for 11 months like a bull

without any holiday. I wag my tail in front of all my bosses. I play with my children like a monkey if I get

time. I am like a rabbit before my wife.

Doctor: are you an Accountant?

Man: Yes

Doctor: Instead of telling this long history you should have told me in the beginning itself that you are an

accountant. Come man, no one can treat you better than me.

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