Cost Accounting Solved Question Papers: (May' 2017 New Course)

2017 (May)
Course: 401
(Cost Accounting)
The figures in the margin indicate full marks for the questions
Full Marks: 80
Pass Marks: 24
Time: 3 hours
1. (a) Fill in the blanks:                  1x4=4

a)      Cost which can be charged to a particular unit of cost is considered as product cost.
b)      Reorder quantity may be measured in units or value.
c)       Under the Halsey plan Bonus is a fixed percentage.
d)      The basis of apportionment for indirect wages is direct labour.
(b) Choose and write the correct answer:                             1x4=4
a)      In a printing industry, job costing/process costing is applied.
b)      The sum of direct material cost and direct labour cost is termed as prime cost/overhead.
c)       Tender form is issued by the purchasing department/production department.
d)      Vacation pay for factory workers should be charged to factory overhead/direct labour.
2. Write on the following (any four):                       4x4=16
a)      Statement of cost and profit.
Cost Sheets are statements setting out the costs of a product giving details of all the costs. Presentation of costing information depends upon the method of costing. A cost sheet can be prepared weekly, monthly, quarterly or annually. In a cost sheet besides total expenditure incurred, cost per unit of output in case of each element of cost can be shown in a separate column. The cost sheet should give cost per unit in the previous period for the purposes of comparison.
Walter & Bigg define, “The expenditure which has been incurred upon production for a period is extracted from the financial books and the store records, and set out in a memorandum or a statement. If this statement is confined to the disclosure of the cost of the units produced during the period, it is a termed as a cost sheet”. In other words cost sheet is a statement showing the total cost under proper classification in a logical order.
Components of Total Cost
1. Prime Cost: Prime cost consists of costs of direct materials, direct labors and direct expenses. It is also known as basic, first or flat cost.
2. Factory Cost: Factory cost comprises prime cost and, in addition, works or factory overheads that include costs of indirect materials, indirect labors and indirect expenses incurred in a factory. It is also known as works cost, production or manufacturing cost.
3. Office Cost: Office cost is the sum of office and administration overheads and factory cost. This is also termed as administration cost or the total cost of production.
4. Total Cost: Selling and distribution overheads are added to the total cost of production to get total cost or the cost of sales.
b)      Inventory control.
Ans: Inventory or Store Control
Inventory control means to monitor the stock of goods used for production, distribution and captive (self) consumption. For a specific time period, stocks of goods are placed at some particular location. Stock of goods includes raw-materials, work in progress, finished goods, packaging, spares, components, consumable items, etc. Inventory Control means maintaining the inventory at a desired level. The desired-level keeps on fluctuating as per the demand and supply of goods.
According to Gordon Carson, "Inventory control is the process where by the investment in materials and parts carried in stocks is regulated, within pre-determined limits set in accordance with the inventory policy established by the management."
Simply "Inventory control is a method to identify those stocks of goods, which can be used for the production of finished goods. It shall be supported by a schedule which gives details regarding; opening stock, receipt of raw-materials, issue of materials, closing stock, and scrap generated."
Objectives of store control: The following are the important objectives of store control
a)      to make available the right type of raw material at the right time in order to have smooth and continuous flow of production;
b)      to ensure effective utilization of material;
c)       to prevent over stocking of materials and consequent locking up of working capital;
d)      to procure appropriate quality of raw materials at reasonable price;
e)      to prevent losses during storage of materials;
f)       to supply information to the management regarding the cost of materials and the availability of stock;
c)       Causes of labour turnover.
Ans: Causes of Labour turnover: The causes for labour turnover can be broadly classified under three heads.
(1) Personal Causes
(2) Unavoidable Causes
(3) Avoidable Causes
i) Personal Causes: Some of the employees may leave the organization on account of personal reasons as given below:
(a) Circumstances of family.
(b) Retirement on reaching the prescribed age.
(c) Change in material status in case of women employees.
(d) Dislike for the job or place;
(e) Death of the employee.
(f) Employee getting recruited in a better job.
(g) Permanent disability due to accidents.
(h) Involvement of employee in activities of moral turpitude.
ii) Unavoidable Causes: In certain instances the organization may discharge the employees due to unavoidable reasons as mentioned below:
(a) Termination of workers on account of insubordination or inefficiency
(b) Discharge of workers on account of irregularity or long absence.
