CIMA BA2 · Chapter 5 · Question 5 of 10
Input to a process was 5,000 litres at a total cost of $27,000. Normal loss is 10% of input and is sold as scrap for $1.50 per litre. Actual output transferred to finished goods was 4,620 litres. What is the value of the output transferred to finished goods?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) $26,950
Explanation
Expected output = 5,000 x 90% = 4,500 litres. Cost per litre of expected output = ($27,000 - 500 x $1.50) / 4,500 = $26,250 / 4,500 = $5.8333. Actual output of 4,620 litres exceeds expected output, giving an abnormal gain of 120 litres. Good output is valued at 4,620 x $5.8333 = $26,950.
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