Process Costing – Problems & Solutions Problem no 1: Meghna Company began 1993 with 3000 units in wprk-in-process. These units were 60% complete. complete. Costs attached to these units were tk. 29500 for materials, materials, tk. 36000 for labor and tk. 14400 for overhead. During 1993, work was begun on an additional 18000 units. The firm ended the year with 5000 units, 20% complete. The costs incurred during the period were tk. 180500 for materials, tk. 184500 for labor and tk. 130590 for overhead. Units are inspected when they are 80% complete. Rejected units are returned to the point where units are 35% complete for rework. Management considers 10% of the number of good units completed in a year to be normal to be normal number of units reworked. During the year 2000 units were reworked. Materials are added at the beginning of the process, direct labor is added when the units are 50% complete and overhead costs are incurred uniformly. The company uses the weighted average process costing. Determine Determine the cost of goods completed, completed, the cost of ending work in process, process, and the loss from abnormal rework. Problem no 2: S. L. Company uses Weighted Average Process costing method. Materials are added at the beginning of the period, labor is added when the products are 50% complete, and overhead overhead is incurr incurred ed unifor uniforml mly. y. The firm firm start started ed the period period with with 3000 units, units, 25% complete. Work was begun on another additional 35000 units. The firm ended the period with 7000 units, 80% complete. When the units are 60% complete, they are inspected for rework. Rejected units are returned for rework to 40% level of completion. Normal rework is considered 1% of the units surviving the inspection. During the period 39000 units were inspected for rework. Units are again inspected when they are 90% complete. Rejected units are thrown out as spoiled and 1% of the units that survive the inspection is treated as normal spoilage. During the period, 500 units were rejected as spoiled. The costs costs attache attached d to beginn beginning ing inventory inventory were were tk. 15000 for materia materiall and tk. 3500 for overhead. Current period costs were tk. 178800 for material, tk. 228150 for labor and tk. 116100 for overhead. Compute Compute the costs costs of goods goods comple completed ted,, cost cost of ending ending invent inventory ory,, cost cost of abnorm abnormal al rework and abnormal spoilage. Problem no 3: Silver Line Company uses Weighted Average method of process costing for its product. The company puts raw material into the process when the product is 50% complete. Labor and overhead costs incurred uniformly. The company started the period with 6000 units, units, 30% complete. complete. During During the period period another another 70000 units were put into production production in the process. The period ended with 14000 units, units, 75% complete. complete. When the units are 60% complete, they are inspected for rework. Rejected units are returned to 40% level for rework. rework. Normal rework rework is considered considered 1% of good units passing passing the inspection inspection point. During the period 78000 units were inspected for rework. Units are again inspected when they are 90% complete. Rejected units are thrown out as spoiled. But only 1% of the units that survive the inspection is treated as normal spoilage. During the year 1000 units were rejected as spoiled. The costs attached to beginning WIP inventory were tk. 30000 for labor and tk. 7000 for overhead. Current period costs were tk. 360000 for material; tk. 525000 for labor and tk. 230000 for overhead.
Calculate the costs of goods completed, cost of ending inventory, cost of abnormal rework and abnormal spoilage. Problem no 4: Del Co. Ltd. began the current period with 1000 units, which were 60% complete. During the period, works on additional 50000 units were started. Materials are added at the start of the process while labor is added when units are 40% complete. Overhead costs are incurred uniformly. Units are inspected for rework when they are 50% complete. Rejected units are returned to 20% complete point for rework. Normal rework is 3% of the units inspected. Units are again inspected when they are 70% complete. Rejected units are thrown away as spoiled. Normal spoilage is 1% of the units inspected. There were 52000 units inspected for rework and 800 units were rejected as spoilage. Ending work in process consists of 6000 units, 80% complete. Costs attached to opening inventory were tk. 45000 for material, tk. 21000 for labor and tk. 50000 for overheads; Current costs were material tk. 225000, labor tk. 106100 and tk. 421680 for overhead. Using weighted average method, find out – i) Cost of goods completed ii) Cost of ending work in process iii) Cost of abnormal rework and iv) Cost of abnormal spoilage. Solution: (problem 4) Statement of production and Equivalent Units of production
Element of production Inputs Opening WIP Introduced during the period Units accounts for Outputs Finished Goods Ending WIP Normal Spoilage Abnormal Spoilage Normal Rework Abnormal Rework Equivalent Units
Physical Units
Material Units %
Equivalent Units Labor Overhead Units % Units %
1000 50000 51000 44200 6000 510 290 51000
44200 6000 510 290 51000
100 100 100 100 -
44200 6000 510 290 1560 440 53000
100 100 100 100 100 100
44200 4800 357 203 468 132 50160
100 80 70 70 30 30
Statement of costs and costs per equivalent unit Elements of costs Total Material Labor Costs transferred in: Opening inventory of WIP 116000 45000 21000 Current years costs 752680 225000 106100 868680 270000 121100 Total Costs
Equivalent units Cost per equivalent units
51 000 5.29
53 000 2.40
Statement showing the evaluation of different elements of production: Category Costs Shifted Ratio to Cost of Normal L: 1560*2.40 = 3744 FG 44200/51000 Rework O: 468*9.40 = 4399 WIP 6000/51000 Total 8143 NS 510/51000 AS 290/51000 Cost of Abnormal L: 440*2.40 = 1056 Rework O: 132*9.40 = 1241 Total 2297 Cost of Normal M: 510*5.29 = 2698 FG 44200/50200 Spoilage L: 510*2.40 = 1224 WIP 6000/50200 O: 357*9.40 = 3356 Share of NR = 83 Total 7361 Cost of Abnormal M: 290*5.29 = 1534 Spoilage L: 290*2.40 = 696 O: 203*9.40 = 1908 Share of NR = 47 Total 4185 Cost of ending M: 6000*5.29 = 31740 WIP L: 6000*2.40 = 14400 O: 4800*9.40 = 45120 Share of NR = 957 Share of NS = 878 Total 93095 Cost of Finished M: 44200*5.29 = 233818 Goods L: 44200*2.40 = 106080 O: 44200*9.40 = 415480 Share of NR = 7056 Share of NS = 6482 Total = 768916
Overhead 50000 421680 471680 50 160 9.40
Amount 7056 957 83 47
6482 878
Elements of costs
Units
WIP, beginning Material Labor Overhead
1000
Introduced during the year
Process Account Costs Elements of Production
45 000 21 000 50 000
Abnormal Rework Abnormal Spoilage Normal Spoilage Finished Goods Balance c/d (WIP, ending)
Units
290 510 4420 0 6000
Costs 2 297 4 186 7 68 916 93 096
5000 0
Material Labor Overhead 5100 0
2 25 000 1 06 100 4 21 680 8 68 780
5100 0
8 68 780