(c) Retrenchment of workers by the company on account of shortage of work.
iii) Avoidable Causes: Some of the employees may leave the organization account of the following reasons:
(a) Non availability of promotion opportunities
(b) Dissatisfaction with incentive schemes
(c) Unhappy with remuneration
(d) Unsuitable to job due to wrong placement
(e) Unhappy with working conditions
(f) Non availability of accommodation, health and recreational facilities
(g) Lack of stability of Tenure.
d)      Allocation, apportionment and absorption of overhead.
Ans: Allocation of Overhead Expenses: Allocation is the process of identification of overheads with cost centres. An expense which is directly identifiable with a specific cost centre is allocated to that centre. So it is the allotment of whole item of cost to a cost centre or cost unit or refers to the charging of expenses which can be identified wholly with a particular department. For example, the whole of overtime wages paid to the workers relating to a particular department should be charged to that department. So, the term allocation means the allotment of the whole item without division to a particular department or cost centre.
Apportionment of Overhead Expenses: Cost apportionment is the allotment of proportions of items to cost centres or cost units on an equitable basis. The term refers to the allotment of expenses which cannot identify wholly with a particular department. Such expenses require division and apportionment over two or more cost centres or units. So cost apportionment will arise in case of expenses common to more than one cost centre or unit. It is defined as the allotment to two or more cost centres of proportions of the common items of cost on the estimated basis of benefit received. Common items of overheads are rent and rates, depreciation, repairs and maintenance, lighting, works manager’s salary etc.
Absorption of Overheads: The most important step in the overhead accounting is ‘Absorption’ of overheads. CIMA defines absorption as, ‘the process of absorbing all overhead costs allocated or apportioned over a particular cost center or production department by the units produced.’ In simple words, absorption means charging equitable share of overhead expenses to the products. As the overhead expenses are indirect expenses, the absorption is to be made on some suitable basis. The basis is the ‘absorption rate’ which is calculated by dividing the overhead expenses by the base selected. A base selected may be any one of the basis given below.
e)      Five reasons for disagreement of profit as shown by the Cost Accounting and Financial Accounting.
Ans: The difference in the profitability of cost and financial records may be due to the following reasons.
1)      Items included in the financial accounts but not in cost accounts.
Ø  Purely financial income- such as interest received on bank deposits, interest and dividend on investments, rent receivables, transfer fee received, profit on the sale of assets etc.
Ø  Purely financial charges – such as losses due to scraping of machinery, losses on the sale of investments and assets, interest paid on the bank loans, mortgages, debentures etc., expenses of company’s transfer office, damages payable at law etc.
Ø  Appropriation of profit – the appropriation of profit is again a matter which concerns only financial accounts. Items like payment of income tax and dividends transfer to reserve, heavy donations, writing off of preliminary expenses, goodwill and patents appear only in profit and loss appropriation account and the costing profit and loss a/c is not affected.
2)      Items included in cost accounts only: There are certain items which are included in cost accounts but not in financial accounts. They are: Charges in lieu of rent where premises are owned, interest on capital employed in production but upon which no interest is actually paid.
3)      Under/Over absorption of overhead expenses: In cost accounts, overheads are absorbed at predetermined rates which are based on past data. In the financial accounts the actual amount incurred is taken into account. There arise a difference between the actual expenses and the predetermined overheads charged to product or job.
4)      Different basis of stock valuation: In cost accounts, the stock of finished goods is valued at cost by FIFO, LIFO, average rate, etc. But, in financial accounts stocks are valued either at cost or market price, whichever is less.
5)      The valuation of work-in-progress may also lead to variation. In financial books only prime cost may be taken into account for this purpose whereas in cost accounts, it may be valued at prime cost plus factory overhead.
6)      Different basis of depreciation adopted: The rates and methods of charging depreciation may be different in two sets of accounts. 
3. (a) Following information are related to a product for the year ended on 31st March, 2016:
Stock on 1st April, 2015:
Raw materials
Finished products (2000 tons)
Stock on 31st March, 2016:
Raw materials
Finished products (4000 tons)
Raw material purchased
Direct wages
Rent, rates and taxes of works
Carriage inwards
Work-in-progress on 1st April, 2015
Work-in-progress on 31st March, 2016
Cost of factory supervision
Sales of finished goods


Advertisement and selling expenses amount to 0.25 paise per ton sold. 32000 tons were produced during the year. Prepare a cost sheet showing (i) the value of raw materials used, (ii) cost of production for the year, (iii) cost of goods sold, (iv) the net profit for the year and (v) the net profit per ton of the product.             14
Cost Sheet
Opening Stock of R/M
Add: Purchase of R/M
Carriage inwards


Less Closing stock of R/M

(1) R/M consumed
Add: Wages

Prime cost
Add: Factory overheads:
Cost of factory suspension
Rent, rates and Taxes of works


Works cost incurred
Add: Opening W-I-P
Less: Closing W-I-P

(2) Works cost/Cost of production
Add: Opening stock of FG (1,27,000/32,000 x 2,000)
Less: Closing stock of FG
(3) cost of goods sold
Add: S/D overheads (30,000 x 0.25)

(4) Total cost
Add: Profit


(b) What do you understand by cost classification? Discuss the various bases of classification of costs and various types of costs.                                    4+6+4=14
Ans: Classification of Cost – Elements of Cost – Cost Concepts

Cost classification is the process of grouping costs according to their common characteristics. It is the placement of like items together according to their common characteristics. A suitable classification of costs is of vital importance in order to identify the cost with cost centers or cost units. Costs may be classified according to their nature, i.e. material, labour and expenses and a number of other characteristics. The important ways of classification are:
a) By Nature or Element or Analytical Classification
According to this classification, the costs are divided into three categories i.e. Materials, Labour and Expenses. There can be further sub classification of each element; for example, material into raw material components, and spare parts, consumable stores, packing material etc. This classification is important as it helps to find out the total cost, how such total cost is constituted and valuation of work in progress.
b) By Functions
According to this classification costs are divided as follows:
Manufacturing and Production Cost: This is the total of costs involved in manufacture, construction and fabrication of units of production.
Commercial Cost: This is the total of costs incurred in the operation of a business undertaking other than the cost of manufacturing and production. Commercial cost may further be sub-divided into (a) administrative cost and (b) selling and distribution cost.
c) As Direct and Indirect
According to this classification, total cost is divided into direct costs and indirect costs.
Direct costs are those which are incurred for and may be conveniently identified with a particular cost centre or cost unit. Materials used and labour employed are common examples of direct costs.
Indirect costs are those cost which are incurred for the benefit of number of cost centers or cost units and cannot be conveniently identified with a particular cost centre or cost unit. Examples of indirect cost include rent of building, management salaries, machinery depreciation etc.
d) By Variability
According to this classification, costs are classified into three groups viz. fixed, variable and semi-variable.
Fixed or period costs are commonly described as those which remain fixed in total amount with increase or decrease in the volume of output or productive activity for a given period of time. Examples of fixed costs are rent, insurance of factory building, factory manager’s salary etc.
Variable or product costs are those which vary in total in direct proportion to the volume of output. Examples are direct material costs, direct labour costs, power, repairs etc. Such costs are known as product costs because they depend on the quantum of output rather than on time.
Semi-variable costs are those which are partly fixed and partly variable. For example, telephone expenses included a fixed portion of annual charge plus variable charge according to calls; thus total telephone expenses are semi-variable. Other examples of such costs are depreciation, repairs and maintenance of building and plant etc.
e) By Controllability
Under this, costs are classified according to whether or not they are influenced by the actions of a given member of the undertaking. On this basis it is classified into two categories:
Controllable costs are those which can be influenced by the action of a specified member of an undertaking, that is to say, costs which are at least partly within the control of management. Generally speaking, all direct costs including direct material, direct labour and some of the overhead expenses are controllable by lower level of management.
Uncontrollable costs are those which cannot be influenced by the action of a specified member of an undertaking that it is to say, which are within the control of management. Most of the fixed costs are uncontrollable. For example, rent of the building is not controllable and so are managerial salaries.
f) By Normality
Under this, costs are classified according to whether these are cost which are normally incurred as a given level of output in the conditions in which that level of activity is normally attained. On this basis, it is classified into two categories:
Normal cost: It is the cost which is normally incurred at a given level of output in the conditions in which that level of output is normally attained. It is a part of cost of production.
Abnormal cost: It is the cost which is not normally incurred at a given level of output in the conditions in which that level of output is normally attained. It is not a part of cost of production and charged to Costing Profit and Loss Account.
g) By Capital and Revenue or Financial Accounting Classification
The cost which is incurred in purchasing assets either to earn income or increasing the earning capacity of the business is called capital cost. For example, the cost of a rolling machine in case of steel plan. Such cost is incurred at one point of time but the benefits accruing from it are spread over a number of accounting years.
