Losses in process (weighted average)

(a) A company uses a process costing system in which the following terms arise:

conversion costs work-in-process equivalent units normal loss abnormal loss.

Required:
Provide a definition of each of these terms.
(5 marks)

(b) Explain how you would treat normal and abnormal losses in process costs accounts.
(4 marks)

(c) One of the products manufactured by the company passes through two separate processes. In each process losses, arising from rejected material, occur. In Process 1, normal losses are 20% of input. In Process 2, normal losses are 10% of input. The losses arise at the end of each of the processes.
Reject material can be sold. Process | reject material can be sold for £1.20 per kilo, and Process 2 reject material for £1.42 per kilo.
Information for a period is as follows:

At the end of the period 2000 kilos of material were incomplete in Process 2. These were 50% complete as regards direct labour and production overhead. There was no opening work-in-process in either process, and no closing work-in-process in Process 1.
Required:
Prepare the relevant cost accounts for the period.

Transcribed Image Text:

Process 1: Material input 9000 kilos, cost 14964. Direct labour 2450 hours at 3.40 per hour. Production overhead 2.60 per direct labour hour. Material output 7300 kilos. Process 2: Material input 7300 kilos. Direct labour 1000 hours at 3.40 per Production overhead 2.90 per direct labour hour. hour.