MANAGEMENT ACCOUNTING 1 MNA33M1
PROCESS COSTING
2017
MNA33M1
MANAGERIAL ACCOUNTING I
PROCESS COSTING & SPOILAGE
Textbook reading:
Shelly-Anne Roos – Chapter 8
Recommended Reading
Correia, Langfield-Smith, Thorne, & Hilton – parts of Chapter 4 and Chapter 5
Contents of this pack:
Pages
numbered
Student Lecture Outlines and Examples
1 – 22
Homework Tutorials and student solutions
23 – 27
Textbook Problems (Correia)5.38 and 5.52 and PC01
Homework submission tutorial
28 – 29
PC02
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MANAGEMENT ACCOUNTING 1 MNA33M1
PROCESS COSTING
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MANAGEMENT ACCOUNTING 1 MNA33M1
PROCESS COSTING
Important questions
1. What is a cost object?
2. Why is it important to determine product costs?
3. How is job order costing different to process costing?
4. What is a hybrid costing system?
5. Explain what an arbitrary allocation of overheads is.
6. Are costs always assigned in the same way to products? Explain your answer.
7. List the factors one has to consider when designing a costing system.
8. How are overheads allocated to products or other cost objects?
9. List the different inventory accounts used for reporting purposes.
10. Briefly explain what is job order costing?
11. Briefly explain what is process costing?
12. Briefly explain what is operation costing?
13. Explain the concept of equivalent units.
Module objectives
- Explain what process costing is?
- Identify the key characteristics of a company using process costing.
- Understand the concept of equivalent units.
- Illustrate the difference between using the FIFO and WAV methods
- Understand the effect of spoilage and how it is accounted for
- Compile a production report.
- Recording using a process costing system
- Describe operation costing and list its key features
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MANAGEMENT ACCOUNTING 1 MNA33M1
PROCESS COSTING
OUTCOME
When you have completed this topic you should be able to:
 Identify/know/explain when is it appropriate to use Process Costing; and
 Using given information determine the appropriate assignment of costs to cost
objects (product, service, process, department, function or customer) for decision
making and/or for control purposes
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MANAGEMENT ACCOUNTING 1 MNA33M1
PROCESS COSTING
Introduction
Having laid the foundations for management accounting in the first two modules, we
now turn to studying one of the functions of a management accountant, which is
costing. This function is concerned with assigning costs to cost objects, and in
particular products. This has to be done, both for external reporting purposes and for
decision making.
Assigning direct costs to products should be straight forward (can you remember
why?). It is in assigning indirect cost where difficulties lie (why do you think this
is?) and it is here that system approaches differ.
There are two approaches to assigning costs to products, a traditional approach and
contemporary approach. The traditional approach (job order costing and process
costing) involves identifying one cost driver and using a plant-wide overhead rate to
assign indirect costs. The cost driver is related to volume such as number of units
produced, number of labour hours worked or number of machine hours. The
contemporary approach (ABC) identifies a number of activities within the business
which has their own cost drivers and therefore applies indirect costs using multiple
rates, and these rates can be volume or non-volume related.
Both of the approaches try to establish a cause-and-effect relationship; however
some businesses do just use arbitrary allocations (which is a bad idea. Can you see
why?).
It is important for you to understand how a business determines product costs and
how that affects the information one can derive from the product costs.
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MANAGEMENT ACCOUNTING 1 MNA33M1
PROCESS COSTING
Explanations and examples
PROCESS COSTING
Process costing is used by businesses that mass produce a product. Production in
these businesses involves a number of processes that are performed repetitively.
Each unit of production passes through identical production processes and consume
the same amount of direct costs and overheads.
For a good example of this watch the following video on how cricket balls are made:
