Question

Lucky Stars Ltd is a peanut butter manufacturer based in the town of Manzini in Swaziland. It is manufactured using peanuts. The peanut butter is sold in small bottles. These peanut butter bottles are sold in the Eswatini local market. The Swaziland currency is the Emalangeni and is denoted by E. The bottles are sold for E12 each. The first stage in the production process occurs in the Crushing Department. This process crushes the peanuts into a syrup. The syrup is then transferred to the next production process in which occurs in the extraction department which extracts the peanut butter oil from the syrup. Lucky Stars Ltd uses the weighted avarage method in the process costing system.

The management accountant has prepared the report below for the crushing department:

Quantity schedule

Units to be accounted for:

Work in progress, 1 November (90% materials, 80% conversion costs added last month)      30,000

Started into production                                                                                                     200,000

Total Units                                                                                                                      230,000

Units accounted for as follows:

Transferred to the next department                                                                                     190,000

Work in progress, 30 November (75% materials, 60% conversion cost added this month)        40,000

Total Units                                                                                                                       230,000

Costs to be accounted for:

Work in progress, 1 November                               E98,000

Costs added this month                                        E827,000

Total Costs                                                         E925,000

Cost reconcilliation

Cost accounted for as follows:

Transferred to the next department                       E805,600

Work in progress, 30 November                           E119,400

Total Cost                                                         E925,000

However, the management is not satisfied with report and requires additional information.

Required:

1. Calculate equivalent units for the month

2. What were the costs per equivalent unit for the month? If the beginning inventory consisted of material costs of E67,800 and conversion costs of E30, 200. The costs added during the the month of November consisted of material costs of E579,000 and conversion costs of E248,000.

3. How many units transferred to the next department were started and completed during the month?

4. The manager of the Crushing Department, anxious to make a good impression on the company owners, stated, 'materials prices jumped from about E2.50 per unit in October to E3.00 per unit in November, but due to good cost control I was able to hold our materials costs to less than E3.00 per unit for the month.'Should this manager be rewarded for good cost control? Explain.

Answer 1

1)	Statement of equivalent production					Degree of completion
						Input (Material 1)			Conversion
	Particulars	Units	Particulars	Units		%	Units		%	Units
	Opening WIP	30000	Transfer to next process:	190000		100%	190000		100%	190000
	Material Introduced	200000	Closing WIP	40000		75%	30000		60%	24000
		230000		230000			220000			214000

2)	Statement of cost per equivalent production
	Element of costs	Units	Costs	Cost/eq. units
	Input (Material 1)	220000	$      646,800.00	$                   2.94
	Conversion	214000	$      278,200.00	$                   1.30
				$                   4.24

3) Since the company is using weighted average method of costing, it is not possible to tell how many units of units transferred to next process were started and completed during the month. Had the company followed FIFO method of costing, it'd have been possible to tell the same. It that case 160000 units would have been the answer.

4) Actually, the per unit cost of material added during the month didn't jump to 3, it jumped to $ 2.895 per unit                  (i.e., $ 579000 / 200000 units) and due to ineffective cost control, the cost of material in the process exceeded the cost of purchase by $ 0.045 per unit (i.e., $ 2.94 - $ 2.895). So there's nothing for which the manager should be awarded.