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ACCA Applied Knowledge · Management Accounting · Cost accounting methods

Process B has input of 2,000 litres costing $9,000 in total, including conversion. Normal loss is 5% of input with no scrap value. Actual output is 1,960 litres. What is the value of the abnormal gain and how is it treated?

Expected output is 1,900 litres after 100 litres normal loss, so output of 1,960 gives an abnormal gain of 60 litres. At $4.7368 per litre, the gain is $284.21, which is credited to the statement of profit or loss.

  1. AAbnormal gain of 60 litres valued at $284.21 and credited to the statement of profit or lossCorrect
  2. BAbnormal loss of 40 litres valued at $189.47 and debited to the statement of profit or loss
  3. CAbnormal gain of 60 litres valued at $270 and credited to the process account
  4. DAbnormal gain of 60 litres valued at $284.21 and debited to the statement of profit or loss

Explanation

Normal loss = 100 litres, expected output = 1,900. Actual output 1,960 gives an abnormal gain of 60 litres. Cost per litre = 9,000/1,900 = $4.7368, so gain = 60 × 4.7368 = $284.21. The gain is debited to the process account and credited to the statement of profit or loss.

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