ExpertHard2 marksMultiple Choice
ACCA · Question 10 · Cost Accounting Techniques
Section A
CityGrid Utilities operates a water purification process. In May, 10,000 liters of raw water were input at a cost of $15,000. Conversion costs were $8,000. Normal loss is expected to be 5% of input, and these losses have a scrap value of $0.50 per liter. Actual output was 9,200 liters. What is the cost per expected liter of output (rounded to two decimal places)?
Section A
CityGrid Utilities operates a water purification process. In May, 10,000 liters of raw water were input at a cost of $15,000. Conversion costs were $8,000. Normal loss is expected to be 5% of input, and these losses have a scrap value of $0.50 per liter. Actual output was 9,200 liters. What is the cost per expected liter of output (rounded to two decimal places)?
Answer options:
A.
$2.30
B.
$2.40
C.
$2.50
D.
$2.42
How to approach this question
Formula: (Total Costs - Scrap value of Normal Loss) / (Input units - Normal Loss units).
Full Answer
B.$2.40✓ Correct
Normal loss = 5% of 10,000 = 500 liters. Scrap value = 500 * $0.50 = $250. Net process cost = ($15,000 + $8,000) - $250 = $22,750. Expected output = 10,000 - 500 = 9,500 liters. Cost per expected liter = $22,750 / 9,500 = $2.3947, which rounds to $2.40.
Common mistakes
Dividing by actual output (9,200) or forgetting to subtract the scrap value of normal loss from total costs.
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