Worked Solution
✓ VerifiedProcess Costing – FIFO Method | Process I | January 2024
Preliminary Workings:
Total input = Opening WIP + Units introduced = 600 + 9,200 = 9,800 units
Normal loss = 4% × 9,800 = 392 units; Scrap value of normal loss = 392 × ₹6 = ₹2,352
Actual loss (units scrapped) = 200 units
Since actual loss (200) < normal loss (392) → Abnormal Gain = 392 − 200 = 192 units
Stage of completion of abnormal gain = same as scrapped units: Material 100%, Labour 80%, OH 80%.
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(i) Statement of Equivalent Production (FIFO Method)
Under FIFO, only the work done in the current period is included. Abnormal gain is deducted (to derive cost per unit at the expected-output level).
| Output Category | Physical Units | Material EU | Labour EU | Overhead EU |
|---|---|---|---|---|
| To complete Opening WIP (remaining work) | 600 | 0% × 600 = 0 | 40% × 600 = 240 | 40% × 600 = 240 |
| Started & Completed in current period (8,900 − 600) | 8,300 | 100% × 8,300 = 8,300 | 100% × 8,300 = 8,300 | 100% × 8,300 = 8,300 |
| Closing WIP | 700 | 100% × 700 = 700 | 70% × 700 = 490 | 70% × 700 = 490 |
| Less: Abnormal Gain | (192) | 100% × 192 = (192) | 80% × 192 = (154) | 80% × 192 = (154) |
| Total Equivalent Units | 9,408 | 8,808 | 8,876 | 8,876 |
Note: Normal loss has zero equivalent units; its cost is absorbed via scrap value deduction. Abnormal gain equivalent units rounded: 192 × 80% = 153.6 ≈ 154.
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(ii) Statement of Cost per Equivalent Unit
| Element | Amount (₹) | Equiv. Units | Cost per EU (₹) |
|---|---|---|---|
| Material (₹55,200 − ₹2,352 normal loss scrap) | 52,848 | 8,808 | 6.000 |
| Direct Labour | 18,600 | 8,876 | 2.096 |
| Overheads | 8,630 | 8,876 | 0.972 |
| Total | 80,078 | 9.068 |
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(iii) Cost of Closing Work-in-Process (700 units)
| Element | Equiv. Units | Rate (₹) | Amount (₹) |
|---|---|---|---|
| Material | 700 | 6.000 | 4,200.00 |
| Labour | 490 | 2.096 | 1,027.04 |
| Overheads | 490 | 0.972 | 476.28 |
| Total Closing WIP Cost | 5,703.32 |
Cost of Closing WIP = ₹5,703 (approx.)
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(iv) Cost of Units Transferred to Next Process (8,900 units)
Under FIFO, transfer cost = Opening WIP cost b/d + cost to complete opening WIP + cost of new units started & completed.
| Particulars | Labour (₹) | OH (₹) | Material (₹) | Total (₹) |
|---|---|---|---|---|
| (a) Opening WIP cost b/d | — | — | — | 4,200.00 |
| (b) Cost to complete Opening WIP (600 units): | ||||
| Labour: 240 EU × ₹2.096 | 503.04 | — | — | |
| OH: 240 EU × ₹0.972 | — | 233.28 | — | |
| Sub-total (b) | 736.32 | |||
| (c) New units started & completed (8,300 units): | ||||
| Material: 8,300 × ₹6.000 | — | — | 49,800.00 | |
| Labour: 8,300 × ₹2.096 | 17,396.80 | — | — | |
| OH: 8,300 × ₹0.972 | — | 8,067.60 | — | |
| Sub-total (c) | 75,264.40 | |||
| Total Cost Transferred to Next Process | ₹80,200.72 |
Cost of units transferred = ₹80,201 (approx.)
Memo — Cost of Abnormal Gain (192 units): Material ₹1,152 + Labour ₹322.78 + OH ₹149.69 = ₹1,624.47. This is credited to Process I Account and debited to Abnormal Gain Account at cost; the Abnormal Gain Account is debited with 192 × ₹6 = ₹1,152 for loss of expected scrap income.
Write it like this
1The skeleton
- Lead with Preliminary Workings as a named block — write 'Total Input = 600 + 9,200 = 9,800; Normal Loss = 4% × 9,800 = 392 units; Actual Loss = 200; since Actual < Normal → Abnormal Gain = 192 units' before touching any table, because the examiner allocates 2–3 marks just for this diagnosis and you'll lose them if it's buried inside the table.
- Anchor the FIFO rule in one line before your EU table — write 'Under FIFO, equivalent units represent only the work done in the current period on each category of output' — this signals to the examiner you know WHY the table looks the way it does, not just that you copied a format.
- Split transferred units into 3 rows in the EU table — 'To complete Opening WIP (remaining work)', 'Started & Completed (8,900 − 600 = 8,300)', 'Closing WIP' — FIFO tables that merge these two transfer rows get zero credit for structure even if the totals are right.
- Show the Abnormal Gain deduction as a separate minus row at the bottom of the EU table — label it '(Less): Abnormal Gain' with a bracket, and apply 100% / 80% / 80% completion — examiners specifically look for this deduction because it's the FIFO abnormal-gain trap most students miss entirely.
- In Cost per EU, show Material net of Normal Loss scrap value — write '₹55,200 − ₹2,352 (NL scrap) = ₹52,848' as a line item, because the netting step is a standalone mark in most schemes and skipping it looks like you don't know the concept.
- Build Transfer Cost as a 3-part addition — '(a) Opening WIP cost b/d ₹4,200 + (b) Cost to complete Opening WIP + (c) Cost of new units S&C' — this format mirrors the ICAI model answer structure exactly and makes part-marking easy for the examiner even if your rates are slightly off.
2Examiner-rewarded phrases
3Common trap
The single killer mistake: students build a perfectly correct EU table but forget to deduct Abnormal Gain equivalent units — they treat abnormal gain like a silent output that just disappears. That error cascades into your cost-per-EU and transfer cost, dropping you 6–8 marks on a 16-mark question even though your method is right everywhere else.