Conceptual help

Cost Accounts 837 views 2 replies

Anuj Jain

pqr

94 Points Posted on 08 October 2012

in process costing we calculate normal loss as follows

{opening wip + units introduced ) x 10 %

but i think that it shouls be calculated on units introduced only not on opening wip as it is subjected to normal loss previously only. similarly we can see that here wwhen we apply % of normal loss on units introduced it means that closing wip which will be the part of unitsintroduced shall be subjected to normal loss and in next period when we calculate normal loss on { opening wip + units introduced } x 10 % will leads to 2 times application of normal loss on wip.

please make it clear

Replies (2)

T S D

236 Points Posted on 08 October 2012

Dear Anuj,

Calculation of loss is dependant on the method used to express the loss.

Case I

Usually, in process costing, each process is considered seperate. And so, the opening WIP represent the stock available for the process. Normal loss is the loss of units in a particular process. Though normal loss is already accounted for in the opening WIP, that would be of earlier process. Hence normal loss may be computed on (Op. WIP + Inputs).

Case II

If there is no specific mention in the question, the loss is to be calculated based on gross input.

Normal Loss units = Gross Input x Expected percentage of normal Loss.

For any mistakes, I may stand corrected.