ExpertHard2 marksShort Answer
ACCA · Question 13 · C. Cost accounting techniques
An organic farming cooperative processes raw fruit into premium jam. In the latest period, 1,000 kg of raw fruit was input into the process at a cost of $10 per kg.
Normal loss is expected to be 10% of input. Any lost material can be sold as animal feed (scrap) for $1 per kg.
The actual output of good jam was 850 kg.
Calculate the financial value of the abnormal loss for this period.
(Enter the numeric value only, without commas or currency symbols)
An organic farming cooperative processes raw fruit into premium jam. In the latest period, 1,000 kg of raw fruit was input into the process at a cost of $10 per kg.
Normal loss is expected to be 10% of input. Any lost material can be sold as animal feed (scrap) for $1 per kg.
The actual output of good jam was 850 kg.
Calculate the financial value of the abnormal loss for this period.
(Enter the numeric value only, without commas or currency symbols)
How to approach this question
1. Calculate total input cost.
2. Calculate expected normal loss (kg) and its scrap value.
3. Calculate expected output (kg).
4. Find cost per expected kg: (Total Cost - Scrap Value of NL) / Expected Output.
5. Calculate abnormal loss in kg (Expected Output - Actual Output).
6. Multiply abnormal loss kg by the cost per kg.
Full Answer
1. Input cost = 1,000 kg * $10 = $10,000.
2. Normal loss (NL) = 10% of 1,000 kg = 100 kg. Scrap value of NL = 100 kg * $1 = $100.
3. Expected output = 1,000 kg - 100 kg = 900 kg.
4. Cost per expected kg = ($10,000 - $100) / 900 kg = $9,900 / 900 kg = $11 per kg.
5. Actual output = 850 kg. Therefore, Abnormal Loss = 900 kg - 850 kg = 50 kg.
6. Value of Abnormal Loss = 50 kg * $11/kg = $550.
Common mistakes
Valuing abnormal loss at the scrap value ($50) or failing to deduct the scrap value of normal loss from the total cost before finding the cost per kg.
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