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In: Accounting

Gamma Manufacturing Co. Ltd. makes a product by way of three consecutive processes. The following data...

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.

Solutions

Expert Solution

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:

ekkarill92 answered 1 year ago
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