It any expenditure is done in order to maintain the earning capacity of the concern such as cost of maintaining an asset or running a business it is revenue expenditure e.g. cost of materials used in production, labour charges paid to convert the material into production, salaries, depreciation, repairs and maintenance charges, selling and distribution charges etc.
h) By Time: Cost can be classified as (i) Historical costs and (ii) Predetermined costs.
i) Historical costs: The cost which is ascertained after their incurrence is called historical costs.
ii) Predetermined costs: Such costs are estimated costs i.e. computed in advance of production taking into consideration the previous period’s costs and the factors affecting such costs. Predetermined cost determined on scientific basis becomes standard cost.
i) According to Planning and Control
Planning and control are two important functions of management. Cost accounting furnishes information to the management which is helpful is the due discharge of these two functions. According to this, costs can be classified as budgeted costs and standard costs.
i) Budgeted costs: Budgeted costs represent an estimate of expenditure for different phases of business operations such as manufacturing, administration, sales, research and development etc. coordinated in a well conceived framework for a period of time in future which subsequently becomes the written expression of managerial targets to be achieved.
ii) Standard Cost: Standard cost is the predetermined cost based on a technical estimate for materials, labour and overhead for a selected period of time and for a prescribed set of working conditions.
j) For Managerial Decisions
On this basis, costs may be classified into the following costs:
i) Marginal cost: Marginal cost is the total of variable costs i.e. prime cost plus variable overheads.
ii) Out of pocket costs: This is that portion of the cost which involves payment to outsiders i.e., gives rise to cash expenditure as opposed to such costs as depreciation, which do not involve any cash expenditure.
iii) Differential costs: The change in costs due to change in the level of activity or pattern or method of production is known as differential costs.
iv) Sunk costs: A sunk cost is an irrecoverable cost and is caused by complete abandonment of a plant. It is the written down value of the abandoned plant less its salvage value.
v) Imputed costs: These costs are those costs which appear in cost accounts only e.g. national rent charged on business premises owned by the proprietor, interest on capital for which no interest has been paid. These costs are also known as notional costs.
vi) Opportunity cost: It is the maximum possible alternative earning that might have been earned if the productive capacity or services had been put to some alternative use.
vii) Replacement cost: It is the cost at which there could be purchased an asset or material identical to that which is being replaced or revalued. It is the cost of replacement at current market price.
viii) Avoidable and unavoidable cost: Avoidable costs are those which can be eliminated if a particular product or department, with which they are directly related, is discontinued. Unavoidable cost is that cost which will not be eliminated with the discontinuation of a product or department.
4. (a) A worker takes 80 hours to do a job for which the time allowed is 100 hours. His daily rate is Rs. 2.50 per hour. Calculate the work cost of the job under the following methods of payment of wages and statement of works cost: 14
a)      Time rate
b)      Halsey plan
c)       Rowan plan
Additional information:
1)      Material cost – Rs. 120
2)      Factory overhead 125% of wages
Ans: Calculation of wages:
a) Time rate method: Time Taken * Rate per hour = 80*2.50= Rs. 200
b) Halsey Plan = TT * Rate Per hour + 50% (TS*Rate per hour) = 80*2.50+50%(20*2.50) = Rs. 225
c) Rowan Plan = TT * Rate Per Hour + TS/ST (TT * Rate per hour) = 80*2.50+ 20/100(80*2.50) = Rs. 240
Calculation of Works cost
Time Rate
Halsey Method
Rowan Method
Prime Cost
Add: Factory Overheads
Works Cost
(b) What do you mean by perpetual inventory system? How does it differ from ABC analysis? State the advantages of ABC analysis.                4+6+4=14
Ans: Perpectual Inventory System: Perpetual Inventory system means continuous stock taking. CIMA defines perpetual inventory system as ‘the recording as they occur of receipts, issues and the resulting balances of individual items of stock in either quantity or quantity and value’. Under this system, a continuous record of receipt and issue of materials is maintained by the stores department and the information about the stock of materials is always available. Entries in the Bin Card and the Stores Ledger are made after every receipt and issue and the balance is reconciled on regular basis with the physical stock. The main advantage of this system is that it avoids disruptions in the production caused by periodic stock taking. Similarly it helps in having a detailed and more reliable check on the stocks. The stock records are more reliable and stock discrepancies are investigated and appropriate action is taken immediately.
Difference between ABC analysis, Perpectual Inventory system and VED analysis
ABC analysis
Perpectual Inventory System
Its main objective is to reduce the investment in material.
Its main objective is physical verification of all items.
In this system, stocks are classified on the basis of value.
There is no classification of stock.
It will not pay equal attention to all types of inventory.
Equal attention is given to all types of inventory.
ABC analysis is applicable when there is small variety of stock.
This system is applicable whether or not stocks are of large varieties or small varieties.
Store ledger and bin card is not prepared in this analysis.
Store ledger and bin card is prepared in this system.

