Question

Ragus Sugars Ltd (RSL) makes a unique syrup using cane sugar and local herbs. The syrup is sold in small bottles and is prized as a flavouring for drinks and for use in desserts. The bottles are sold for £12 each. The first stage in the production process is carried out in the Mixing department, which removes foreign matter from the raw materials and mixes them in the proper proportions in large vats. The company uses the weighted-average method in its process costing system.

Information on work in the Mixing Department for the month of April is shown below:

Quantity Schedule Units to be accounted for: Work in progress inventory, 1 April (90% materials, 80% conversion cost added last month)       30,000 Started into production                                                                                                                    200,000 Total units                                                                                                                                        230,000 Units accounted for as follows: Transferred to the next department                                                                                                  190,000 Work in progress inventory, 30 April (75% materials, 60% conversion cost added this month)     40,000 Total units                                                                                               230,000

Total Cost Cost to be accounted for: Work in progress inventory, 1 April                                                                                             £ 98,000 Cost added during the month                                                                                                          827,000 Total cost                                                                                                                                     £ 925,000 Cost reconciliation Cost accounted for as follows: Transferred to the next department                                                                                               £ 805,600 Work in progress inventory, 30 April                                                                                              119,400 Total cost                                                                             £ 925,000

RSL has just been acquired by another company, and the management of the acquiring company would like some additional information about the operations of RSL, particularly with reference to the information on the work done in April. As such, the management of the acquiring company is seeking answers in relation to the following questions.

Required:

(a) What were the equivalent units for the month of April?                                                                           

(b) What were the costs per equivalent unit for the month of April? The beginning inventory consisted of the following costs: materials, £67,800; and conversion cost, £30,200. The costs added during the month consisted of: materials, £579,000; and conversion cost, £248,000.     

                                                

(c) How many of the units transferred to the next department were started and completed during the month of April?

(d) The manager of the Mixing Department, anxious to make a good impression on the new owners, stated, ‘Materials prices jumped from about £2.50 per unit in March to £3.00 per unit in April, but due to good cost control I was able to hold our materials cost to less than £3.00 per unit for the month’. Should this manager be rewarded for good cost control? Explain.

(e) Define what a quantity schedule is and explain its purpose in manufacturing companies like RSL?

Answer 1