Sweet Harmony Ltd is a sole distributor of a reputable brand of headphones in th
ID: 2515377 • Letter: S
Question
Sweet Harmony Ltd is a sole distributor of a reputable brand of headphones in this region. It imports completely knocked down kits (CKD) from an international headphone manufacturer and then assembles and packs these into finished products (earphones) before transferring them to the finished goods store for distributions in the region.
The CKD are issued and utilised at the beginning of the assembly process. The other assembly costs are incurred evenly throughout that process. When the assembly process is complete, the packing process is undertaken.
Overhead is applied into the assembly and the packing, at a rate of 100% and 20% of direct labour cost respectively.
It is considered normal for some earphones to be spoiled during assembly and packing. Quality control inspection is applied at the end of the packing process to determine whether units are spoiled.
It is accepted that spoilage is normal if spoiled units are no more than 5% of the completed good units produced.
Despite vigilant security measures, it is common that some units are lost, probably by pilferage. The cost of lost units is written off as a loss of the period in which it occurs. This cost is measured at the cost of the CKD kits plus the assembly process, but no packing cost is charged. Sweet Harmony Ltd uses FIFO system of costing.
The following data summarize the firm’s activities during May.
Opening WIP
CKD kits $120,000
Direct labour cost (assembly) to 30 Apr $50,000
No. of units (60% assembled) 100,000 units
Cost incurred during May
CKD kits $240,000
Direct labour cost (assembly) $80,000
Direct labour cost (packing) $60,000
Production data for May
CKD kits received into assembly 224,000 units
Good earphones completed from packing 180,000 units
Spoiled units 20,000 units
Lost units 4,000 units
None of the opening work in process had at that stage entered the packing process. Similarly, there is no closing work in process at the end of the month in the packing process. However, the units in the closing work in process were on average, 25% complete as to assembly.
Required:
(a) Using the four-step approach:
(i) Calculate the number of units in the closing work in process for assembly and packing.
(ii) Calculate the number of equivalent units processed in May, distinguishing between assembly process and packing process.
(ii) Calculate the costs per equivalent units for each product cost category processed in May for the assembly process and the packing process, the costs of units transferred from the assembly process to the packing process, the cost of completed units from the packing process, the costs of abnormal spoilage, lost units and closing WIP.
(36 marks)
(b) Pass all the necessary journal entries.
(5 marks)
(c) Use your answer to (a) to explain "transferred-in costs".
(9 marks)
Explanation / Answer
Equaling unit computation.
Computation of equaling units in may assembly Department.
Equivalent units for Direct Material
Equivalent units for Direct Material = Started completed during the year + Ending Working progress spoiled +Loss.
Started and completed in this year = Total completed units – Beginning work in progress.
=204,000-100,000 =104,000
Equivalent units of direct Material = 104,000+120,000=224000
Equivalent units for Conversion Cost (Assembly)
Equaling units for Conversion Cost= portion of binging work in progress to completed this year +Started and completed this year + portion of ending work in progress completed this year.
Equaling units for Conversion Cost=(100,000*40%) + 104,000+(120,000*25%)
Equaling units for Conversion Cost= 40,000+104,000+30,000 = 174,000
Equivalent unit in packing process.
AS there is no work in progress with packing process the equaling units will be
Good units completed + spoiled unit + Loss for both Direct Material And Conversion.
180,000+20000+4000 = 204000
(iii)Equaling unit Cost computation.
Assembly unit.
