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

Shree Ganesh Chemicals runs a single process. In a month it put 4,000 kg of material into the process, and normal loss is 10% of input. Actual output was 3,500 kg, and the process cost was Rs 1,80,000, with no scrap value for the loss. How many kg is the abnormal loss?

Abnormal loss is 100 kg. Normal loss is 10% of 4,000 kg, which is 400 kg, so expected good output is 3,600 kg. Actual output of 3,500 kg falls short by 100 kg, and that excess loss beyond the normal level is treated as abnormal loss.

  1. A100 kgCorrect
  2. B400 kg
  3. C500 kg
  4. D0 kg

Explanation

Normal loss = 10% of 4,000 = 400 kg. Expected good output = 4,000 - 400 = 3,600 kg. Actual output is 3,500 kg, so abnormal loss = 3,600 - 3,500 = 100 kg. Taking 500 kg ignores that 400 kg of the shortfall is normal.

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