In a process, 1,000 kg of input cost £9,000. Normal loss is 10% of input and has no scrap value. Actual output was 920 kg. What is the value of the abnormal gain and the cost per kg of good output?

Answer and explanation

Correct answer: D. Abnormal gain 20 kg valued at £200 and cost per kg of £10.00

  1. Step 1: Normal loss = 10% × 1,000 = 100 kg, so expected output = 900 kg and cost per kg = £9,000 ÷ 900 = £10.00.
  2. Step 2: Actual output 920 kg is 20 kg more than expected, so there is an abnormal gain of 20 kg.
  3. Step 3: The gain is valued at the normal cost per kg: 20 × £10 = £200, and the output of 920 kg is worth £9,200.
Answer
Abnormal gain 20 kg valued at £200 and cost per kg of £10.00.
Why not the others: This divides the cost by actual output (920 kg) instead of by expected output of 900 kg. Actual output of 920 kg exceeds the expected 900 kg, so there is a gain, not a loss. This values the gain at £9 per kg, the cost per kg of input, rather than the cost per kg of expected output.

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In a process, 1,000 kg… | ACCA Applied Knowledge (BT, MA, FA)