Question

Leona’s makes decorative flower pots using three consecutive processes: Moulding, Baking

& Spraying. Costs incurred in the Baking Department during June are summarized as follows:

WIP – Process 2 A/C
June 1 Bal.                                                                      0 From Moulding                                2,000                    665,200 Direct Materials 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 Leona’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 Leona’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