http://www.youtube.com/watch?v=ooORhjgMeRE&feature=related
or this video of a baking company
http://www.youtube.com/watch?v=RT8qEOUGtYw
It is therefore not necessary to cost each unit individually. Instead a process costing
system accumulates all the costs incurred during the production process and
averages it out across all units to give an average cost per unit.
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MANAGEMENT ACCOUNTING 1 MNA33M1
PROCESS COSTING
Job Order costing vs Process costing
Similarities between Process costing and Job costing:
- The inventory accounts are the same: Raw materials, work in progress and
finished goods.
Differences:
- Job costing is used in businesses with products that each have a unique
characteristic and have to cost separately. Process costing is used in
businesses that mass produce a product.
- Job costing accumulates costs to different jobs; process costing accumulates
all costs of a fixed period and averages it out over units produced. Costs are
collected by department or process.
The average cost per unit will be calculated as follows:
Total manufacturing costs (for the period)
Number of units manufactured (during period)
Managers of departments therefore bear responsibility for costs and for quantities.
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MANAGEMENT ACCOUNTING 1 MNA33M1
PROCESS COSTING
Product and cost flows
The ability to understand and visualise the transfer of partly completed products from
one department to the next and the associated costs is key.
Single product, single process:
Production
process
Costs
Recording
Processing
department
Material
Labour
Raw
materials
Finished
goods
Overheads
Work in
progress
Finished
goods
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MANAGEMENT ACCOUNTING 1 MNA33M1
PROCESS COSTING
Single product, multiple processes:
Production
process
Labour
Overheads
Labour
Overheads
Labour
Overheads
Material
Dept 1
Dept 2
Dept 3
Finished
goods
Raw
materials
Work in
progress
dept 1
Work in
progress
dept 2
Work in
progress
dept 3
Finished
goods
Source: Niemand et al Fundamentals of cost and management accounting, 5th ed, 2006, pg 260
In this process raw materials are added to the production process in department 1. In
this process the materials are partially converted and conversion costs are incurred.
At the end of the process the partially finished goods are transferred to department 2
and converted further. More conversion costs are incurred. The process is repeated
in department 3. At the end of the process in department 3 we have our finished
goods. Costs are accumulated on a departmental/process basis:
Cost per unit dept 1: (Materials + conversion costs) per unit
Cost per unit dept 2: (cost from dept 1 + conversion costs) per unit
Cost per unit dept 3: (cost from dept 2 + conversion costs) per unit
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MANAGEMENT ACCOUNTING 1 MNA33M1
PROCESS COSTING
Single product, multiple processes:
Labour
Overheads
Material A
Material E
Dept 1
Material B
Material C
Dept 3
Material D
Finished
goods
Dept 2
Labour
Overheads
Labour
Overheads
Source: Niemand et al Fundamentals of cost and management accounting, 5th ed, 2006, pg 260
This process shows multiple production processes and materials introduced at the
different production levels.
More scenarios
-
-
Single product, single process, no opening and closing inventory.
Single product multiple processes
Incomplete units and opening and closing inventory
o FIFO method
o WAV method
Spoilage
o Normal
o Abnormal
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MANAGEMENT ACCOUNTING 1 MNA33M1
PROCESS COSTING
FIFO
An accounting method that assumes that the oldest inventory is completed first
before new production commences. The cost within the opening balance of WIP is
not accumulated with the production costs for the period.
WAV
This method accumulates the costs of opening inventory (previous production
period, products partially completed) with the cost of the current production period.
An average cost per unit is obtained by dividing total costs (opening and current) by
total units worked on during the period (opening and current)
Equivalent units
The presence of partially completed units creates a problem. How does one
calculate cost per unit now? It has to be done, as all the types of inventory (raw,
