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Discussion Question_Process Costing to Discussion 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. (1) (ii) 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 3% of input. (ill) 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) (vii) 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. (b) 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 (e) 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. Page 1

Answer 1

Requirement (a) Agro Business Cost of Production Report-Mixing/Packing Department Physical units (in kilos) Transferred-in costs e.u Equivalent Units (in kilos) Direct Materials % Conversion costs % e.u e.u 120000 120000 UNITS Units to account for Units in Beginning WIP Units started Total units to acount for Units accounted for: Transferred to Packaging Process Normal Spoilage (120000*3.125%) Abnormal Loss (see note below) Ending Inventory in Process Total units acccounted for 112000 3750 1250 3000 120000 100% NA 100% 100% 112000 NA 1250 3000 116250 100% NA 100% 100% 112000 NA 1250 3000 116250 100% NA 40% 70% 112000 NA 500 2100 114600 Note Total Loss Normal Loss (120000*3.125%) Abnormal Loss (5000-3750) 5000 3750 1250 Transferred-in costs Direct Materials Conversion costs Total Costs $ $ - 7,90,500 $ $ COSTS Costs to account for: Beginning WIP costs Current production costs (-) Scrap sold for Normal loss (3750*25.60) Total Equivalent units Cost per equivalent unit - $ 11,68,920 $ 48,45,420 - 28,86,000 -96,000 27,90,000 1,16,250 24.00 $ $ 47,49,420 7,90,500 1,16,250 6.80 11,68,920 $ 1,14,600 10.20 $ $

Requirement (b) Costs accounted for: Completed and Transferred out 45,92,000 Abnormal Loss 43,600 26,88,000 $ (112000*24) 30,000 $ (1250*24) 72,000 $ (3000*24) 27,90,000 $ 7,61,600 $ (112000*6.8) 8,500 $ (1250*6.8) 20,400 $ (3000*6.8) 7,90,500 $ 11,42,400 $ (112000*10.2) 5,100 $ (500*10.2) 21,420 $ (2100*10.2) 11,68,920 $ Ending Inventory in Process 1,13,820 Total costs acccounted for 47,49,420 Requirement (c) Amount Amount Particulars Balance b/d Testing Process Direct Materials Direct labor Manufacturing OH Total Mixing Process Particulars Packaging Process 28,86,000 Normal Loss 7,90,500 Abnormal Loss 3,80,400 7,88,520 Balance c/d 48,45,420 Total 45,92,000 96,000 43,600 1,13,820 48,45,420

Requirement (d) Mixing Process Journal Particulars Mixing Process Testing Process (Transfer in from previous process) (in $) Debit 28,86,000 (in $) Credit 28,86,000 19,59,420 Mixing Process Direct Materials Direct Labour Manufacturing OH |(To record transfer of current production costs to WIP) 7,90,500 3,80,400 7,88,520 96,000 Cash Mixing Process (To realise sale value of scrap) 96,000 45,92,000 43,600 Packaging Process Abnormal Loss Mixing Process (To record cost apportionment) 46,35,600