Problems of Process Accounts

Process Account is a ledger account maintained separately for each distinct stage (process) of production in industries where a product passes through two or more sequential processes before completion. It records all costs incurred in that process—materials, labour, and overheads—on the debit side, while the output (transferred to the next process or finished stock) and any scrap value are recorded on the credit side.

Example of Process Accounts:

A manufacturing company introduces 1,000 units into Process A. The following costs are incurred:

Normal loss is expected to be 10% of input, and the scrap value is ₹5 per lost unit. Actual output is 850 units.

Step 1: Calculate Normal Loss

Normal Loss = 10% of 1,000 units
= 100 units

Expected Output = 1,000 − 100
= 900 units

Scrap Value of Normal Loss = 100 × ₹5
= ₹500

Step 2: Calculate Cost per Unit

Cost per Unit = (Total Process Cost − Scrap Value of Normal Loss) ÷ Expected Output

= (₹35,000 − ₹500) ÷ 900

= ₹34,500 ÷ 900

= ₹38.33 per unit

Step 3: Calculate Abnormal Loss

Actual Output = 850 units

Expected Output = 900 units

Abnormal Loss = 900 − 850 = 50 units

Value of Abnormal Loss = 50 × ₹38.33 = ₹1,916.50

Process A Account

Abnormal Loss Account:

Final Result

The process produced 850 good units, with a normal loss of 100 units and an abnormal loss of 50 units. The cost per good unit is ₹38.33.