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Query

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Manufacturing cost of a work order is Rs 1000, 8% of the production against that order spoiled and the rejection is estimated to have a realisable value of Rs 20 only. The  normal rate of spoilage is 2%.

PLS TELL ME WHAT IS THE NORMAL LOSS AND ABNORMAL LOSS AND HOW THAT HAS COME.....PLS reply

Replies (2)

i think the normal loss will br 15 rs and the abnormal loss will be 45rs.

sorry if it is wronmg it arise as under..............

=1000*8%= 80-20=60

=1000*2%= 20

=20-5=15

=60-15=45

as 20is recoverablw value of all spoilage so on that basis amount recoverable form noarma loss and abnoraml loss is 5 and 15

normal cost of normal production need to be found out first...... 

normal prodcustion = 98% ,scrap value of norma loss = 20*(2/8)= 5 rs

therefore normal cost of normal production = 1000 - 5 = 995 rs ( i.e cost of 98% normal output)

 

abnormal loss output = 8-2 = 6%

value of abnormal loss = 995 * ( 6 / 98) =61 rs

 

but scrap realisation of abnormall loss = 20 - 5 = 15 rs 

therefore

abnormal loss charged to P&L is = 61 - 15 = 46 rs

  

normal loss has no individual recognition in ascertaining profit or loss it is absorbed by output...

this is the way to follow as per cost accoutning stnadards.......


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