Question

Are the abnormal lossess in a department still part of computing for the equivalent units of production?

Answer 1

Answer:

Yes, Abnormal losses in a departmental still part of computing for the equivalent units of production.

Introduction:

Loss of material is inherent during processing operation.The loss of material under different processes arises due to reasons like evaporation or change in the moisture content etc. Process loss is defined as the loss of material arising during the course of a processing operation and is equal to the difference between the input quantity of the material and its output.

There are two types of material losses such as a) Normal Loss b) Abnormal Loss

Abnormal Loss:

It is also known as abnormal wastage. It is defined as the loss in excess of the pre-determined loss(Normal Process Loss).This type of loss may occur due to the carelessness of workers, a bad plant design or operation, sabotage etc. Such a loss cannot obviously be estimated in advance. But it can be kept under control by taking suitable measures.

Treatment of Abnormal Loss:

The cost of an abnormal process loss unit is equal to the cost of good unit. The total cost of abnormal process loss is credited to the process account from which it arises. Cost of abnormal process loss is not treated as a part of the cost of the product.

Equivalent Units:

Equivalent units or equivalent production units, means converting the incomplete production units into their equivalent completed units. Under each process, an estimate is made of the percentage completion of work in process with regard to different elements of costs. It is important that the estimate of percentage of completion should be as accurate as possible.

The formula for computing equivalent units is:

Equivalent Completed Units = Actual Number of Units in the Process x Percentage of Work Completed

Abnormal Loss is treated as 100% complete in respect of all cost elements irrespective of percentage completion.