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1. PROCESS LOSSES

2. PROCESS LOSSES
OUTPUT < INPUT
Reason –
e. Evaporation
f. Breakages
g. Spillage
h. Quality control testing

3. TYPES OF LOSSES
(a) Normal Loss – unavoidable losses which are
expected in a process
(b) Abnormal loss –
Actual loss > Normal loss
(c ) Abnormal gain –
Actual loss < Normal loss
Note: Abnormal losses and gains are valued at
the same rate as the good units (carry full
cost of production)

4. NORMAL LOSS
• The cost of this level of loss is borne by the good
units of output because it is an extra cost which is
expected
Definition for loss:
• Waste – when the loss does not recover any value
• Scrap – when the loss is sold for a minor value
• Spoilage – When the output fail to reach the
required standard of quality or specifications

5. Illustration
Process 1 has a normal loss of 10% of input, due to quality control
rejections at the end of the process. Output from the process is
transferred to process 2.
All rejected units can be sold for scrap at RM0.50 each. Process costs
in the month were:
Input materials – 1,000 units @ a total cost
of RM2,000
Conversion cost – RM3,000
There were no opening or closing stocks.
Required:
(h) If output to Process 2 was 900 units, what is the cost per unit?
(i) If output to Process 2 was 850 units, prepare accounts
(j) Is output to Process 2 was 920 units, prepare accounts

6. Solution (a)
• From question- Normal loss is 10% of input,
therefore;
• Normal Loss = 10% x 1000 units = 100 units
• Formula for cost per unit:
= Total costs – Scrap value
Normal output
= RM5,000 – (RM0.50 x 100 units)
900 units
= RM 5.50
Note: Only scrap value of normal loss will be used to
reduce the process cost

7. Solution (b)
• Actual loss
= Total units input – Total units output
= 1,000 – 850 = 150 units
Therefore; there are….
Abnormal loss = Actual loss – Normal loss
= 150 units – 100 units
= 50 units

8. Solution (c)
• Actual loss
= Total units input – Total units output
= 1000 units – 920 units = 80 units
Therefore; abnormal gain is when
Actual loss < normal loss
= 80 units < 100 units
= 20 units of abnormal gain

9. Summary
– losses in process costing
• The normal loss does not absorb any of the
production costs
• Abnormal losses and gains are valued at the same
unit cost as the good units
• If losses have a scrap value, only the value of the
normal loss is credited to the process account
• The scrap values of any abnormal losses or gains are
offset against their production costs in the abnormal
loss or gain account
• If losses has no value, the normal loss has zero value