Question

b) AATMA Ltd. manufactures a product ‘OM’ using a raw material M1.The company took Bank Overdraft at an interest rate of

15% p.a. specifically for the purpose of purchasing 10,000 kg. of material M1 at ₹ 200 per kg. The purchase price includes GST ₹

20 per kg., in respect of which full credit is admissible. Freight, loading and unloading charges incurred amounted to ₹ 81,600.

Interest on such Bank Overdraft amounted to ₹ 50,000. Normal Transit Loss is 2%. The company actually received 9,760 kg. and

consumed 9,500 kg. One unit of Finished product requires five units of Raw Material. Direct Labour Cost amounted to ₹

4,56,000,Direct Overheads Cost amounted to ₹ 1,14,000.Total Fixed Overheads for the year were ₹ 2,40,000 on normal capacity

of 20,000 units of Finished Goods.During the year Sales of product ‘OM’ were ₹ 15,00,000 @ ₹ 1,500.There were no opening

inventories.With reference to AS 2 “Valuation of Inventory”,Calculate the amount of Abnormal Loss (if any),Closing Inventory

of Finished Goods and Raw Material if

(i) Finished units can be sold @ ₹ 1,600 subject to payment of 10% brokerage on selling price., Replacement Cost of Raw

Material is ₹ 180 per kg.

Answer 1

Explanation:

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Answer 2

To Find: To calculate the required values, we need to follow the steps given below:

Solution:

Step 1: To Find: Calculation of Cost of Raw Material:

Solution:

Purchase Price of Material M1 = Rs. 200 per kg

Add: GST @ 10% = Rs. 20 per kg

Total Purchase Price of Material M1 = Rs. 220 per kg

Therefore, Cost of 9,760 kg Material M1 = 9,760 x Rs. 220 = Rs. 21,47,200

Add: Freight, Loading, and Unloading Charges = Rs. 81,600

Total Cost of Material M1 = Rs. 21,47,200 + Rs. 81,600 = Rs. 22,28,800

Step 2: To Find: Calculation of Normal Loss and Abnormal Loss:

Solution:

Normal Loss = 2% of 9,760 kg = 195.2 kg

Actual Consumption of Raw Material = 9,500 kg

Therefore, Abnormal Loss = 195.2 kg - (9,760 kg - 9,500 kg) = 55.2 kg

Step 3: To Find: Calculation of Cost per unit of Finished Product:

Solution:

Direct Material Cost per unit = Cost of Raw Material / Actual Consumption of Raw Material

= Rs. 22,28,800 / 9,500 kg

= Rs. 234.87 per kg

Therefore, Cost per unit of Finished Product = 5 x Rs. 234.87 = Rs. 1,174.35

Step 4: To Find: Calculation of Closing Inventory of Finished Goods:

Solution:

Number of Units Produced = Actual Consumption of Raw Material / 5

= 9,500 kg / 5

= 1,900 units

Number of Units Sold = Sales / Selling Price

= Rs. 15,00,000 / Rs. 1,600

= 937.5 units

Therefore, Closing Inventory of Finished Goods = 1,900 - 937.5 = 962.5 units

Value of Closing Inventory of Finished Goods = 962.5 units x Rs. 1,174.35 per unit

= Rs. 11,29,111.25

Step 5: To Find: Calculation of Closing Inventory of Raw Material:

Solution:

Cost of Raw Material Consumed = Actual Consumption of Raw Material x Cost per unit of Raw Material

= 9,500 kg x Rs. 234.87 per kg

= Rs. 22,30,015

Replacement Cost of Raw Material = Rs. 180 per kg

Therefore, Value of Closing Inventory of Raw Material = (9,760 kg - 9,500 kg - 55.2 kg) x Rs. 180 per kg

= Rs. 37,440

Step 6: To Find: Calculation of Abnormal Loss:

Solution:

Cost of Abnormal Loss = Cost per unit of Raw Material x Abnormal Loss

= Rs. 234.87 per kg x 55.2 kg

= Rs. 12,975.84

Therefore, the amount of Abnormal Loss is Rs. 12,975.84.

• Finally, we need to pass the necessary journal entries to record the above transactions in the books of the company.

• However, the question does not provide any specific information regarding these journal entries, so we cannot provide a solution for that part.

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