Consider the following example:
In such a situation, the cost incurred for getting an output of 800 units (900 - 100) can be interpreted in the following ways:
The cost incurred for 800 units is Rs. 80,000 (800 × 100)
The cost incurred for 800 units is Rs. 1,00,000 being the total cost incurred.
This would result in the unit output cost working out to Rs.125 (1,00,000 ÷ 800)
The cost incurred for 800 units is Rs. 99,900 (1,00,000 − 100) being the total cost incurred reduced by the amount realized on selling the loss units.
This would result in the unit output cost working out to Rs.124.88 (99,900 ÷ 800)
Where the loss is normal, this will give an idea about future transaction if the same production requirement..
Therefore the amount to be spent would be equal to the total cost relevant to 900 units i.e. Rs. 1,00,000.
The loss units are capable of being sold for Rs. 1/unit, every time such loss occurs. Thereby, the cost incurred can be set off always by using this realization. Rs. 100 for 100 units.
Thus, the net cost to be incurred for getting an output of 800 units is Rs. 99,900 (Rs. 1,00,000 − Rs.100)
900 units of material have been input into a production process at a total cost (material, labour/labor, overheads) of Rs. 1,00,000 i.e. @ Rs. 50per unit. 100 units of material has been lost in the production process. The scrap value of these100 lost unit is Rs.1 per unit if sold in the market.
In such a situation, the cost incurred for getting an output of 800 units (900 - 100) can be interpreted in the following ways:
The cost incurred for 800 units is Rs. 80,000 (800 × 100)
The cost incurred for 800 units is Rs. 1,00,000 being the total cost incurred.
This would result in the unit output cost working out to Rs.125 (1,00,000 ÷ 800)
The cost incurred for 800 units is Rs. 99,900 (1,00,000 − 100) being the total cost incurred reduced by the amount realized on selling the loss units.
This would result in the unit output cost working out to Rs.124.88 (99,900 ÷ 800)
Where the loss is normal, this will give an idea about future transaction if the same production requirement..
Therefore the amount to be spent would be equal to the total cost relevant to 900 units i.e. Rs. 1,00,000.
The loss units are capable of being sold for Rs. 1/unit, every time such loss occurs. Thereby, the cost incurred can be set off always by using this realization. Rs. 100 for 100 units.
Thus, the net cost to be incurred for getting an output of 800 units is Rs. 99,900 (Rs. 1,00,000 − Rs.100)
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