Question

Agro Business operates several production processes including the production of bulk animal feed for cattle. One such product is produced in three separate process operations- Testing, Mixing & Packaging. The information below is of the costs incurred in, and output from the Mixing Process during the period just completed. (11) Input from Testing: 120,000 kilos valued at an average cost of $24.05 per kilo Other manufacturing costs incurred during the period: Direct material added $790,500 Direct labour $380,400 Manufacturing overhead $788,520 Normal losses of materials, which occurs in the early stages of the Mixing Process (after all materials have been added), is expected to be 348% of input. (III) At inspection, a batch of 5,000 kilos of the feed was discarded. The feed had all the materials but was estimated to be 40% complete for labour and overhead. Losses from this process are stored in piles & sold as scrap to local farmers at $25.60 per kilo. 119,000 kilos were completed and transferred to the Packaging Process, Closing work in process was 100% complete, apart from Mixing Process conversion costs, which were 70% complete. (1) (vi) (vil) The equipment was cleaned at the end of the previous period hence there were no units in process 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 Testing & Direct Material Added), and conversion costs. Calculate the: • Total cost of feed mixed and transferred to the Packaging Process . Cost of unexpected losses · Cost of ending work-in-process inventory in the Mixing Process Prepare the Work-In-Process Inventory - Mixing Process 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 the feed mixed and transferred to the Packaging Department.

Answer 1

Question a)

							Material		Labour		OH
Process Based Costing			Input			Output	% Movement	Unit	% Movement	Unit	% Movement	Unit
Testing ---- Mixing --- Packaging			Unit (kg)	Price/Kilo($)	Distribution	Unit (kg)
Input Testing (Kg)			1,20,000	24.05	Output Trasfer to Packaging Div	1,12,000	100%	1,12,000	100%	1,12,000	100%	1,12,000
					Normal Loss	3,750
					Abnormal Loss	1,250	100%	1,250	40%	500	40%	500	( 40% as mentioned in Question(Point -iv)
					Closing WIP	3,000	100%	3,000	70%	2,100	70%	2,100	( % as mentioned in Question(Point -vi)
Total			1,20,000			1,20,000		1,16,250		1,14,600		1,14,600

Calculation base of Normal and Abnormal Loss

Normal Loss			Unit (Kg)
31/8% of Input as Normal Loss			3,750
3.125% of Input treated as Normal Loss			1,250
( Input-120000*3.125%)
As per Question ----
a batch of 5000 Kg - discarded
out of 5000 kg - Normal Loss 3650 kg and balance 1250 kg abnormal loss

Cost Calculation	Material($)	Labour($)	OH($)
Input Cost(1,20,000 Kg *$24.05/kg)	28,86,000
Other Manufacturing cost	7,90,500	3,80,400	788520	( As mentioned in the Question -Point -ii)
Less - Scrap Sale ( $25.60/kg)
(5000kg *$25.60/kg)	1,28,000
Derived Cost	35,48,500	3,80,400	7,88,520
Unit as calculated above	1,16,250	1,14,600	1,14,600
Cost / Unit	31	3	7

Rate /unit calculation as above under different scenario , This rate will help to derive below cost ( as asked in Question b)

b)
Cost of Feed Transfer	Unit	Rate /Unit ($/unit)	Cost($)
Material	1,12,000	31	34,18,770
Labour	1,12,000	3	3,71,770
Overhead	1,12,000	7	7,70,630
Total			45,61,170
Cost of Unexpectd Loss
Material	1,250	31	38,156
Labour	500	3	1,660
Overhead	500	7	3,440
Total			43,256
Ending WIP
Material	3,000	31	91,574
Labour	2,100	3	6,971
Overhead	2,100	7	14,700
Total			1,13,245
( All the above number calculated in details as above -Qa)

Answer c :

Mixing Process-T account
Details	Unit	Rate /Unit ($/unit)	Cost($)	Details	Unit	Rate /Unit ($/unit)	Cost($)
Input cost	1,20,000	24	28,86,000	Normal Loss	3,750	25.6	96,000
Material			7,90,500	Cost of feed Transfer			45,61,170
Labour			3,80,400	Cost of unexpected Loss			43,256
Overhead			7,88,520	Ending WIP			1,13,245

All the number derived as per above calculation .

Answer d ) - respective JE in relates to Process account as below :

Journal Entries	Debit($)	Credit ($)
Process Account	7,90,500
Material A/c		7,90,500
Process Account	3,80,400
Labour		3,80,400
Process Account	7,88,520
Overhead A/C		7,88,520
Finished Product	45,61,170
Process Account		45,61,170