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Normal Loss, Abnormal Loss and Abnormal Gain.
Q89. What is normal loss, abnormal loss and abnormal gain in process costing? Ans. Normal Loss: Loss of some quantity of input is inherit in the production process. It is called normal loss. Loss is considered normal when two conditions are satisfied which is as follows: It cannot be controlled. It is predetermined.
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Process Costing.
Q88. Write short notes on process costing. Ans. Process Costing Method is used where input goes into two or more process or operation to convert into finished goods. Each process or operation is separated from other process or operation. Industries where process costing can be applied have normally one or more of the following features: Each plant or factory is divided into a number of process. Manufacturing activity is carried on continuously by means of one or more process run sequentially, selectively or parallel. The output of one process take comes the input of another process. The end product usually is like units not distinguishable from another.
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Treatment of By-Product.
Q87. What is the treatment of By-Product? Ans. Treatment of By-Product is: When they are off small value: It may be transferred to Costing profit and loss account or it may be credited to main product account. When they are of considerable value: Treat it same as joint product and apportion the total cost into Joint and By-product as per any of the above method.
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Methods For Valuation Of By-Product.
Q86. What are various methods for valuation of By-Product? Ans. Methods for valuation of By-Product: Market value or realization value (sales realization- separate expenses). Standard cost which is predetermined (it is adopted where valuation is not possible). Comparative price of same or similar goods in market. Reuse price when it is used in the factory itself.
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Various Methods For Appointment.
Q85. What are the various methods for appointment of joint expenses between joint products? Ans. Physical Unit Method: In this method, joint cost are apportioned over the joint product in the ratio of quantity at separation point. Average Unit Cost Method: In this method, cost is divided by total units of joint products. On division, average cost per unit is obtained. Then each joint product quantity is multiplied with such joint cost per unit, which gives share in joint cost of each joint product.
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Joint Product and By-Product.
Q84. Differentiate between Joint Product and By-Product. Ans. Joint Product of equal importance where as By-Product are of small economic value. Joint Product is produced simultaneously but By-Products are produced incidentally in addition to main product.
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Joint Product, Co- Product and By-Product.
Q83. What do you mean by Joint Product, Co- Product and By-Product? Ans. Joint Product: Joint Product represents two or more products separated intercourse of same processing operation usually requiring further processing, each product being in such proportion that no single product can be designed as a major product. In other words, two or more products of equal importance, produced simultaneously from the same process are known as joint product.
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Cost Plus Contract.
Q82. Write short notes on cost plus contract. Ans. Under cost plus contract, the contract price is ascertained by adding a percentage of profit to the total cost of work. Such type of contract are entered into when it is not possible to estimate the contract cost with reasonable accuracy due to unstable condition of material, labour, services. Advantages: The contract is a assured of a fixed percentage of profit. There is no risk of incurring any loss on the contract.
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Escalation Clause.
Q81. Write short notes on Escalation Clause. Ans. If during the period of execution of contract, the price of material or labour etc. Rise beyond a certain limit, the contract price will be increased by an agreed amount. Such clause in contract agreement is called escalation clause. Escalation claim so far as the rates are concerned may be calculated as under: For Material= Standard Quantity*( Actual Price- Standard Price) For Labour= Standard Hours*(Actual Rate- Standard Rate) The escalation claim will be added in the contract price and value of work certified.
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Contract Costing.
Q80. Write short notes on Contract Costing? Ans. Contract costing method is adopted generally by building or construction contractors. Contract costing have the following features: The major part of the work in connection with each contract is ordinarily carried out at the site of the contract. The bulk of the expenses incurred by the contractor are considered as direct