Process Costing

Philip Dunn tests your knowledge of process costing.

Q1. Which of the following businesses would not use a process costing system?

• A limestone quarry.
• A brewery.
• An agricultural engineers – repairs and servicing.
• A vegetable canning company.

Crescent Ltd produces Chemit, which passes through a single process. A normal loss allowance of 5% of the input is agreed and each waste unit has a residual value of £4 per unit.

In week (1) of October the following information relates to the process:

• Direct material 400 units @ £10 per unit.
• Direct labour 40 hours @ £12 per hour.
• Overhead recovery rate £15 per hour.

Q2. What would be the direct and indirect costs debited to the process account in week (1)?

Q3. What would be the normal loss allowance in units for the week?

Q4. What would be the value of the normal loss allowance credited to the process account?

Q5. If the output for the week was 380 units what would be the value of the finished product per unit? (to two decimal places).

Q6. If in the scenario outlined above the output for the week had been 350 units, what would be the abnormal loss in units?

Q7. What would be the value of the of the abnormal loss for the period (to the nearest £)?

Q8. What would be the value of the finished output for the period (to the nearest £)?

Crescent Ltd produces a further product, Pedchem, which passes through two processes.
A normal loss allowance of 10% of input is agreed for both process 1 and 2. The residual value of a waste unit is £8. In week (1) of October the following relates to process 1:

• Direct material 800 units @ £15 per unit.
• Direct labour 40 hours @ £12 per hour.
• Overhead recovery rate £15 per hour.
• Output and transferred to process 2,700 units.

Q9. What would be the total of the direct and indirect costs debited to the process account?

Q10. What would be the value of the normal loss allowance credited to the process account?

Q11. What would be the value of the abnormal loss (to the nearest £)?

Q12. What would be the value of the finished output transferred to process 2?

In week (1) of November the following relates to process 2:

• Units transferred from process 1 – 750 units
• value £13,125.
• Other processing costs £1,100.
• Normal loss allowance 10% of input, residual
• value of waste units £8.
• Output for the period 715 units.

Q13. What would be the value of the finished output?

Q14. What would be the abnormal gain in units?

Q15. What would be the value of the abnormal gain debited to the process account?