Direct Material
Total cost incurrent in current period/Equaling units of Direct Material
Cost incurred = $240,000/224,000 =$1.07
Cost of conversion
Direct Labor = 80,000
Overhead Cost =80,000 (100% of Direct labor)
Total Conversion Cost = 80000+80000 =160,000
Number of Equaling units = $160,000/174000 = .91
Total Cost of goods transferred to Packing process
Direct Material = $1.07* 80000= 85,600
Conversion Cost = .91*(80000+40000) =$109,200
Total Cost Current year Transferred to Processing Department = $194,800 (Conversion cost + Material)
Cost transferred on beginning work in progress to packing Department = $120,000+$50,000 = $170,000
Total transfer out cost to packing department = Current year cost + Binging inventory cost =$ 364,800
Per unit computation in Packing process
Total Conversion Cost
Direct labor =$60,000
Overhead = $12,000 (20% of direct labor)
Total Conversion Cost = $180,000
Cost per equaling unit =$180,000/204,000 =.88
Transfer in cost ($)
Process cost ($)
Total ($)
Cost allocated to good unit
322,200
158,400
480,600
Abnormal loss
19,690
9,680
29,370
Normal loss
16,110
7,920
24,030
Loss of unit
7,160
3,520
10,680
Final Cost
Cost of finished goods = Cost allocated to good unit+ Normal loss = $480,600+$24,030= $504,630
Abnormal loss = $29,370
Loss of unit = $10,680
Note.
All values are rounded to nearest integrals
Part 1 Assembly Packing Opening inventory in process $1,00,000.00 $- Goods started in May $2,24,000.00 $2,04,000.00 Goods completed and Transfer out $2,04,000.00 $1,80,000.00 Normal spoilage $- $11,000.00 Abnormal Spoilage $- $9,000.00 Loss unit $- $4,000.00 Closing inventory in work in progress 120,.000Equaling unit computation.
Computation of equaling units in may assembly Department.
Equivalent units for Direct Material
Equivalent units for Direct Material = Started completed during the year + Ending Working progress spoiled +Loss.
Started and completed in this year = Total completed units – Beginning work in progress.
=204,000-100,000 =104,000
Equivalent units of direct Material = 104,000+120,000=224000
Equivalent units for Conversion Cost (Assembly)
Equaling units for Conversion Cost= portion of binging work in progress to completed this year +Started and completed this year + portion of ending work in progress completed this year.
Equaling units for Conversion Cost=(100,000*40%) + 104,000+(120,000*25%)
Equaling units for Conversion Cost= 40,000+104,000+30,000 = 174,000
Equivalent unit in packing process.
AS there is no work in progress with packing process the equaling units will be
Good units completed + spoiled unit + Loss for both Direct Material And Conversion.
180,000+20000+4000 = 204000
(iii)Equaling unit Cost computation.
Assembly unit.
Direct Material
Total cost incurrent in current period/Equaling units of Direct Material
Cost incurred = $240,000/224,000 =$1.07
Cost of conversion
Direct Labor = 80,000
Overhead Cost =80,000 (100% of Direct labor)
Total Conversion Cost = 80000+80000 =160,000
Number of Equaling units = $160,000/174000 = .91
Total Cost of goods transferred to Packing process
Direct Material = $1.07* 80000= 85,600
Conversion Cost = .91*(80000+40000) =$109,200
Total Cost Current year Transferred to Processing Department = $194,800 (Conversion cost + Material)
Cost transferred on beginning work in progress to packing Department = $120,000+$50,000 = $170,000
Total transfer out cost to packing department = Current year cost + Binging inventory cost =$ 364,800
Per unit computation in Packing process
Total Conversion Cost
Direct labor =$60,000
Overhead = $12,000 (20% of direct labor)
Total Conversion Cost = $180,000
Cost per equaling unit =$180,000/204,000 =.88
Transfer in cost ($)
Process cost ($)
Total ($)
Cost allocated to good unit
322,200
158,400
480,600
Abnormal loss
19,690
9,680
29,370
Normal loss
16,110
7,920
24,030
Loss of unit
7,160
3,520
10,680
Final Cost
Cost of finished goods = Cost allocated to good unit+ Normal loss = $480,600+$24,030= $504,630
Abnormal loss = $29,370
Loss of unit = $10,680
Note.
All values are rounded to nearest integrals
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