ACCG2000 WEEK 5 Homework Questions PDF

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ACCG2000 WEEK 5 HOMEWORK QUESTIONS Discussions 1. “Both a job costing system and a process costing system enable the calculation of the unit cost of a product. However, process costing provides a more accurate unit cost.” Do you agree? Discuss. Process costing may provide a more accurate unit cost due to the calculation of equivalent units. Both a job costing system and a process costing system enable the calculation of the unit costs of a product. Under a job costing system, product-related costs are accumulated and assigned to final products using a series of procedures. Under process costing, it is harder to directly assign costs to individual products, however, we are able to assign costs based on processes. This results in an average of costs across all units that are produced. Unit costs under process costing are harder to identify as we have to take into account the opening balances of RM, WIP and then have to determine the level of equivalent units. However, because we identify equivalent units under process costing, it may be fair to say that process costing provides a more accurate unit cost than product costing. 2. “It is difficult to understand how costs can be assigned to equivalent units when such units do not really exist in a physical form.” Discuss. The concept of equivalent units allows us to estimate the unit cost of completed production. Process costing systems accumulate the cost of each process then average these costs across all units produced. Because the process is continuous, at the end of the accounting period we may have a number of units in process that have not been completed yet. The total output of the process would therefore include these costs with the finished products as part of process costing. While equivalent units do not really exist in a physical form, the calculation of equivalent units allows us to estimate the unit costs based on the completed production process. Exercises 1. Adelong Ltd is calculating equivalent units for conversion costs. Determine equivalent costs using the weighted average method. Units completed during the month

Ending Work in Progress

Weighted average equivalent costs of units

Units

% complete

1) 12,000

0

-

a) 12,000

2) 50,000

6,000

40%

b) 52,400

3) 36,000

5,000

20%

c) 37,000

4) 15,000

0

20%

d) 15,000

Problems 1. Kleen Ltd produces a liquid cleaner for floors. At the beginning of October, 40,000 litres of liquid cleaner were in process. 100% complete as to raw material and 60% complete as to conversion costs. During the month, the company started 420,000 litres of liquid cleaner in production. At the end of the month, 50,000 litres of liquid cleaner were in work in process inventory, 100% completed as to raw materials and 40% completed in terms of conversion costs. Assume that following costs were recorded by Kleen Ltd for the beginning work in process and the production performance for October: Beginning inventory: Raw materials costs $ 22,000 Conversion costs 16,800 October production costs: Raw materials costs 231,000 Conversion costs 284,200 a) Prepare a schedule analysing the physical flow of units and calculating the equivalent units of both direct material and conversion for October. Use weighted average process costing.

Physical units

Percentage of completion with respect to conversion

Beginning WIP Inventory, 1st October

40,000

60%

Units started in October

420,000

Total units to account for

460,000

Units completed and transferred out during October

410,000

WIP Inventory, 31 October 50,000 Total units accounted for Total equivalent units

Equivalent units Direct material

Conversion

100%

410,000

410,000

40%

50,000

20,000

460,000

430,000

460,000

b) Calculate the unit cost for each litre of liquid cleaner Direct material

Conversion

Total

WIP, 1st October

$22,000

$16,800

$38,800

Costs incurred in October

$231,000

$284,200

$515,200

Total costs to account for

$253,000

$301,000

$554,000

Equivalent units

460,000

430,000

Cost per equivalent unit

$0.55

$0.70

^

^

253000 460000

301000 430000

$1.25 ^

$ 0.55+ $ 0.70

c) Determine the total costs of the litres of liquid cleaner finished during October. What is the balance of the ending work in process inventory?

Total Costs of goods completed and transferred out during October

410,000∗$ 1.25

$512,500

Costs remaining in WIP: Direct material

50,000∗$ 0.55

$27,500

Conversion

20,000∗$ 0.70

$14,000

Total costs of 31st October WIP

$41,500

Check: Costs of goods completed and transferred out

$512,500

Costs of 31st October WIP

$41,500

Total costs accounted for

$554,000

2. Cheese Please Ltd produces cheese topping for the fast pizza industry. At the beginning of April 60,000 kilograms of cheese topping was in process, 100% complete as to raw materials and 50% complete as to conversion costs. During the month, the company started 300,000 kilograms of cheese topping in production. At the end of the month, 40,000 kilograms of cheese topping was in work in process inventory, 100% completed as raw materials and 40% completed in terms of conversion costs. Assume that the following costs were recorded by Cheese Please Ltd for the beginning work in process and the production performance for April: Beginning inventory: Raw materials costs $ 60,000 Conversion costs 36,000 October production costs: Raw materials costs 300,000 Conversion costs 284,200

a) Prepare a schedule analysing the physical flow of units and calculating the equivalent units of both direct material and conversion for April. Use weighted average process costing.

Physical units

Percentage of completion with respect to conversion

Beginning WIP Inventory, 1st April

60,000

50%

Units started in April

300,000

Total units to account for

360,000

Units completed and transferred out during April

320,000

WIP Inventory, 30th April

40,000

Total units accounted for

360,000

Total equivalent units

Equivalent units Direct material

Conversion

100%

320,000

320,000

40%

40,000

16,000

360,000

336,000

b) Calculate the unit cost for each kilogram of cheese topping.

Direct material

Conversion

Total

WIP, 1st April

$60,000

$36,000

$96,000

Costs incurred in April

$300,000

$284,200

$584,200

Total costs to account for

$360,000

$320,200

$680,200

Equivalent units

360,000

336,000

Cost per equivalent unit

$1.00

$0.95

$1.95

^

^

^

360000 360000

320200 336000

$ 1.00+ $ 0.95

c) Determine the total costs of the kilogram of cheese topping finished during April. What is the balance of the ending work in process inventory?

Total Costs of goods completed and transferred out during October

320,000∗$ 1.95

$624,000

Costs remaining in WIP: Direct material

40,000∗$ 1.00

$40,000

Conversion

16,000∗$ 0.95

$15,200

Total costs of 30th April WIP

$55,200

Check: Costs of goods completed and transferred out

$624,000

Costs of 30th April WIP

$55,200

Total costs accounted for

$679,200*

*$1000 lost to rounding errors...