Question

Valentine Accessories Plus produces brass handles for the furniture industry in a four -stage process-mixing, moulding, Polishing and Packaging.Costs incurred in the polishing department during January are summarized as follows:

                  DR                                                WIP-Polishing Process A/C                                              CR

Particulars	units	$	Particulars	Units	$
January 1 Bal		0
Transfer from moulding	20000	1310000
Direct Material Added		391600
Direct Labour		638000
Manufacturing Overhead		307400

Normal Losses are estimated to be 2 ½% of input during the period. Inspection takes place during the processing operation, at which point damaged handles are separated from goods handles and sold as scrap to local furniture manufactures at $85 each.

At inspection,2000 handles were rejected as scrap. These units had reached the following degree of completion:

Transfer from moulding 100%

Direct Material added    40%

Conversion costs             20%

Work-in-progress at the end of January was 4000 handles and had reached the following degree of completion:

Transfer from moulding 100%

Direct material added     80%

Conversion Costs              50%

Direct Materials added and Conversion costs are incurred uniformly throughout the process.

Required:

1. Compute the equivalent units and cost per equivalent units for direct materials( from moulding & Direct Materials added) and conversion costs.

2. Compute the:( I) Cost of the unexpected losses (II) Total cost of the handles completed and transferred out of the packaging department .(III)Cost of ending work in process inventory in the polishing Department.

3. Complete the work in process inventory -polishing process T account, clearly showing the ending balance.

4. Prepare the Journal entries for the:(I)Assignment of direct materials, direct labour incurred and the manufacturing overhead applied to polishing process.(II)cost of the units completed and transferred out to the packaging process.

5. Given that 30% of the unexpected Losses were as a result of Pilferage, Calculate Valentine Accessories true loss for the polishing Department.

Answer 1

Statement of Equivalent Units
							Degree of completion
						Direct Material			Direct Labor			Manufacturing O/H
Particulars	Units	Particulars	Units			%	Units		%	Units		%	Units
Transferred units	20000	Normal Loss	500			-	-		-	-		-	-
		Abnormal Loss	2000			100%	2000		40%	800		20%	400
		Transferred to	13500			100%	13500		100%	13500		100%	13500
		next process (F.G)
		Closing WIP	4000			100%	4000		80%	3200		50%	2000
	20000		20000				19500			17500			15900

Notes: 1) Degree of completion of Normal loss is always taken as NIL

2) It is assumed that 100% of input has been utilized in Abnormal Loss, Finished goods transferred to next process and Closing WIP   

Cost per equivalent units
Element of cost		Cost	Units	Cost per equivalent units
Input		1310000	19500		67.17949
Direct Material		349100	19500		17.90256
Direct Labor		638000	17500		36.45714
Manu. O/H		307400	15900		19.33333
				Total	140.8725

Note: Cost of Direct Material = $ 391,600 - ( 500 units * $ 85)

= $ 349100

Statement of revaluation
Cost of Abnormal Loss
Elements	Units	Cost Per Unit	Amount
Input	2000	67.17948718	134359
Materials	2000	17.9025641	35805.13
Labor	800	36.45714286	29165.71
O/H	400	19.33333333	7733.333
		Total	207063.2
Cost of Finished Goods transferred
13500 units	* $ 140.8725	=	1901779
Cost of Closing WIP
Elements	Units	Cost Per Unit	Amount
Input	4000	67.17948718	268717.9
Materials	4000	17.9025641	71610.26
Labor	3200	36.45714286	116662.9
O/H	2000	19.33333333	38666.67
		Total	495657.7

			WIP- Polishing Process A/c
Particulars	Units	Rate	Amount	Particulars	Units	Rate	Amount
Transfer from	20000	65.5	1310000	Normal Loss	500	85	42500
moulding
				Abnormal Loss	2000	103.53158	207063
Direct Materials			391600
				Finisehd goods	13500	140.87253	1901779
Direct labour			638000	transferred
Manu. OH			307400	Closing WIP	4000	123.91443	495658
	20000		2647000		20000		2647000