Paper 2 · June 2018 · Process Costing
In Process I of Shaba Limited, direct materials were 5,000 litres at $0.50 per litre, direct labour was $800, and production overhead was charged at 200% of direct labour. Normal loss is 20% of input and any loss can be sold as scrap for $0.30 per litre. What is the cost per litre of the expected output in Process I, after deducting the scrap value of the normal loss?
A$1.15
B$1.225
C$1.35
D$1.425
Explanation
Total process cost = materials (5,000 × 2,500) + labour 800 = $1,600) = $4,900. Less scrap value of normal loss (1,000 litres × 300) gives a net cost of $4,600. Expected output after normal loss = 5,000 − 1,000 = 4,000 litres. Cost per litre = $4,600 ÷ 4,000 = $1.15 (higher figures come from forgetting to deduct the scrap value, overstating the overhead rate, or both).
Derived from ZIMSEC Accounting Paper 2, June 2018, Q3