Paper 2 · 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 ×

0.50 =

2,500) + labour

800 + overhead (200% ×

800 =

1,600) =

4,900. Less scrap value of normal loss (1,000 litres ×

0.30 =

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

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