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CA Intermediate · Cost and Management Accounting · Process & Operation Costing

In Process A, 1,000 units cost Rs 40,000 and are transferred to Process B at Rs 50,000, which includes a profit element. Process B incurs further cost of Rs 20,000 and completes all 1,000 units. 600 units are sold and 400 units remain in finished stock. What amount of unrealised inter-process profit is included in the closing stock?

The unrealised inter-process profit in closing stock is Rs 4,000. Process A loaded Rs 10,000 on 1,000 units, which is Rs 10 per unit, and only the 400 unsold units still carry that profit. Profit on the 600 units sold is realised.

  1. ARs 4,000Correct
  2. BRs 5,600
  3. CRs 6,000
  4. DRs 10,000

Explanation

Profit loaded by Process A = 50,000 - 40,000 = Rs 10,000, or Rs 10 per unit. Only 400 units remain unsold, so unrealised profit = 400 x 10 = Rs 4,000. Rs 6,000 relates to the 600 units sold, whose profit is realised. Rs 10,000 wrongly treats the entire transfer profit as unrealised.

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