8.2 Losses in process costing
Normal loss is the amount of loss expected from the operation of a process. This expectation is based on past experience, and this loss is considered to be unavoidable.
Abnormal loss is then extra loss resulting when actual loss is greater than normal or expected loss, and it is given a cost.
Abnormal gain is the gain resulting when actual loss is less than the normal or expected loss, and its is given a “negative cost”。
Example 1
Input to a process is 1000 units at a cost of $4500
Normal loss is 10%
There is no opening or closing stocks
(1)output = 860 units
(2)output = 920 units
Solution:
(1)output = 860 units
Step 1: determine output and losses
units
Actual Loss 1000 units-860 units 140
Normal Loss 1000 units x 10% 100
Abnormal loss 40
Step 2: calculate cost per unit of output and losses
Cost incurred = $4,500 = $5 per unit
Expected output 1000 units x 90%
The cost per unit of output and the cost per units of abnormal loss are based on expected output.
Step 3: calculate total cost of output and losses
Calculate total cost of output and losses; normal loss is not assigned any cost.
Simply, total cost of output = total cost of input
$
Cost of output 860 units x $5 4,300
Normal loss 0
Abnormal loss 40 units x $5 200
Total cost 4500
Step 4: complete accounts
Process account
Unit
$
Unit
$
Cost incurred
1000
4500
Normal loss
100
0
Output(finished goods a/c)
860 x $5
4300
Abnormal loss
40 x $5
200
1000
4500
Abnormal loss account
Unit
$
Unit
$
Process account
40
200
Profit/loss account
40
200
40
200
40
200
，我們將會及時處理。