Simple Process Account
In every process, the expenses associated with that process are written. There are some expenses that are not related to any process directly but are related to all processes. Such expenses are divided amongst all the processes in a fixed proportion. From the practical point of view at the time of solving the question, it must be seen whether directions related to the expenses are given or not. If directions for division is given then the division must be done accordingly. but if proper instructions are not given then the expenses should be divided on the basis of direct labour or wages
Valuation of Opening and Closing Stock in Process
It is not necessary that the processing of the entire goods received from the previous process be done in any process. Some part of the material which cannot be processed is left as stock in the end. The- closing stock is in the form of opening stock for the next process. The closing stock is written in the credit side and the opening stock iswritten in the debit side of the process. The valuation of the opening and closing stock is done on the basis of the costnof the previous process.
Loss in Weight and Wastage
In the production process, there is some loss in weight of the material due to drying up, carelessness or destruction. This is written under the heading ‘Loss in Weight’ on the credit side of the process account. Loss in weight is a normal part of the production process and this cannot be stopped, thus its loss has to be borne by cost accounts, that is, this loss increases a the cost price. A loss in weight in this manner does not fetch any selling price, therefore, it is entered on the credit side of the process account only in the unit column, and nothing is entered in the amount column. In the production process along with loss in weight, there is also wastage of material in some amount. The wastage that occurs can be sold in the market and its selling price is known as scrap value. This is shown under the heading ‘Sale of Scrap’ on the credit side of the process account. This is also known as normal wastage and can be written in the process account under this head.
Abnormal Loss or Wastage
When in some process, the wastage is more than the normal wastage then this is known as ‘Abnormal wastage’.This type of abnormal wastage occurs due to some specific reasons, such as-problem in the plant or machinery, natural calamity, carelessness of the managers, load shedding etc.
This is not a loss which goes on occurring again and again. there its loss should not be written in the cost accounts. If this is written in the cost accounts, then the future estimate of cost will be affected by it and it would be difficult to make accurate or precise predictions, that is why abnormal wastage is written in the Profit-Loss Account. In order to stop the effect of loss, caused due to abnormal wastage from falling on cost accounts, its valuation is always done on the cost of production.
Abnormal wastage is calculated by the use of the
following formula- Abnormal wastage = Units of abnormal wastage
Cost of normal production
Units of normal production In the given formula,
Total units used = Normal units of wastage.
Abnormal units of production =Normal production -Actual production.
Normal cost of production = Total expenses – Scrap value of normal wastage.
Abnormal Wastage Account
In this account, the units of abnormal wastage andncost price are written on the debit side which is got from the concerned process cost account. After this from the ‘Selling Account’, the amount received from the sale of the above mentioned units of abnormal wastage, should be written onnthe credit side. These are sold at the same rate at which the units of normal wastage are sold; After this, the Profit-Loss Account will be written by the amount difference in the creditnside and the account will then be closed.
Abnormal Effective or Gain
When the wastage in any process is less than the
normal wastage, then this decrease in wastage is known asnn*Abnormal Effective’ or ‘Abnormal Gain’. This is also taken to the Profit and Loss Account like Abnormal Loss, andnthus its valuation is also done on the Cost of production. For this, in the debit side of the Process Cost Account, “To Abnormal effective A/c’ is written’.
Abnormal Effective Account
In this account from the credit side of the concerned ‘Process Cost Account’, the units of abnormal effective orgain and cost price are written. After this from the debit side ‘Normal Wastage Account’, the units of abnormal wastage are written after valuation with the selling price of normal wastage. In the end, the amount of difference in the debit side is written in the Profit and Loss Account’ and the account is closed. The valuation of Abnormal Effective or Gain is done with the help of the following formula:
In the above formula –
Units of normal production = Total units used –
Units of normal wastage
Units of abnormal effective or gain = Units of actual production – Units of normal production
Cost of normal production = Total expenses –
Scrap value of normal wastage