materials, work in process and finished goods) need to be valued for reporting
purposes. The total manufacturing cost must be allocated to both completed and
uncompleted units. It would not make sense to just add the number of completed
units and the number of incomplete units. Rather, the uncompleted units will be
expressed as equivalent completed units. This is done by estimating the degree of
completion with regards to labour and conversion costs.
Scenario 1:
Degree of completion is the same for materials and conversion costs
Company A manufactures glue that is used for wood. 50% of ingredients are
introduced at the beginning the production process and the rest are introduced at the
50% completion point. Conversion costs are incurred uniformly throughout the
production process. The glue is sold in 1 litre containers. The company completed
120,000 units during the current year. At the end of the year there were 5,000 litres
still in production. The production process was stopped just before the 50%
completion point for the stock take.
SOLUTION
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MANAGEMENT ACCOUNTING 1 MNA33M1
PROCESS COSTING
Scenario 2
Degree of completion is different for materials and conversion costs
Company A manufactures glue that is used for wood. 50% of ingredients are
introduced at the beginning the production process and the rest are introduced at the
50% completion point. Conversion costs are incurred uniformly throughout the
production process. The glue is sold in 1 litre containers. At the end of the year there
were 5,000 litres still in production. The production process was stopped at the
70% completion point for the stock take.
WHAT DO WE DO NOW????
SOLUTION
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MANAGEMENT ACCOUNTING 1 MNA33M1
PROCESS COSTING
SPOILAGE
Normal spoilage
Spoilage that can be expected under normal (efficient) operating conditions.
Abnormal spoilage
Spoilage that is not expected under normal (efficient) operating conditions.
Lecture example 1
Source: C Smith
As part of the arms procurement deal a South Africa company, Cell Africa Limited,
has been offered the contract to make mobile phone components for a Swedish
company. These components comprise the outer casing of the mobile phone and all
moving parts such as the dialling buttons. These components are supplied are
exported to a factory in Japan where the electronic components are added and the
assembly and testing takes place.
The components are produced in a continuous machine driven process. The casing
and moving parts are made from a special rubberized plastic which is comes in a
range of colours. The raw material is purchased in the form of small pellets about
the same size as rice. Special machines heat the pellets and then in a process called
extrusion the hot liquid plastic is forced into special moulds supplied by the Swedish
company. The filled mould moves through a water cooled bath and then the mould is
automatically opened releasing the components for a mobile phone in a single sheet.
At this point approximately 40% into the process a visual inspection is made by
specially trained staff to ensure that the components are properly formed. Spoiled
components are rejected because the plastic cannot be reheated. Components that
have passed the inspection process are polished and sprayed with a special sealant
that preserves the colour. In the current year 7,100 units were defective.
All materials are added at the beginning of the process and it is assumed that
conversion costs are added evenly throughout the process. Normal spoilage is
expected to be 5% of the input into the department. Cell Africa Limited uses FIFO
costing. Overheads for the production department are allocated at R400 per directlabour hour.
The following information relates to the year ended 31 September:
Opening Work-in-progress
Percentage complete
Closing Work-in-progress
Percentage complete
Units started
Units Completed
Production Department
7,500 units
70%
8,400 units
55%
108,000 units
100,000 units
Required:
Calculate the equivalent number of units produced.
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MANAGEMENT ACCOUNTING 1 MNA33M1
PROCESS COSTING
SOLUTION LECTURE EXAMPLE 1
EQUIVALENT UNITS
Conversion
Materials
%
%
units
units
complete
complete
Opening inventory completed
Started
