CMA Intermediate · Cost Accounting · Process Costing
Process A of Kaveri Textiles transfers output to Process B at cost plus 25% on cost. At year end, the stock in Process B includes Rs 30,000 of material received from Process A (at transfer price) and Rs 12,000 of Process B's own conversion cost. What is the unrealised profit to be eliminated?
The unrealised profit is Rs 6,000. Process A's markup of 25% on cost equals one-fifth of the transfer price, so applying 25/125 to the Rs 30,000 of Process A material in closing stock gives Rs 6,000. Process B's own cost carries no inter-process profit.
- ARs 7,500
- BRs 6,000Correct
- CRs 5,000
- DRs 8,400
Explanation
Only the Process A material carries Process A's profit. With a 25% markup on cost, profit is 25/125 = 1/5 of transfer price. Rs 30,000 x 25/125 = Rs 6,000. Rs 7,500 wrongly takes 25% of the transfer price, and Rs 8,400 wrongly includes Process B's own cost.
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