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

Ranchi Polymers puts 1,000 kg of raw material into a mixing process at a total process cost of ₹90,500. Normal loss is 10% of input and the loss units can be sold at ₹5 per kg. Actual output is 880 kg. What is the cost per kg of good output?

The cost per kg is ₹100. Total cost of ₹90,500 is reduced by the scrap value of normal loss (100 kg at ₹5 = ₹500), giving ₹90,000, which is divided by normal output of 900 kg, not by input or actual output.

  1. A₹100.00Correct
  2. B₹100.56
  3. C₹90.50
  4. D₹90.00

Explanation

Normal loss = 100 kg, realisable value = 100 × ₹5 = ₹500. Net cost = 90,500 − 500 = ₹90,000. Normal output = 900 kg, so cost per kg = 90,000/900 = ₹100. Dividing 90,500 by 900 ignores the scrap credit. Dividing by 1,000 or 880 uses the wrong units.

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