Total Completed and transferred (given)
Normal loss 5% x 108,000 units
\Abnormal loss (calculated)
Closing inventory(given)
100%
100%
100%
100%
100%
40%
40%
55%
Less opening inventroy
100%
70%
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MANAGEMENT ACCOUNTING 1 MNA33M1
PROCESS COSTING
Example 2: Process costing, WAV and FIFO with uncompleted units and
spoilage
(Source : First Semester 2011 Test 1)
Fire Fabric (Proprietary) Limited manufactures a specialised fabric used in the
production of fire proof clothing used by fire fighters. The material goes through two
separate processes Making and Finishing. The fabric is spun in the Making
Department and then special fireproof coatings are added in the Finishing
Department.
The 1 January 2011, work in process inventory in the Finishing Department
consisted of 3,000 units that are 60% complete as to conversion. During January
14,000 units were transferred in from the Making Department and 14,000 good units
were completed and transferred to Finished Goods.
In the Finishing Department materials are added at a point 20% into the processing
and inspection occurs at a point 40% into the processing. A total of 500 units were
identified as defective in the Finishing Department and normal spoilage in the
Finishing Department is usually 0.5% of the inputs.
The 31 January 2011 work in process inventory was 100% complete as to materials
and 50% complete as to conversion. Factory overhead is applied to production on
the basis of 150% of direct labour cost.
Transferred in
Direct materials
Direct labour
Factory overhead
Finishing Department
Opening
Current
Work in Process
Period Costs
R
R
55,000
364,000
102,000
672,000
50,000
327,600
75,000
491,400
282,000
1,855,000
Required
1) Calculate the per unit cost using the Weighted average method.
2) Calculate the per unit cost using the FIFO method.
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MANAGEMENT ACCOUNTING 1 MNA33M1
PROCESS COSTING
3) LE 2 Suggested solution FIFO
Step 1 and 2
Materials/Units transferred
% complete
units
Conversion
% complete
units
Opening inventory completed
Started
Total Completed and transferred
Normal loss 5% x 108,000 units
Abnormal loss (calculated)
Closing inventory(given)
100%
100%
100%
100%
100%
40%
40%
50%
Less opening inventroy
100%
60%
Step 3
Current year production costs
Opening balance
Total costs
Transferred in
Materials
Conversion
Equivalent units
Cost per equivalent unit
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MANAGEMENT ACCOUNTING 1 MNA33M1
PROCESS COSTING
LE 2 Suggested solution WAV
Step 1 and 2
Materials/Units transferred
% complete
units
Conversion
% complete
units
Opening inventory completed
Started
Total Completed and transferred
Normal loss 5% x 108,000 units
Abnormal loss (calculated)
Closing inventory(given)
100%
100%
100%
100%
100%
40%
40%
50%
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MANAGEMENT ACCOUNTING 1 MNA33M1
PROCESS COSTING
Product costing for external reporting purposes
Measurement of Inventories IAS 2
Cost should include all: [IAS 2.10]
 costs of purchase (including taxes, transport, and handling) net of trade discounts
received
 costs of conversion (including fixed and variable manufacturing overheads) and
 other costs incurred in bringing the inventories to their present location and
condition
IAS 23 Borrowing Costs identifies some limited circumstances where borrowing
costs (interest) can be included in cost of inventories that meet the definition of a
qualifying asset. [IAS 2.17 and IAS 23.4]
Inventory cost should not include: [IAS 2.16 and 2.18]
 abnormal waste
 storage costs
 administrative overheads unrelated to production
 selling costs
 foreign exchange differences arising directly on the recent acquisition of
inventories invoiced in a foreign currency
 interest cost when inventories are purchased with deferred settlement terms.
The standard cost and retail methods may be used for the measurement of cost,
provided that the results approximate actual cost. [IAS 2.21-22]
The interpretation of this standard is that all upstream and downstream costs are
expensed in the period in which they are incurred. Therefore the costs that will be
included in the product cost will be the following:
 Cost of purchasing: RAW MATERIALS
 Cost of conversion: LABOUR
VARIABLE MANUFACTURING OVERHEADS
FIXED MANUFACTURING OVERHEADS
