The product of a manufacturing concern passes through two processes A and B and then to finished stock. The details of expenses incurred on the two…

CA Intermediate · Cost and Management Accounting · MTP · May 2024
The product of a manufacturing concern passes through two processes A and B and then to finished stock. The details of expenses incurred on the two processes during the year were as under: Process A (₹) Process B (₹) Materials 40,000 56,000 Labour 40,000 66,000 Overheads 16,000 40,000 On completion, the output of Process A is transferred to Process B at a price calculated to give a profit of 20% on the transfer price and the output of Process B is charged to finished stock at a profit of 25% on the transfer price. The finished stock department realized - 4,00,000 for the finished goods received from Process B. You are asked to SHOW process accounts and total profit, assuming that there was no opening or closing work-in-progress.

Suggested Answer and Working Notes:

Process A Account Dr ₹ Cr. ₹ To Materials 40,000 By Transfer to Process B A/c 1,20,000 To Labour 40,000 To Overheads 16,000 96,000 To Profit (20% of transfer price, i.e., 25% of cost) 24,000 1,20,000 1,20,000 Process B Account Dr ₹ Cr. ₹ To Transferred from Process A A/c 1,20,000 By Transfer to Finished Stock A/c 2,88,000 To Labour 56,000 To Overhead 40,000 2,16,000 To Profit (25% of transfer price i.e., 33.33% of cost) 72,000 2,88,000 2,88,000 Statement of Total Profit Particulars ₹ Profit from Process A 24,000 Profit from Process B 72,000 Profit on Sales (₹ 4,00,000 - 2,88,000) 1,12,000 Total Profit 2,08,000

Topics: Process & Operation Costing

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