N1B405 MAD II Seminar 2 Part 2 Process Costing

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Indicative Answers

Question 1 MASChips

Given:

Direct mat: 100% converted at start of process.

Conversion costs: added evenly during process.

Normal Losses:

15% of good units transferred out. Lost at 100% completion stage, Closing WIP will not share the cost! Cost of normal loss to be borne by expected output: (1) units transferred out and (2) abnormal

Loss

Weighted average method used

Units

Opening WIP 400

Started 1,700

2,100

Transferred Out 1,400

Normal Losses [15%*1400] 210

Abnormal Losses [Bal fig] 190

Closing WIP 300

2,100

(a) Equivalent Units

Physical units Material

Conversion

Transfer out 1,400 [100%] 1,400 [100%] 1,400

Normal Losses 210 [100%] 210 [100%] 210

Abnormal Losses 190 [100%] 190 [100%] 190

Closing WIP 300 [100%] 300 [40%] 120

Total 2,100 2,100 1,920

(b) Cost per Equivalent Unit

Material Conversion Total

Costs () 442,000 163,800 605,800

Cost per Equivalent

Unit ()

210.4762 85.3125

(c) Cost assignments

Material

Conversion Total

Transfer out () 294,667 119,438 [+54,693] 468,798#

Normal Losses () 44,200 17,916

Abnormal Losses () 39,990 16,209 [+7,423] 63,622#

Closing WIP 63,143 10,237 73,380

Total () 442,000 163,800 605,800

Note: #Cost of NL 62,116 should be borne by the expected output units (i.e. the transferred out

units and abnormal loss), normally using the units as the distribution factor!

N1B405 MAD II Seminar 2 Part 2 Process Costing

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Question 2 UBS Sdn Bhd

(a) Units to be accounted for: 10,000kg

Units accounted for: 8,000kg transferred out

900kg closing WIP

1,000kg normal loss

100kg abnormal loss [bal fig]

10,000kg

Since losses occur at 100% completion stage Closing WIP will not share the cost! Cost of normal loss to be borne by expected output: (1) units transferred out and (2) abnormal Loss

Process cost per unit for the Binding Process in the month:

Material costs Conversion costs

+

Equivalent units for material Equivalent units for conversion

RM40,500 RM8,424

= + 8,000+(900*100%)+(1,000*100%)+(100*100%) 8,000+(900*75%)+(1,000*100%)+(100*100%)

= RM4.05 + RM0.8618

= RM4.9118

Cost of NL = RM4.9118*1,000kg = RM4911.8 to be spread over the expected output of 8100kg,

i.e. RM0.6064 per unit of expected output

Thus, the process cost per unit is effectively RM4.9118+RM0.6064=RM5.5182

(b) The value of closing work-in-progress carried forward on the Binding :

(RM4.05*900kg*100%) + (RM0.8618*900kg*75%) = RM4,226.715

Question 3

Explain the accounting treatments for production losses and explain how such treatment should

reflect the responsibility accounting practice. Specifically, explain that the cost of normal losses may

be adjusted with additional disposal costs and/or scrap value relating to such losses. The adjusted

cost is to be borne by the expected output units. The closing work-in-process would also need to

bear a portion of this cost if it has passed the stage of loss. As for the abnormal losses, explain that

this should be assigned with a portion of the production cost and be disclosed separately in the

management reports. The cost of abnormal loss may be adjusted with disposal costs and/or scrap

value of such loss.

Question 4

Refer chapter reading.

Question 5

Explain how the sharing of joint costs amongst the main products may help to value closing stock at

the end of each accounting period, to determine profit, as well for profitability analysis and perhaps

cost-based pricing decisions. Answer should stress that joint cost apportionment should not be

referred when arriving on decisions on further processing.

Question 6

Explain the meaning of joint products and by-products, why and how management should attempt to

treat these products when dealing with the joint process costs (by applying the materiality concept),

how such different treatments impact upon the profitability analysis of these products. Answer must

describe the costing treatment for joint products (sharing of joint costs using the various available

methods) and for by-products (not bearing any of the joint costs but need to account for any further

costs and/or scrap value).