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

Narmada Chemicals has a single process using the weighted average method. Opening WIP was 400 units and 3,600 units were introduced. Normal loss is 200 units, detected at the end of the process and sold at ₹5 per unit. 3,000 units were completed and transferred. Closing WIP is 600 units (materials 100%, conversion 50% complete). The rest are abnormal loss units, treated as 100% complete in materials and conversion. Total material cost (including opening WIP) is ₹3,81,000 and total conversion cost (including opening WIP) is ₹2,45,000. What is the cost of abnormal loss before crediting its scrap realisation?

The cost of abnormal loss is ₹34,000. Net material cost after scrap of normal loss gives ₹100 per equivalent unit on 3,800 units, and conversion gives ₹70 on 3,500 units. The 200 abnormal loss units are fully complete, so they carry ₹170 each.

  1. A₹34,000Correct
  2. B₹33,000
  3. C₹20,000
  4. D₹27,000

Explanation

Abnormal loss units = 4,000 − 200 − 3,000 − 600 = 200. Equivalent units: materials 3,000 + 600 + 200 = 3,800; conversion 3,000 + 300 + 200 = 3,500. Net material cost = 3,81,000 − 200 × 5 = 3,80,000, so ₹100 per unit; conversion = 2,45,000 / 3,500 = ₹70 per unit. Abnormal loss = 200 × (100 + 70) = ₹34,000. ₹27,000 wrongly treats the loss as only 50% complete in conversion.

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