Labour and raw materials are direct costs. Variable and fixed overheads are indirect
costs.
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MANAGEMENT ACCOUNTING 1 MNA33M1
PROCESS COSTING
Accounting
Flow of costs
Raw materials
Work in process
Finished goods
Process
INPUTS
PROCESS
OUTPUT
Inputs/Costs
Materials
Labour
Overheads
Raw materials: All primary materials obtained to be used in the manufacturing
process.
Work in progress: Primary material which has already entered the manufacturing
process but is not yet complete.
Finished goods: the output of the manufacturing process. It is the finished product.
Inventory: Includes all material, primary and secondary, work in progress and
finished goods.
Flow of costs through the accounting system
-
-
As raw materials are purchased the cost of the materials are recorded in the
raw materials account (asset).
As production takes place, raw materials are used and the cost of the raw
materials used is recorded in the Work In Process (WIP) account (asset).
Other production costs, such a labour and overheads, are also recorded in
this account.
When products are completed the cost of the completed product is removed
from the WIP account and recorded in the Finished Goods account (asset).
Finally when goods are sold, the cost of the sold goods are removed from
finished goods and recorded as an expense in the profit statement.
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MANAGEMENT ACCOUNTING 1 MNA33M1
PROCESS COSTING
Production report – Cost reconciliation
Use the information from Lecture example 2 FIFO to complete the production
report:
Reconciliation of Costs
Opening Inventory
Balance b/f
Completed in current period
- conversion costs
R
Cost of Opening inventory completed and transferred to FG
Started and Completed
Good Units
Normal Losses
- transferred in
- materials
- conversion costs
Cost of Units Completed
Abnormal Losses: Period Cost in Income Statement
- transferred in
- materials
- conversion costs
Closing Inventory
- transferred in
- materials
- conversion costs
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MANAGEMENT ACCOUNTING 1 MNA33M1
PROCESS COSTING
Use the information from Lecture example 2 WAV to complete the production
report:
Reconciliation of Costs
R
Units Completed
Good Units
Normal Losses
- transferred in
- materials
- conversion costs
Cost of Units Completed
Abnormal Losses: Period Cost in Income Statement
- transferred in
- materials
- conversion costs
Closing Inventory
- transferred in
- materials
- conversion costs
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MANAGEMENT ACCOUNTING 1 MNA33M1
PROCESS COSTING
Sequential departments – Self study
Units transferred in
These are units that was started or worked on in another department and transferred
into the current department. The units are partially complete and needs to go through
more production processes.
References:
-
Drury, C. Management and cost accounting, 7th ed, South Western, ch 3, 4
and 5.
Correia et al, Management accounting, SA ed, McGraw-Hill, ch 4 and 5
Niemand et al, Fundamentals of cost and management accounting, 5 th ed,
LexisNexis, ch 2 – 6.
Seal W et all, Management accounting, 3rd ed, McGraw-Hill, ch 3 and 4.
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MANAGEMENT ACCOUNTING 1 MNA33M1
PROCESS COSTING
PROBLEM 5.38 (40 minutes) Partial production report; journal entries; FIFO method:
manufacturer
1.
Physical
units
25 000
30 000
55 000
Work in process, May 1
Units started during May
Total units to account for
Units completed and
transferred out during May
Work in process, May 31
Total units accounted for
Total equivalent units
Less: equivalent units
represented in May 1 work in
process
New equivalent units
accomplished in May only
35 000
20 000
55 000
Percentage
of
completion
with respect
to
conversion
40%
Equivalent units
Direct
material
Conversio
n
35 000
20 000
______
55 000
35 000
16 000
______
51 000
25 000
10 000
30 000
41 000
Conversion
R2 009 000
41 000
R49.00
Total
100%
80%
2.
Direct material
R165 000
30 000
R5.50
Costs incurred during May
Equivalent units
Costs per equivalent unit
* R54.50 = R5.50 + R49.00
3.
R54.50*
Cost of goods completed and transferred out during May:
Cost of May 1 work in process inventory, which is transferred out first
R617 700
Cost incurred to finish the May 1 work in process inventory:
 cost per 
 number 
 percentage of 


