Question

Home & Gardening Depot makes decorative flower pots using three consecutive processes: Moulding, Baking & Spraying. Costs incurred in the Baking Department during June are summarized as follows:

June 1 bAL $0	...........................................
From Moulding 2000 665,200
Direct Material Added 195,200
Direct Manufacturing wages 204,240
Manufacturing Overhead Applied 306,360

Normal losses are estimated to be 5% of input during the period. Inspection takes place during the processing operation, at which point bad units are separated from good units and sold as scrap at $420 each.

At inspection, 300 units were rejected as scrap. These units had reached the following degree of completion:

From Moulding 100%

Direct materials added 50%

Conversion costs 40%

Work-in-progress at the end of June was 500 units and had reached the following degree of completion:

From Moulding 100%

Direct materials added 60%

Conversion costs 40%

Direct materials added and conversion costs are incurred uniformly throughout the process.

Required:

(a) Prepare a statement of equivalent production to determine the equivalent units for direct materials (From Moulding & Direct Material Added), and conversion costs and the cost per equivalent unit for direct materials and conversion costs.

(b) Calculate the: - Total cost of units completed and transferred out to the Spraying department - Cost of abnormal losses - Cost of ending work-in-process inventory in the Baking department

(c) Prepare Home & Gardening Depot’s Work-In-Process Inventory – Baking Department T-account, clearly showing the ending balance.

(d) State the journal entries necessary to record the assignment of direct materials, direct manufacturing wages incurred and manufacturing overhead applied to Process 2. Also give the journal entries to record the cost of goods completed and transferred to finished goods.

(e) Given that 25% of the unexpected losses were as a result of pilferage, prepare the abnormal spoilage statement, clearly showing Home & Gardening Depot’s true loss.

(f) Briefly explain the difference between job costing & process costing, giving examples of industries in which both methods of product costing may be used.

Answer 1

a	Satetement of equivalent production
						units
	Finished by moulding and transferred to baking					2,000
	Less:- Normal Loss( 5% of 2000)					(100)
	Less- WIP					(500)
	Less:- Abnormal loss					(300)
	Completed processing in baking unit for good units					1,100
b	Calculation of per unit cost for moulding, direct material , direct labour and manufacturing overhead
			Completed units		Total cost		Per unit cost
			x		y		z=y/x
	Moulding		2000		665200		332.6
	Direct Material		2000		195200		97.6
conversion cost	Direct Labour		2000		204240		102.12
	Manufacturing overhed		2000		306360		153.18
					1371000		685.5
	Cost of abnormal loss
	Units	300
		degree of completion	Equivalent units	Amount
	Moulding	100%	300	99780
	Direct Material	50%	150	14640
conversion cost	Direct Labour	40%	120	30636
	Manufacturing overhed
				145056
	Cost of WIP
	Units	500
		degree of completion	Equivalent units	Amount
	Moulding	100%	500	166300
	Direct Material	60%	300	29280
conversion cost	Direct Labour	40%	200	51060
	Manufacturing overhed
				246640
	Total cost of completed units transferred to spraying department
	Completed and good units transferred to spraying department	1100 units
	Cost per unit	685.5
	Total cost	754050
c	WIP A/c
	To opening inventory from moulding	2000
			By Normal loss	100
			ByAbnormal loss	300
			By Completed units transferred to spraying(balancing figure)	1100
			By closing Wip	500
		2000		2000
d	Journal Entries
	Assignment of direct material to process 2
	WIP inventory……Dr
	To Raw Material Inventory
	Assignment of Direct Labour
	WIP inventory……Dr
	To Factory payroll
	Assignment of In direct Labour
	Manufacturing Overhead…….Dr
	To Factory Labour
	Cost of goods sold completed and tranferred to finished goods
	Finished Goods Inventory…Dr
	To Work in Process inventory