Advantages of ABC analysis
a. Reduction in investment: under ABC analysis, the materials from group 'A' are purchase in lower quantities as much as possible. With this, the effort to reduce the delivery period is also made. These in turn help to reduce the investment in material.
b. Optimization of Inventory management function: Each class of the inventory gets management attention as per its value and accordingly, manpower is allocated and expenses are incurred to manage it. It ensures that most important items are regularly monitored and closely observed whereas such efforts are expended with for the less important items.
c. Control on high value material: under ABC analysis, strict control can be exercised to the materials in group 'A' that have higher value.
d. Reduction in Storage cost: Since Class “A” material is of high value and are purchase in lower quantities as much as possible, it reduces the total storage cost.
e. Saving in time and cost: Since a signification effort is made for management of the material from group 'A', it helps to save time as well as cost.
f. Opportunity to convert Class B items into Class A: As Class B items hold potential for growth, the business may tap into this opportunity and convert it frequent yet low-value customers into regular, high-value customers to Class A.

5. (a) From the following particulars, compute a comprehensive machine hour rate:                        14
a)      Cost of machine – Rs. 1,00,000; Estimated life – 15 years; Residual value – Rs. 10,000
b)      Machine running hours – 2040 hours per machine per annum including idle time of 40 hours due to repairs and maintenance and breakdown of machine.
c)       Power consumption of the machine per hour – 20 units; Rate of power per 100 units – Rs. 80.
d)      There are two operators in the shop and wages of an operator who is in charge of two machines Rs. 12,000 p.a.
e)      Rent, rates and taxes of the shop Rs. 4,800 p.a.
f)       Insurance premium for the machine Rs. 400 per quarter.
g)      General lighting per month – Rs. 600
h)      Repairs and maintenance expenses per month Rs. 400 per machine.
i)        Shop supervisor’s salary per month – Rs. 1,500.
j)        Other factory overhead allocated to the shop Rs. 6,000 p.a.
There are four identical machines in the shop. The supervisor devotes 1/5th of his time for supervising the machine.

