Question

The manufacturing supervisor of Clay Stone Manufacturing Company has provided you with the details of manufacturing cost related to three processes - mixing, drying, and painting. The product of a company passes through three distinct processes to completion. 12,000 units have been issued to process mixing. The output of each process:

Mixing:11,000 units

Drying: 10,000 units

Painting: 9,000 units.

The normal loss incurred in each process is as follows:

Mixing is 6% and the scrap value is RO 12 per ten unit

Drying is 8% and the scrap value is RO 7.50 per five-unit

Painting is 12% and the scrap value is RO 17.50 per ten unit

The output of each process passes immediately to the next process and the finished units are passed from process firing into stock. Indirect expenses amounting to RO 4,000 may be apportioned based on output. Expenses of each process are as follows:

Mixing – Material cost RO 20,120

Wages RO 15,000

Production expenses RO 8,000

Drying - Material cost RO 18,250

Wages RO 5,750

Production expenses RO 3,000

Painting - Material cost RO 22,150

Wages RO 6,850

Production expenses RO 1,000

Production manager requested you to:

a. Show process accounts for Clay Stone Manufacturing Company

Answer 1

Mixing Process
Account Titles	Quantity (Units)	Amount (RO)	Account Titles	Quantity (Units)	Amount (RO)
Raw Materials	12,000	20,120	Normal Loss	720	864
Direct Labor		15,000	Abnormal Loss	280	1,085
Production Overheads		8,000	Transfer to Drying Process	11,000	42,638
Indirect Expenses		1,467
	12,000	44,587		12,000	44,587

Working Note 1 (WN1):
Calculation of Normal and Abnormal Loss

Mixing is 6% and the scrap value is RO 12 per ten unit
Normal Loss: 6% of Input materials
Normal Loss: 6%*12,000 units = 720 units
Scrap Value = 12 per 10 unit
Total Scrap Value = RO 12 * = RO 864

Normal Output = 12,000 - 720 = 11,280 units
Actual Output = 11,000 units
Abnormal Loss = 11,280 - 11,000 = 280 units

Normal Cost of Normal Output = 44,587 - 864 = RO 43,723

Drying Process
Account Titles	Quantity (Units)	Amount (RO)	Account Titles	Quantity (Units)	Amount (RO)
Transfer from Mixing Process	11,000	42,638	Normal Loss	880	1,320
Direct Materials		18,250
Direct Labor		5,750	Abnormal Loss	120	826
Production Overheads		3,000	Transfer to Painting Process	10,000	68,825
Indirect Expenses		1,333
	11,000	70,971		11,000	70,971

Working Note 2 (WN2):
Calculation of Normal and Abnormal Loss

Drying is 8% and the scrap value is RO 7.50 per five-unit
Normal Loss: 8% of Input materials
Normal Loss: 8%*11,000 units = 880 units
Scrap Value = RO 7.50 per 5 unit
Total Scrap Value = RO 7.50 * = RO 1,320

Normal Output = 11,000 - 880 = 10,120
Actual Output = 10,000
Abnormal Loss = 10,120 - 10,000 = 120 units

Normal Cost of Normal Output = 70,971 - 1,320 = 69,651

Painting Process
Account Titles	Quantity (Units)	Amount (RO)	Account Titles	Quantity (Units)	Amount (RO)
Transfer from Painting Process	10,000	68,825	Normal Loss	1,200	2,100
Direct Materials		22,150
Direct Labor		6,850	Transfer to Finished Goods Inventory	9,000	100,150
Production Overheads		1,000
Indirect Expenses		1,200
Abnormal Gain	200	2,225
	10,200	102,250		10,200	102,250

Working Note 3 (WN3):
Calculation of Normal Loss and Abnormal Gain

Painting is 12% and the scrap value is RO 17.50 per ten unit
Normal Loss: 12% of Input materials
Normal Loss: 12%*10,000 units = 1200 units
Scrap Value = RO 17.50 per 10 unit
Total Scrap Value = RO 17.50 * = RO 2,100

Normal Output = 10,000 - 1200 = 8,800 units
Actual Output = 9,000 units
Abnormal Gain = 200 units

Normal Cost of Normal Output = 100,025 - 2,100 = 97,925