CMA Intermediate · Cost Accounting · Process Costing
Process 1 of Yamuna Paints has a cost of Rs 1,20,000 and transfers all output to Process 2 at Rs 1,50,000 (cost plus 25% on cost). After charging this transfer price, Process 2 shows a profit of Rs 50,000. Two-fifths of the material transferred remains in Process 2's closing stock and there is no opening provision. What is the total net profit after eliminating unrealised inter-process profit?
The net profit is Rs 68,000. Total reported profit is Rs 80,000, made of Rs 30,000 in Process 1 and Rs 50,000 in Process 2. Two-fifths of Process 1's Rs 30,000 margin, Rs 12,000, is unrealised in closing stock and is deducted.
- ARs 80,000
- BRs 74,000
- CRs 68,000Correct
- DRs 92,000
Explanation
Reported profit = 30,000 (Process 1) + 50,000 (Process 2) = 80,000. Unrealised profit = 2/5 x 30,000 = 12,000, because the whole Rs 30,000 margin lies in the transferred material. Adjusted profit = 80,000 - 12,000 = 68,000. Rs 74,000 wrongly deducts only 1/5 of the margin, and Rs 80,000 ignores the reserve.
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