equivalent 





 of    conversion    unit of 






 units 
 remaining 
 conversion
25 000  .60  R49
735 000
Costs incurred to produce units that were both started and completed during May:
 number 
 total cost per




of



 equivalent 




unit
 units 


Total
cost
R1 897 700
of
10 000*  R54.50
goods
completed
and
545 000
transferred
out
* Units started and completed during May: 35 000 units completed and transferred out
minus 25 000 units in the May 1 work in process inventory.
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MANAGEMENT ACCOUNTING 1 MNA33M1
PROCESS COSTING
PROBLEM 5.38 (continued)
4.
Cost remaining in May 31 work in process inventory:
Direct material:
 number of 
 direct mat erial 




 equivalent    cost per 
 units of 
 equivalent 




unit
 direct mat erial 


20 000  R5.50
R110 000
Conversion:
 number of 
 conversion cost


 equivalent    per equivalent 


 units of 




unit


 conversion
16 000  R49.00
Total cost of May 31 work in process inventory
Check:
784 000
R894 000
Cost of goods completed and transferred out
Cost of May 31 work in process inventory
R1 897 700
Total costs accounted for
R2 791 700
894 000
5.
Journal entry:
Finished goods inventory
Work in process inventory
6.
1 897 700
1 897 700
There would be two key differences under the weighted average method.
First, the calculation of equivalent units of activity would be different. For both direct
material and conversion, the total equivalent units row in the schedule would be used.
The equivalent units of activity in the beginning work in process inventory would not
be subtracted in calculating these amounts.
Second, the costs incurred in May would be added to the cost associated with the
beginning work in process inventory to obtain a total cost. This amount would then be
divided by the equivalent units to obtain the cost per equivalent unit.
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MANAGEMENT ACCOUNTING 1 MNA33M1
PROCESS COSTING
PROBLEM 5.52 (30 minutes) Transferred-in costs; weighted average method
(appendix): manufacturer
1.
(a)
(b)
Cost of units completed and transferred to finished goods inventory during
May:
Units completed and transferred out
5 950
Total cost per equivalent unit
 R16.00
Cost of units completed and transferred out
R95 200
To calculate the cost of the Finishing Department work in process inventory on
May 31, first determine the number of units in ending work in process
inventory, as follows:
Work in process inventory, May 1
700 units
Add: Units transferred in
7 000 units
Units to account for
7 700 units
Subtract: Units transferred to finish goods
5 950 units
Total
1 750 units
Then calculate the transferred-in costs, direct material cost, and
conversion cost in the May 31 work in process inventory:
Input
Transferred in
Direct material
Conversion
Equivalent
units
1 750 
1 750 
1 750  
30%
Cost per
equivalent
unit
R6.00 =
R3.00 =
R7.00 =
Total cost of May 31
work in process
inventory
2.
Cost
R10
500
5 250
3 675
R19
425
Equivalent units of transferred-in costs
Transferred-in cost per equivalent unit
Total transferred-in cost
Transferred-in cost in May 1 work in process inventory
Total cost transferred in from the Assembly Department
7 700
 R6.00
R46 200
14 500
R31 700
Journal entry to record transfer:
Work in process inventory: Finishing Department
Work in process inventory: Assembly
Department
31 700
31 700
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MANAGEMENT ACCOUNTING 1 MNA33M1
PC01 Seen
PROCESS COSTING
(25 Marks; 30 Minutes)
Proc Ltd had 2 500 units in opening inventory (1 July 2011). These units were 25%
complete as to material costs, and 80% complete as to conversion costs. The June
2011 cost per equivalent unit was R19.50 (R8 materials cost, and R11.50 conversion
cost).
The total cost per equivalent unit for July (FIFO Basis) is R20.00 (split R9.00 &
R11.00, between materials and conversion costs respectively).
The following unit information is available for July 2011:
Units
Work in process opening inventory for July
(Materials 25% complete; Conversion costs 80% complete)
Started during July
Transferred from WIP to Finished Goods during July
Normal spoilage
Abnormal spoilage
(units 100% complete in every respect)
Work in Process ending inventory
(Materials 60% complete; Conversion costs 60% complete)
