Novelty Products Ltd . makes a single product using two processes. Quality contr
ID: 2567907 • Letter: N
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
Direct labour
Manufacturing overhead
$513,000
$365,000
$211,000
ormal 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
Direct material added
Conversion costs
100%
50%
30%
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
Direct material added
Conversion costs
100%
80%
40%
Required:
(a) Prepare a statement of equivalent production to determine the equivalent units for direct materials (From Process 1 & Direct Material Added), and conversion costs and the cost per equivalent unit for direct materials and conversion costs. (10 marks)
(b) Calculate the:
- Total cost of units completed and transferred to Finished Goods inventory
- Cost of abnormal losses
- Cost of ending work-in-process inventory in Process 2 (3 marks)
(c) Prepare Novelty’s Work-In-Process Inventory - Process 2 T-account, clearly showing the ending
balance. (5 marks)
(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. (5 marks)
(e) Given that 20% of the unexpected losses were as a result of pilferage, prepare the abnormal spoilage statement, clearly showing Novelty Product’s true loss.
Direct material added
Direct labour
Manufacturing overhead
$513,000
$365,000
$211,000
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
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
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