Novelty Products Ltd. makes a single product using two processes. Quality contro

Question

Novelty 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%

(c) Prepare Novelty’s Work-In-Process Inventory - Process 2 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 goods completed and transferred to finished goods.

Explanation / Answer

Process 2 % of completion Units Amount Cost Per Unit WIP                     -   Tfr from Process 1            15,000            7,71,000 Normal Loss                (750)              (30,000) Net Material Added Cost            14,250            7,41,000                52.00 Direct material            13,275            5,13,000                38.64 Direct labour            12,725            3,65,000                28.68 Mfg Ohs            12,725            2,11,000                16.58 Total Cost            14,250          18,30,000              135.91 Abnormal Loss Equivalent Units Input Material 100%              1,750          91,000.00 Direct Material Added 50%                  875          33,813.56 Conversion Cost 30%                  525          23,764.24 Total Abnormal Loss      1,48,577.80 Transfer to FG Inventory            12,000    16,30,911.52 WIP Equivalent Units Input Material 100%                  500          26,000.00 Direct Material Added 80%                  400          15,457.63 Conversion Cost 40%                  200            9,053.05 Total WIP    19,78,577.80 Journal Entries WIP          18,30,000 Normal Loss                30,000 Process 1           7,71,000 Direct material           5,13,000 Direct labour           3,65,000 Mfg Ohs           2,11,000 FG Inventory    16,30,911.52 Abnormal Loss      1,48,577.80 WIP 17,79,489.33

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