Question

Alpha Manufacturing Co. Ltd. makes a product by way of three consecutive processes. The following data relates to process 2 for the month of June. (i) Transfer in from Process 1, 1,500 units valued at $240.50 each. (ii) Other costs incurred during the month were: Direct material added $127,070 Direct manufacturing wages $131,450 Manufacturing overheads $168,175 (iii) 200 units were scrapped during the period. Normal losses were estimated to be 5% of input during the period. The scrap value of any loss is $250.00 per unit. These rejected units had reached the following degree of completion: Transfer In from Process 1 100% Direct material added 80% Direct manufacturing wages 60% Manufacturing Overhead 20% (iv) During June, 1,000 units were completed and transferred to Process 3 (v) Work-in-progress at the end of June was 400 units and had reached the following degree of completion: Transfer from process 1 100% Direct material added 70% Direct manufacturing wages 40% Production overhead 20% (v) There were no unfinished goods in process 2 at the beginning of June. Required: (a) Prepare a statement of equivalent production to determine the equivalent units and conversion costs and the cost per equivalent unit for direct materials (From Process 1 & Direct Material Added), Manufacturing Wages & Manufacturing Overhead. (b) Calculate the: - Total cost of units completed and transferred to Process 3 - Cost of unexpected losses - Cost of ending work-in-process inventory in Process 2 (c) Prepare the Work-In-Process Inventory - Process 2 T-account, clearly showing the ending balance. (d) State the journal entries necessary to record the assignment of direct materials, direct manufacturing wages and manufacturing overhead applied to Process 2. Also give the journal entries to record the cost of product completed and transferred to Process 3.

Answer 1

a)	Statement of Equivalent Production
	Particulars	Units	Units	MATERIAL		LABOUR		OVERHEAD
				%	UNITS	%	UNITS	%	UNITS
	Transfer from Process 1	1500		0	0	0	0	0	0
	PROCESSED AND TRANSFERRED		900	100	900	100	900	100	900
	NORMAL LOSS**		0	0	0	0	0	0	0
	ABNORMAL LOSS (200-75)		125	80	100	60	75	20	25
	WORK IN PROCESS		400	70	280	40	160	20	80
	EQUIVALENT UNITS	1500	1425		1280		1135		1005
	NORMAL LOSS= INPUT UNITS * NORMAL LOSS
	1500*5%
	75
	Cost per unit of Equivalent units
	Particulars	Total Cost	No of Units	Cost per Unit
	Material (240.5*1500 + 127070) less scrap value 18750 (250*75)	469070	1280	366.46
	Labour	131450	1135	115.81
	Overhead	168175	1005	167.34
	Total			649.61
b)	Calculation of Cost
	Particulars	Units	Cost Per Unit	Total Cost
	Unit Transferred	900	649.61	584649
	Normal loss	75	649.61	48721
	Abnormal loss	125	649.61	81201
	Work in process (280*366.46 + 160*115.81 +80*167.34)			134526
c)	Process 2 account
	Particulars	Amount	Particulars				Amount
	To Process 1 A/c	441152	By Normal Loss				48721
	To Material added	127070	By Abnormal Loss				81201
	To Labour Charges	131450	By Units Transferred to Process 3 Account				584649
	To Overhead Charges	168175	By Work In process				134526
			By Scrap realised of Normal Units				18750
	Total	867847	Total				867847
d		Journal Entries
	Date	Account Title	Debit-$	Credit-$
	1	WIP Inventory-Process 2 T Account	127070
		Direct Material		127070
		being DM assigned
	2	WIP Inventory-Process 2 T Account	131450
		Direct Manufacturing Wages		131450
		being DL assigned
	3	WIP Inventory-Process 2 T Account	168175
		DM OH account		168175
		being direct manu OH assigned
	4	WIP Inventory-Process 3 T Account	584649
		WIP Inventory-Process 2 T Account		584649
		being goods transferred from process 2 to process 3