Units in Finished Goods opening inventory for July
Units sold during July
2 500
10 100
10 500
0
100
2 000
0
9 000
The company uses a FIFO inventory system to record inventory movement for
accounting purposes.
Required:
Draft and complete the following T-Accounts, as far as possible, given the
information provide:
a) Work in Process (WIP)
b) Finished Goods
c) Cost of Sales
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MANAGEMENT ACCOUNTING 1 MNA33M1
PROCESS COSTING
PC01 Suggested solution
Opening Bal
Materials
Conversion Costs
w1
w8
w9
28 000
100 575
107 800
WIP
3.0 COGM
3.5 COS
w7
c/f
210 375
2 000
0.5
w6
24 000
236 375
1.5
c/f
180 375
0.5
w5
30 000
1.5
3.5
Closing balance
236 375
Opening Balance
COGM
w7
(also balancing figure)
210 375
0.5
FG
0.5 COS
1.5
Closing balance
COS
WIP (abnormal losses) w2
FG (units in open inv sold)
w3
FG (units started & sold)w4
2 000
50 375
130 000
1.5
3.5
1.5
18.5
4.5
Format
2
25.0
25 max
Workings
w1 = 2500*0.25*8+2500*0.80*11.5
w2 =100*20
w3 =2 500x75%x9 + 2500x20%x11 + 28 000
w4 = (9000-2500)*20
w5 = (10 500 - 9 000) x R20
w6 = 2 000 x 60% x 9 + 2 000 x 60% x 11
w7 =2500*75%*9 + 2500*20%*11+28 000 + (10500-2500)*20
w8 = (2500*0.75+100+8000+2000*0.6)*9
w9 = (2500*0.2+100+8000+2000*0.6)*11
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MANAGEMENT ACCOUNTING 1 MNA33M1
PROCESS COSTING
MNA3301 Management Accounting 1
Submission Tutorial 2
PC02 – Unseen
(35 Marks: 42 Minutes)
Happy Toddler (Pty) Ltd manufactures and sells baby diapers (disposable nappies)
in two processes from their factory in Southernwood near Mthatha. The process
starts at the Foaming division where raw materials are transformed into foam. Foam
is then transferred to the Finishing division, where it is mixed with super absorbent (a
material) to form a pad. The pad is covered with cloth-like material in front, and nonwoven material at the back. Thereafter, it is cut into individual diaper pieces.
The Foaming process yields a consistent quantity of foam and there are no losses in
this division. At the Finishing division, super absorbent is introduced at the beginning
of the process and cloth-like and non-woven materials are added at the 60%
completion point. At this point, just before the cloth-like and non-woven materials are
added, a stringent test is performed to ensure that the pads are absorbing to the
acceptable levels. Past experience has shown that a normal loss of 5% of the input
is expected and is acceptable. Conversion costs are incurred evenly over the
conversion process.
Jump Class, the management accountant, had missed process costing classes and
has requested your assistance. Jump has provided you with the following general
ledger and the production schedule for the Finishing division. The general ledger is
incomplete at this stage but you have no reason to doubt the accuracy of the
information.
Work in progress : Finishing department
Feb Balance b/d
Transferred in
53 000
Material (absorbent)
76 000
Transferred in costs
617 000
Materials (absorbent)
1 124 000
Materials (cloth & non-woven) 330 000
Conversion
735 000
Production schedule for the Finishing division:
Production
Opening work in progress (80% complete)
Transfers from Foaming
Completed output to Finished goods
Closing work in progress (30% complete)
Units #
93 000
1 860 000
1 750 000
70 000
# With regards to inputs, this means the input is expected to produce the stated
number of units.
Happy Toddler uses the Weighted Average method of accounting for inventory.
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MANAGEMENT ACCOUNTING 1 MNA33M1
PROCESS COSTING
You are required to:
1. Calculate the unit cost of goods transferred to finished goods inventory for the
year ended 31 March 2014.
(24 Marks)
2. Prepare the general journal entry/ies to close off the abnormal loss, if any.
(4 Marks)
3. Briefly explain why you have chosen to close off the abnormal loss to the account
you closed it to in question number 2 above.
(3 Marks)
4. Prepare the completed Work in progress account in the general ledger based on
the information provided above and your solutions of the questions above.
(4 Marks)
Adapted MNA3301 Test 1
Your submission must be complete in order to be granted a submission credit
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