(b) Explain the following:                              7+7=14
a) Various methods of determining overhead rate:
Ans: The methods used for absorption are as follows:
1.       Direct Material Cost: Under this method, the overheads are absorbed on the basis of percentage of direct material cost. The following formula is used for working out the overhead absorption percentage: Budgeted or Actual Overhead Cost/ Direct Material Cost X 100
2.       Direct Labor Cost Method: This method is used in those organizations where labor is a dominant factor in the total cost. Under this method, the following formula is used for calculating the overhead absorption rate: Budgeted or Actual Overheads/ Direct Labor Cost X 100
3.       Prime Cost Method: This method is an improvement over the first two methods. Under this method, the Prime Cost is taken as the base for calculating the percentage of absorption of overheads by using the following formula: Budgeted or Actual Overheads/ Prime Cost X 100
4.       Production Unit Method: This method is used when all production units are similar to each other in all respects. Total overhead expenses are divided by total production units for computing the rate per unit of overheads and overheads are absorbed in the product units. If a firm produces more than one products and if they are not uniform to each other, equivalent units are calculated to find out the rate of overheads per unit. The formula of absorption of overheads is as follows: Overhead absorption rate = Budgeted or Actual Overheads/Production Units
5.       Direct Labor Hour Method: Under this method, the rate of absorption is calculated by dividing the overhead expenses by the direct labor hours. The formula is as follows. Budgeted or Actual Overhead Expenses/Direct Labor Hours
6.       Machine Hour Rate: Where machines are more dominant than labor, machine hour rate method is used. CIMA defines machine hour rate as ‘actual or predetermined rate of cost apportionment or overhead absorption, which is calculated by dividing the cost to be appropriated or absorbed by a number of hours for which a machine or machines are operated or expected to be operated’. In other words, machine hour rate is the cost of operating a machine on per hour basis. The formula for calculating the machine hour rate is, Budgeted or Actual Overhead Expenses/ Machine Hours
7.       Selling Price Method: In this method, selling price of the products is used as a basis for absorbing the overheads. The logic used is that if the selling price is high, the product should bear higher overhead cost. Ratio of selling price is worked out and the overheads are absorbed.
b) Various bases of apportionment of overheads to departments.
Ans: Bases of Apportionment: Suitable bases have to be found out for apportioning the items of overhead cost to production and service departments and then for reapportionment of service departments costs to other service and production departments. The basis adopted should be such by which the expenses being apportioned must be measurable by the basis adopted and there must be proper correlation between the expenses and the basis. Therefore, the common expenses have to be apportioned or distributed over the departments on some equitable basis. The process of distribution is usually known as ‘Primary Distribution’.
Following are the main bases of overhead apportionment utilised in manufacturing concerns: 
(i) Direct Allocation: Overheads are directly allocated to various departments on the basis of expenses for each department respectively. Examples are: overtime premium of workers engaged in a particular department, power (when separate meters are available), jobbing repairs etc.
(ii) Direct Labour/Machine Hours: Under this basis, the overhead expenses are distributed to various departments in the ratio of total number of labour or machine hours worked in each department.
(iii) Value of Materials Passing through Cost Centres: This basis is adopted for expenses associated with material such as material handling expenses.
(iv) Direct Wages: This method is used only for those items of expenses which are booked with the amounts of wages, e.g., workers’ insurance, their contribution to provident fund, workers’ compensation etc.
(v) Number of Workers: This method is used for the apportionment of certain expenses as welfare and recreation expenses, medical expenses, time keeping, supervision etc.
(vi) Floor Area of Departments: This basis is adopted for the apportionment of certain expenses like lighting and heating, rent, rates, taxes, maintenance on building, air conditioning, fire precaution services etc.
(vii) Capital Values: In this method, the capital values of certain assets like machinery and building are used as basis for the apportionment of certain expenses e.g. rates, taxes, depreciation, maintenance, insurance charges of the building etc.
(viii) Light Points: This is used for apportioning lighting expenses.
(ix) Kilowatt Hours: This basis is used for the apportionment of power expenses.
(x) Technical Estimates: This basis of apportionment is used for the apportionment of those expenses for which it is difficult, to find out any other basis of apportionment. This is used for distributing lighting, electric power, works manager’s salary, internal transport, steam, water charges etc. when these are used for processes. 

