Solve the process costing problems for Illustration 25 V.B. Industries Ltd. and Illustration 26 Wason Industries Ltd.

Understand the Problem

The image contains accounting problems related to process costing. Illustration 25 provides data for V.B. Industries Ltd., including unit production, costs, normal loss, and stock values for three processes. Illustration 26 presents similar data for Wason Industries Ltd. You are asked to solve these accounting problems, this will likely involve calculating the cost per unit at each process, accounting for normal loss and scrap value, and valuing the closing stock.

Answer

**Illustration 25:** Process P Closing Stock Value: $160,000 Process Q Closing Stock Value: $574,605 Process R Closing Stock Value: $924,930 **Illustration 26:** Process A Closing Stock Value: $7,350

Steps to Solve

Illustration 25: Process P Calculations

First, calculate the cost of raw materials introduced. 10,000 units were introduced at $5 per unit. $$ 10,000 \text{ units} \times 5 \text{ per unit} = 50,000 $$ Now we sum all costs in Process P. This includes the cost of raw materials, process materials, wages and manufacturing overheads. $$ \text{Total Cost} = 50,000 + 800,000 + 325,000 + 285,000 = 1,460,000 $$

Calculating the normal loss for Process P.

The normal loss is 10% of the units introduced. $$ \text{Normal Loss} = 10% \times 10,000 \text{ units} = 1,000 \text{ units} $$ And the scrap value per unit is 100, so the total scrap value is calculated as: $$ \text{Scrap Value} = 1,000 \text{ units} * 100 = 100,000 $$

Calculating the cost per unit for Process P

We will calculate the cost per unit by subtracting the scrap value from the total cost and dividing by the number of units produced. $$ \text{Cost per unit} = \frac{\text{Total Cost - Scrap Value}}{\text{Output}} = \frac{1,460,000 - 100,000}{8,500} = \frac{1,360,000}{8,500} = 160 $$

Valuing closing stock for Process P.

Closing stock is 1,000 units. So the value of closing stock is, $$ \text{Closing Stock Value} = 1,000 \text{ units} \times 160 \text{ per unit} = 160,000 $$

Illustration 25: Process Q calculations

We need to calculate the cost per unit for Process Q. For that, we'll use the cost incurred in Process Q, the scrap value from normal loss, and output. The value of the opening stock needs to be included in the total cost.

First sum the values, where the value of opening stock is $2000 \times 850 = 1,700,000$: $$ \text{Total Cost} = 1,700,000 + 727,000 + 375,000 + 326,000 = 3,128,000 $$

Calculating the normal loss for Process Q.

Normal loss is 20% of the units introduced. The output from Process P is the input for Process Q, which is 8,500 units. Note that the question mentions rate per unit of units introduced as 400, but that is only used for Process P. Therefore: $$ \text{Normal Loss} = 20% \times 8,500 \text{ units} = 1,700 \text{ units} $$ And the scrap value per unit is 150, so the total scrap value is: $$ \text{Scrap Value} = 1,700 \text{ units} \times 150 = 255,000 $$

Calculating the cost per unit for Process Q

$$ \text{Cost per unit} = \frac{\text{Total Cost - Scrap Value}}{\text{Output}} = \frac{3,128,000 - 255,000}{7,500} = \frac{2,873,000}{7,500} = 383.0667 $$ Rounding it will be 383.07.

Valuing closing stock for Process Q.

Closing stock is 1,500 units, Therefore: $$ \text{Closing Stock Value} = 1,500 \text{ units} \times 383.07 \text{ per unit} = 574,605 $$

Illustration 25: Process R calculations

Again we need to calculate the cost per unit for Process R, and value the closing stock.

First sum the values, where the value of opening stock is $1,500 \times 1,200 = 1,800,000 $: The output from Process Q is the input for Process R, which is 7,500 units. Using this information we can calculate the value per unit for the input to Process R as: $$ 383.07 \times 7,500 = 2,873,025 $$ $$ \text{Total Cost} = 1,800,000 + 2,873,025 + 942,000 + 409,000 + 213,000 = 6,237,025 $$

Calculating the normal loss for Process R.

Normal loss is 15% of units introduced in the process. Units introduced equal the output of Process Q = 7,500 units. $$ \text{Normal Loss} = 15% \times 7,500 \text{ units} = 1,125 \text{ units} $$ And the scrap value per unit is 200, so the total scrap value is: $$ \text{Scrap Value} = 1,125 \text{ units} \times 200 = 225,000 $$

Calculating the cost per unit for Process R $$ \text{Cost per unit} = \frac{\text{Total Cost - Scrap Value}}{\text{Output}} = \frac{6,237,025 - 225,000}{6,500} = \frac{6,012,025}{6,500} = 924.9269 $$ Rounding it will be 924.93
Valuing closing stock for Process R Closing stock is 1,000 units. Therefore: $$ \text{Closing Stock Value} = 1,000 \text{ units} \times 924.93 \text{ per unit} = 924,930 $$
Illustration 26: Process A calculations

We need to calculate the cost per unit for Process A and value the closing stock. Direct materials introduced: 10,000 units at $5 per unit = $50,000 Wastage: 2% of 10,000 units = 200 units

Calculating the cost per unit for Process A

Since there are no other costs given apart from the initial raw material cost. We also don't have information on any scrap value on wastage in Process A, we can assume it is zero. We do know that the number of units produced is 8,500 $$ \text{Cost per unit} = \frac{\text{Total Cost}}{\text{Output}} = \frac{50,000}{8,500} = 5.8824 $$ Rounding it will be 5.88

Valuing the closing stock in Process A Closing stock is 1,250. $$ \text{Closing Stock Value} = 1,250 \text{ units} \times 5.88 \text{ per unit} = 7,350 $$

Illustration 25:

Process P Closing Stock Value: $160,000

Process Q Closing Stock Value: $574,605

Process R Closing Stock Value: $924,930

Illustration 26:

Process A Closing Stock Value: $7,350

More Information

The cost per unit is calculated after accounting for normal loss and its scrap value, which reduces the overall production cost. The closing stock is then valued at this calculated cost per unit.

Tips

Not accounting for scrap value when calculating the cost per unit.
Incorrectly calculating normal loss.
Forgetting to include opening stock value when figuring out total costs.
Using the wrong base (units introduced vs. output) for calculating normal loss percentage.
Making rounding errors during intermediate calculations, which significantly affects the final result.

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