Home & Gardening Depot makes decorative flower pots using three consecutive proc

Question

Home & Gardening Depot makes decorative flower pots using three consecutive processes: Moulding, Baking & Spraying. Costs incurred in the Baking Department during June are summarized as follows:

Normal losses are estimated to be 5% of input during the period. Inspection takes place during the processing operation, at which point bad units are separated from good units and sold as scrap at $420 each.

At inspection, 300 units were rejected as scrap. These units had reached the following degree of completion:

From Moulding 100%

Direct materials added 50%

Conversion costs 40%

Work-in-progress at the end of June was 500 units and had reached the following degree of completion:

From Moulding 100%

Direct materials added 60%

Conversion costs 40%

Direct materials added and conversion costs are incurred uniformly throughout the process.

Required:

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

(b) Calculate the: - Total cost of units completed and transferred out to the Spraying department - Cost of abnormal losses - Cost of ending work-in-process inventory in the Baking department

(c) Prepare Home & Gardening Depot’s Work-In-Process Inventory – Baking Department T-account, clearly showing the ending balance.

(d) State the journal entries necessary to record the assignment of direct materials, direct manufacturing wages incurred and manufacturing overhead applied to Process 2. Also give the journal entries to record the cost of goods completed and transferred to finished goods.

(e) Given that 25% of the unexpected losses were as a result of pilferage, prepare the abnormal spoilage statement, clearly showing Home & Gardening Depot’s true loss.

(f) Briefly explain the difference between job costing & process costing, giving examples of industries in which both methods of product costing may be used.

June 1 bAL $0 ........................................... From Moulding 2000 665,200 Direct Material Added 195,200 Direct Manufacturing wages 204,240 Manufacturing Overhead Applied 306,360

Explanation / Answer

a Satetement of equivalent production units Finished by moulding and transferred to baking          2,000 Less:- Normal Loss( 5% of 2000)           (100) Less- WIP           (500) Less:- Abnormal loss           (300) Completed processing in baking unit for good units          1,100 b Calculation of per unit cost for moulding, direct material , direct labour and manufacturing overhead Completed units Total cost Per unit cost x y z=y/x Moulding 2000 665200 332.6 Direct Material 2000 195200 97.6 conversion cost Direct Labour 2000 204240 102.12 Manufacturing overhed 2000 306360 153.18 1371000 685.5 Cost of abnormal loss Units 300 degree of completion Equivalent units Amount Moulding 100% 300 99780 Direct Material 50% 150 14640 conversion cost Direct Labour 40% 120 30636 Manufacturing overhed 145056 Cost of WIP Units 500 degree of completion Equivalent units Amount Moulding 100% 500 166300 Direct Material 60% 300 29280 conversion cost Direct Labour 40% 200 51060 Manufacturing overhed 246640 Total cost of completed units transferred to spraying department Completed and good units transferred to spraying department 1100 units Cost per unit 685.5 Total cost 754050 c WIP A/c To opening inventory from moulding 2000 By Normal loss 100 ByAbnormal loss 300 By Completed units transferred to spraying(balancing figure) 1100 By closing Wip 500 2000 2000 d Journal Entries Assignment of direct material to process 2 WIP inventory……Dr To Raw Material Inventory Assignment of Direct Labour WIP inventory……Dr To Factory payroll Assignment of In direct Labour Manufacturing Overhead…….Dr To Factory Labour Cost of goods sold completed and tranferred to finished goods Finished Goods Inventory…Dr To Work in Process inventory

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