Process Costing Problems and Solutions

Today, we taking  process costing problems in one process costing question. We will also provide its solutions for clearing the question.



Solutions of Process Costing Problems

• In this problem, we show three process for converting raw material into finished stock. It means, we have to make three process account. Process 1 account will show raw material and wages and closing stock and gross profit on closing stock and balancing figure will be transfer amount for second process

Simple formula for calculating transfer amount

Cost of  transfer = ( Raw material + Wages - Closing Stock )

Transfer price with Gross profit = Cost of transfer + Gross profit % on Cost of transfer.

• In above process 1 account, you see that there is no amount of profit of closing stock because in first process, we only buy raw material on cost. But when we transfer stock from one process to second process, we have to deduct closing stock's profit in profit column of process 2 account. Following formula will apply for calculating the profit of closing stock in process 2.

Process 2's closing stock - ( total cost column  of process 2 / total of total column of process 2 X process 2' closing stock)

4000 - 18000/2000 X 4000 = Rs. 400

Simple formula for calculating transfer amount from process 2 to 3

Cost of  transfer = ( Raw material + Wages - Closing Stock )

Transfer price with Gross profit = Cost of transfer + Gross profit % on Cost of transfer.

• Like process 2 account, we will make process 3 account and we will show profit on closing stock of third process with following way

Process 3's closing stock - ( total cost column  of process 3 / total of total column of process 3 X process 3' closing stock)

6000 - 24400/30000 X 6000 = 1120

Profit on closing stock of finished stock

3000 - 19520 /30000 X 3000 = 1048


Simple formula for calculating transfer amount from process 3 to finished stock

Cost of  transfer = ( Raw material + Wages - Closing Stock )

Transfer price with Gross profit = Cost of transfer + Gross profit % on Cost of transfer.




b) Actual realised profit can be shown as under

Process 1

apparent profit from process  2000

Less unrealised profit in
closing stock                          Nil
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Actual profit (Gross) 2000
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Process 2

apparent profit from process  4000

Less unrealised profit in
closing stock                          400
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Actual profit (Gross) 3600
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Process 3

apparent profit from process  6000

Less unrealised profit in
closing stock                          1120
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Actual profit (Gross) 4880
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Finished Stock

apparent profit from process  9000

Less unrealised profit in
closing stock                          1048
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Actual profit (Gross) 7952
==========================

Total Apparent profit  21000

Less total unrealised profit in closing stock 2568

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Total actual profit (gross) 18432
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c) Stock valuation for balance sheet purpose

Process 1→  2000
Process 2→ 3600
Process 3→ 4880
Finished stock → 1952
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Total → 12432
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