Question

Wilkin Products Ltd. makes a single product using two processes. Quality control check takes place during the process, at which point, rejected units are separated from good units.

The following details relate to production for the month of April 20X7, for Process 2.

(i) Work-in-process, beginning inventory: -0-

(ii) Transfer from Process 1: 15,000 units valued at $51.40 each

(iii) Other manufacturing costs incurred during April:

Direct material added $513,000

Direct labour   $365,000

Manufacturing overhead   $211,000

(iv) Normal losses were estimated to be 5% of input during the period. The scrap value of any loss is $40 per unit.

(v) At inspection 1,750 units were rejected as scrap. These units had reached the following degree of completion:

Input material 100%

Direct material added 50%

Conversion costs 30%

(vi) 12,000 units were completed and transferred to Finished Goods Inventory.

(vii) Work-in-process at the end of April had reached the following degree of completion:

Input material 100%

Direct material added 80%

Conversion costs 40%

Required:

(a) Prepare a statement of equivalent production to determine the equivalent units for direct materials (From Process 1 & Direct Material Added), and conversion costs and the cost per equivalent unit for direct materials and conversion costs. (10 marks)

(b) Calculate the: - Total cost of units completed and transferred to Finished Goods inventory - Cost of abnormal losses - Cost of ending work-in-process inventory in Process 2 (3 marks)

(c) Prepare Wilkin’s Work-In-Process Inventory - Process 2 T-account, clearly showing the ending balance. (5 marks)

(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 goods completed and transferred to finished goods. (5 marks)

(e) Given that 20% of the unexpected losses were as a result of pilferage, prepare the abnormal spoilage statement, clearly showing Wilkin Product’s true loss. (2 marks)

Answer 1

Process : 2
(a) Statement of equivalent production
		% of completion			Equivalent units
		Trfd. In	Dir. Mat.	Convn.	Trfd. In	Dir. Mat.	Conversion
Units to account for:
Beginning WIP	0
Trfd. from Process 1	15000
Total units to account for	15000
Units accounted for:
Completed & trfd.to FG	12000	100%	100%	100%	12000	12000	12000
Normal loss(5%*15000)	750	100%	50%	30%	0	0	0
Abnormal loss(1750-750)	1000	100%	50%	30%	1000	500	300
Ending WIP(Bal.fig.)	1250	100%	80%	40%	1250	1000	500
1.Total units accounted for	15000				14250	13500	12800
Cost of production Report								Total
Costs to account for:
Beginning WIP	0
Trfd. from Process 1(15000*51.40)	771000				771000			771000
Costs added in April	1089000					513000	576000	1089000
Total costs to account for	1860000				771000	513000	576000	1860000
Less: Scrap value of normal loss					30000
2. Net total costs					741000	513000	576000	1860000
Cost/equivalent unit(2/1)					52.00	38.00	45.00	135.00
Costs assigned /accounted for:
Completed & trfd.to FG(12000 units)					624000	456000	540000	1620000
Normal loss(750 units)					0	0	0	0
Total Completed & trfd.to FG(12000 units)					624000	456000	540000	1620000
Abnormal loss(1000 units)					52000	19000	13500	84500
Ending WIP(1250 units)					65000	38000	22500	125500
Total Costs accounted for					741000	513000	576000	1830000

(b)Total cost of units completed and transferred to Finished Goods inventory
1620000
Cost of abnormal losses
84500
Cost of ending work-in-process inventory in Process 2
125500

c.Work-In-Process Inventory - Process 2 T-account		Debit	Credit
	Units	Cost
Beginning WIP		0
Costs added from Process 1	15000	771000
Direct materials		513000
Direct labor		365000
MOH		211000
Normal loss (750*40)	-750		30000
Compl.& Trfd. To FG(After Normal loss)(Bal.figure)	-12000		1620000.00
Abnormal loss trfd. To A/Loss a/c	-1000		84500.00
Ending WIP	1250		125500.00
		1860000	1860000

d..Journal entries	Debit	Credit
WIP-Process-2	1089000
Direct materials		513000
Direct labor		365000
MOH		211000
(Assignment of costs to Process-2)
Finished Goods inventory	1620000
WIP-Process-2		1620000
(Trfd. To FG)
e. Abnormal spoilage statement
From WIP- Process 2	84500
Scrap value realised(1000*40)		40000
Balance Loss trfd. To Income statement		44500
(True loss)	84500	84500