Skip to content

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

Surat Textiles' dyeing process has no opening WIP. During the month, 10,000 units were input, of which 7,800 were transferred out, 1,000 remain as closing WIP (100% materials, 50% conversion), and normal loss is 10% of input with nil scrap value. Abnormal loss units are treated as fully complete. Material cost is ₹4,50,000 and conversion cost is ₹3,06,000. Using the weighted average method, the value of abnormal loss is:

The abnormal loss is ₹17,200. There are 200 abnormal loss units, treated as fully complete, with material cost of ₹50 and conversion cost of ₹36 per equivalent unit, so each unit costs ₹86. Normal loss units are excluded from equivalent units.

  1. A₹17,200Correct
  2. B₹13,600
  3. C₹16,800
  4. D₹7,200

Explanation

Normal loss = 1,000 units; abnormal loss = 10,000 − 1,000 − 7,800 − 1,000 = 200 units. Equivalent units for materials = 7,800 + 1,000 + 200 = 9,000, giving ₹50 per unit. For conversion = 7,800 + 500 + 200 = 8,500, giving ₹36 per unit. Abnormal loss = 200 × (50 + 36) = ₹17,200. Treating it as only 50% converted gives ₹13,600, which is wrong.

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