Skip to content

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

Sharda Chemicals puts 10,000 kg of material into Process I at a cost of Rs 2,00,000. Labour and overheads are Rs 1,00,000. Normal loss is 10% of input, and scrap is sold at Rs 5 per kg. Actual output is 8,800 kg and the rest is abnormal loss. What is the cost per unit of good output (normal output basis)?

The cost per unit is Rs 32.78. Total cost of Rs 3,00,000 is reduced by the normal loss scrap value of Rs 5,000, giving Rs 2,95,000, which is divided by normal output of 9,000 kg. Abnormal loss is not allowed to inflate the per-unit cost of good output.

  1. ARs 33.33
  2. BRs 32.78Correct
  3. CRs 34.44
  4. DRs 30.00

Explanation

Normal loss = 1,000 kg; scrap value = Rs 5,000. Net cost = 3,00,000 - 5,000 = 2,95,000. Normal output = 9,000 kg. Cost per kg = 2,95,000/9,000 = Rs 32.78. Option A ignores scrap value (3,00,000/9,000). Option C divides by 8,800 kg actual output, which wrongly loads the abnormal loss onto good units.

Did you get it right without looking?

One question tells you little. A timed set on Process & Operation Costing shows your real accuracy, how long you take and where you lose marks.

Practise Process & Operation CostingFree diagnostic mock

More Process & Operation Costing questions