6. (a) From the following information, prepare a Reconciliation Statement:                          14
Profit as per cost accounts
Works overheads under recovered
Administrative overheads under recovered
Selling overheads over recovered
Overvaluation of opening stock in cost accounts
Overvaluation of closing stock in cost accounts
Interest earned during the year
Rent received during the year
Bad debts written-off during the year
Preliminary expenses written-off during the year

Reconciliation of Cost and Financial Account

Profit as per cost accounts
a) Selling overheads over recovered
b) Overvaluation of opening stock in cost accounts
c) Interest earned during the year shown in P/L only
d) Rent received during the year


a) Works overheads under recovered
b) Administrative overheads under recovered
c) Overvaluation of closing stock in cost accounts
e) Bad debts written-off during the year
f) Preliminary expenses written-off during the year


Profit as per financial accounts

(b) (i) How does job costing differ from process costing?
Ans: Difference between Job costing and Process Costing
Basis of distinction
Job Costing
Process Costing
Job costing is used when the cost object is an individual (or a lot/batch) unit or a distinct product or service.
Process Costing is generally used for a mass of identical product or service.
Accumulation of Cost
Costs can be accumulated by each individual product or service.
The Costs are accumulated in a period. The total costs in a period are divided over the number of units to get an average unit cost.
Cost Determination
Job costing is done against a specific order being produced.
Costs are compiled for each process over a period of time.
Cost Calculation
Costs are calculated when a job is over.
Costs are calculated at the end of a cost period like an accounting year.
There are usually no transfers of costs from one job to another.
Transfer of costs from one process to another is made as the product moves from one process to the other.
Forms and Details
There is more paper work.
It has lesser paper work.
There is little or no inventory.
There is regular and significant inventory.
It is less amenable to mechanization & automation.
It is more amenable to mechanization & automation.

(ii) What do you mean by normal loss, abnormal loss and abnormal gain in process costing? How are they treated in Process Accounts?                           7+7=14
Ans: Treatment of losses in process costing: It is rare that the output of a process is equal to its input. In most of the cases, the output of a process is less than the input. The difference between the input and output and output is called process loss. The process loss may be in the form of loss in weight, scrapes or wastes. These process losses may be classified into:
a)      Normal Loss: The fundamental principle of costing is that the good units should bear the amount of normal loss. Normal loss is anticipated and in a process it is inevitable. It is included in total cost of the product due to which cost per unit is increases. The cost of normal loss is therefore not worked out. The number of units of normal loss is credited to the Process Account and if they have some scrap value or realizable value the amount is also credited to the process account. If there is no scrap value or realizable value, only the units are credited to the process account.
b)      Abnormal Loss: If the units lost in the production process are more than the normal loss, the difference between the two is the abnormal loss. It is excluded from total cost due to which it does not affect the cost per unit of the product. The relevant process of account is credited and abnormal loss account is debited with the abnormal loss valued at full cost of finished output. The amount realized from sale of scrap of abnormal loss units is credited to the abnormal loss account and the balance in the abnormal loss account is transferred to the Costing Profit and Loss Account.
c)       Abnormal Gain: If the actual production units are more than the anticipated units after deducting the normal loss, the difference between the two is known as abnormal gain. It is excluded from total cost due to which it does not affect the cost per unit of the product.  The valuation of abnormal gain is done in the same manner like that of the abnormal loss. The units and the amount is debited to the relevant Process Account and credited to the Abnormal Gain Account.