Master of Business Administration
Strategic Cost & Management Accounting
Exercise: Chapter-3
Problem-A: K/9 Plus Dog Treats has two departments, Mixing and Packaging. The Packaging
Department started in December with work in process inventory of 20,000 pounds (a 1-pound bag is a
unit of production). The units had $12,000 of transferred-in costs but no costs from Packaging.
During December, Packaging received 100,000 more pounds from Mixing and additional transferred-
in cost of $54,000. Packaging also incurred $17,250 of material cost, $13,800 of labor, and $8,050 of
overhead during the month of December.
At the end of December, Packaging had work in process inventory of 5,000 pounds. These units were
zero percent complete with respect to material, labor, and overhead in Packaging (they had just been
received from Mixing and had not been worked on by that department).
Required
Prepare a production cost report for Packaging for the month of December.
Solution:
Problem-B: Little Gardener Company produces an environmentally safe general-purpose plant food
that can be used on flower beds and in vegetable gardens. The company operates two departments,
Mixing and Packaging. Liquid plant food is prepared in the Mixing Department and packaged in1-
gallon containers in the Packaging Department. Material is added at the start of each process,and labor
and overhead are added evenly throughout the processes. All units are completed eachmonth in
Packaging. Therefore, there is no ending Work in Process in this department.
The following information is related to production in February:
Required
Prepare production cost reports for Mixing and Packaging for the month of February.
Problem-C: An oil company gives the following cost data. You are requested to prepare various process
accounts. Purchases: 1,000 quintals of mustard seeds @ Tk.500 per quintal.
Crushing (Tk.) Refining (Tk.) Finishing (Tk.)
Cost of labor 6,600 3,000 3,000
Power 1,000 500 400
Sundry materials 700 200 -----
Repair of plant & machinery 500 400 400
Steam 250 150 100
Cost of barrels 580
Other factory expense Tk.9,450 to be charged at 75% of wages. Normal loss in 1st process was 30% of input,
actual output 690 quintals.
2nd process, By-product 90 quintals value Tk.6,200.
3rd process, Normal loss 5% actual output 580 quintals.
Scrap of 1st process realized Tk.10 per quintals
Solution:
Crushing Process Account
Particulars Quantity Amount Particulars Quantity Amount
Tk. Tk.
To Mustard seed used 1,000 500,000 By Normal loss
Cost of labor 6,600 (30 % of 1,000) 300 3,000
Power 1,000 Abnormal loss 10 7,300
Sundry materials 700 Oil transferred to next
Repair of plant & process(@ Tk.730 per quintal) 690 503,700
machine 500
Steam 250
Other factory exps.(75 % 4,950
of wages)
1,000 Tk.5,14,00 1,000 Tk.5,14,000
0
Refining Process Account
Particulars Quantity Amount Particulars Quantity Amount
Tk. Tk.
To Transfer from By By-products 90 6,200
crushing process 690 503,700 Refined Oil transferred to
Cost of labor 3,000 next process(@ Tk.840 per 600 504,000
Power 500 quintal)
Sundry materials 200
Repair of plant &
machine 400
Steam 150
Other factory exps.(75 % of
wages) 2,250
690 Tk.5,10,200 690 Tk.5,10,200
Finishing Process Account
Particulars Quantity Amount Particulars Quantity Amount
Tk. Tk.
To Transfer from refining By Normal loss 30 -----
process 600 5,04,000 transfer to finished stock
Cost of labor 3,000 (@ Tk.895 per quintal) 580 5,19,100
Power 400
Repair of plant &
machine 400
Steam 100
Other factory exps. (75 %
of wages) 2,250
Abnormal gain 10 8,950
610 Tk.5,19,100 610 Tk.5,19,100
Finished Stock Account
Particulars Quantity Amount Particulars Quantity Amount
Tk. Tk.
To Finishing process 580 5,19,100 By Balance
Cost of barrels 580 (@ Tk.896 per quintal) 580 5,19,680
580 Tk.5,19,68 580 Tk.5,19,680
0
Working Note:
(5 , 14,000−3,000)
1. Cost of abnormal loss in Crushing Process= x 10=tk .7,300
(1,000−300)
2. There is no wastage in Refining Process.
3. In the finishing process, the input is 600 quintal and normal loss is 5%, i.e 30 quintal, therefore normal
production should be 570 quintals. But actual production is 580 quintals. Hence there is abnormal gain
of 10 quintals to be valued at normal cost per quintal.
5 ,10,150
= x 10=tk .8,950
570
PROBLEM 4–15 Production report —Weighted-Average Method
Honeybutter, Inc., manufactures a product that goes through two departments prior to
completion—
the Mixing Department followed by the Packaging Department. The following information
is available about work in the first department, the Mixing Department, during June.
Required:
Prepare a production report for the mixing department for June assuming that the company uses
the weighted average method.
PROBLEM 4–16 Basic Production Report —FIFO Method
Refer to the data for the Mixing Department in Honeybutter, Inc., in Problem 4–15. Assume that
the company uses the FIFO method rather than the weighted-average method in its process
costing
system.
Required:
Prepare a production report for the mixing department for June.
EXERCISE 4–9 Equivalent Units and Cost per Equivalent Unit—Weighted-
Average Method [
Helix Corporation produces prefabricated flooring in a series of steps carried out in productiondepartments. All
of the material that is used in the first production department is added at thebeginning of processing in that
department. Data for May for the first production departmentfollow:
Required:
1. Assume that the company uses the weighted-average method of accounting for units and costs.
Determine the equivalent units for May for the first process.
2. Compute the costs per equivalent unit for May for the first process.
3. Determine the total cost of ending work in process inventory and the total cost of units transferred
to the next process in May.
EXERCISE 4–10 Comprehensive Exercise; Second Production Department—
Weighted-AverageMethod
Scribners Corporation produces fi ne papers in three production departments—Pulping, Drying,and Finishing.
In the Pulping Department, raw materials such as wood fiber and rag cotton aremechanically and chemically
treated to separate their fibers. The result is a thick slurry of fibers. In the Drying Department, the wet fibers
transferred from the Pulping Department arelaid down on porous webs, pressed to remove excess liquid, and
dried in ovens. In the FinishingDepartment, the dried paper is coated, cut, and spooled onto reels. The company
uses theweighted-average method in its process costing system. Data for March for the Drying Department
follow:
No materials are added in the Drying Department. Pulping cost represents the costs of the wet
fibers transferred in from the Pulping Department. Wet fiber is processed in the Drying Department
in batches; each unit in the above table is a batch and one batch of wet fibers produces a set amount
of dried paper that is passed on to the Finishing Department.
Required:
1. Determine the equivalent units for March for pulping and conversion.
2. Compute the costs per equivalent unit for March for pulping and conversion.
3. Determine the total cost of ending work in process inventory and the total cost of units transferredto the
Finishing Department in March.
4. Prepare a cost reconciliation report for the Drying Department for March.
