In: Accounting
Gamma Manufacturing Co. Ltd. makes a product by way of three
consecutive processes. The following data relates to process 2 for
the month of May.
(i) During May, 1,500 units valued at $226.50 each were transferred
from process 1 to process 2.
(ii) Other costs incurred during the month were:
Direct material added $114,750
Direct manufacturing wages $124,850
Manufacturing overheads $158,250
(iii) 200 units were scrapped during the period. Normal losses were
estimated to be 81/3% of input during the period. The scrap value
of any loss is $78.00 per unit.
(iv) Work-in-progress at the end of May was 400 units and had
reached the following degree of completion:
Transfer from process 1 100%
Direct material added 75%
Direct manufacturing wages 40%
Production overhead 20%
(v) There were no unfinished goods in process 2 at the beginning of
the period.
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 feed completed and transferred to Process 3
- Cost of abnormal 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.
a)
WN1: Completed Units = Total Input - Scrap Units - Closing WIP units
1,500 - 200 - 400 = 900 Units
WN2: Abnormal Loss = Scrap Units - Normal Loss
200 - (1,500 X 81/3%) = 200 - 125 = 75 Units
(b)(1) Cost of feed completed and transferred to Process 3: Total Cost per Equivalent Unit X No. of Units transferred
590 X 900 = 531,000
(b)(2) Cost of Abnormal Loss: Total Cost per Equivalent Unit X Abnormal Loss Units
590 X 75 = 44,250
Net Abnormal Loss : Cost of Abnormal Loss - Scrap Value of Abnormal Loss Units
44,250 - (75 X 78) = 44,250 - 5850 = 38,400
(b)(3) Cost of ending work-in-progress inventory in Process 2:
(c) Wrok in Process Inventory - Process 2 T-Account:
(d) Journal Entries: