Topic: Process Costing

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  • 20 Marks

MI – May 2015 – L1 – SB – Q2 – Costing Methods

Prepare process accounts, normal loss account, and abnormal gain account for Maputo Nigeria Limited for Process 2 and Process 3.

MAPUTO NIGERIA LIMITED manufactures its product through three processes. The following data relates to Process 2 and Process 3 for the month of October:

  • 100,000 units at N10 each were transferred from Process 1 to Process 2.
Cost Components Process 2 (N) Process 3 (N)
Direct Materials 100,000 114,000
Direct Labour 135,000 100,000
Variable Expenses 30,000 53,500
Production Overhead 250,000 200,000
  • Normal output: 90% for Process 2 and 80% for Process 3
  • Actual output: 85,000 units for Process 2 and 70,000 units for Process 3
  • Scrap value of loss: N3 per unit for Process 2 and N2 per unit for Process 3

Required:
a. Prepare Process 2 and Process 3 accounts (16 Marks)
b. Prepare the Normal Loss account (2 Marks)
c. Prepare the Abnormal Gain account (2 Marks)

MAPUTO NIGERIA LIMTED
PROCESS 2 ACCOUNTS

a

i)

PROCESS 3 ACCOUNTS

ii)

b) NORMAL LOSS ACCOUNT

 

c) ABNORMAL LOSS ACCOUNT

ABNORMAL GAIN ACCOUNT

 

 

 

  • 20 Marks

IMAC – July 2023 – L1 – Q1 – Cost-Volume-Profit (CVP) Analysis | Process Costing

Prepare the Process Account for Omicron vaccine production and calculate the break-even point and required units to achieve target profit before and after tax

a) Adom Ltd manufactures Omicron vaccine for the treatment of COVID-19 in Africa. The manufacturing process uses two raw materials (M & W) which are mixed in the proportions (2:3). Materials are priced: M = GH¢10 per kg and W = GH¢3.2 per kg. Normal weight loss of 5% of material input is expected during the process, and material losses recorded in the manufacturing process have no saleable value. At the end of production, 18,260 kg of Omicron vaccine were manufactured from 19,320 kg of raw materials. Conversion costs in the period were GH¢57,316. There was no work in process at the beginning or end of the period.

Required:
Prepare the Process Account of the Omicron vaccine for the period. (10 marks)

b) Manna Industries sold 150,000 units of its product at GH¢20 per unit. Variable costs are GH¢15 per unit (manufacturing cost of GH¢12 and selling expenses of GH¢3). Fixed costs are incurred uniformly throughout the year and amount to GH¢972,000, that is, manufacturing costs of GH¢600,000 and selling expenses of GH¢372,000.

Required:
i) Calculate the break-even point in units and Ghana cedis. (4 marks)
ii) Calculate the number of units that must be sold to earn an income of GH¢75,000 before income tax. (2 marks)
iii) Calculate the number of units that must be sold to earn an after-tax profit of GH¢100,000 if the income tax rate is 40%. (4 marks)

 

  • 20 Marks

IMAC – April 2022 – L1 – Q3 – Cost Segregation and Estimation | Process Costing

Determination of prime and full costs of living room furniture and features of a process costing system.

a) Frankadua Furniture Works located at Bomaa in the Ahafo Region has a rough estimate of the materials and labour cost of a set of living room furniture. It is expected that 8 cubic metres of timber, 6 cubic metres of foam and 12 square metres of fabric can be used. Glue, screws and other accessories will also cost GH¢80.

The Carpenters who will do the cutting, joining and finishing will use 35 hours. Since the company is fairly new, it will engage a tailor to sew the fabric to fit the sizes of the units of the chairs. For each set the tailor will charge GH¢150. Labour is paid at GH¢12 per hour plus a premium of GH¢5 per hour when the job requires more than 20 hours.

Timber is priced at GH¢25 per cubic metre, foam is GH¢20 per cubic metre while the fabric is GH¢15 per square metre. The Accountant has estimated overhead absorption rate of 20% on direct material cost.

Required:
i) Determine the prime cost of a set of living room furniture. (10 marks)
ii) Determine the full cost of a set of living room furniture. (5 marks)

b) Kempion Breweries Ltd has just commenced business in the alcoholic beverage sector of Ghana producing a local gin called Pitoo and is desirous of having a good grasp of its costs for product costing, valuation and pricing purposes.

Required:
State FOUR (4) features of a process costing system to be used by Kempion Breweries to arrive at the total cost of Pitoo. (5 marks)

a) i) Prime cost of the set of furniture:

Description Calculation GH¢
Timber 8 cubic metres x GH¢25/m³ 200
Foam 6 cubic metres x GH¢20/m³ 120
Fabric 12 square metres x GH¢15/m² 180
Glue, screws, accessories 80
Direct labour 35 hours x GH¢12/hour + (15 hours x GH¢5/hour premium) 420
Direct expenses Tailor charges 150
Total Prime Cost 1,150

(10 marks)

ii) Full cost:

Description Calculation GH¢
Prime cost From above 1,150
Overhead 20% of direct material cost (GH¢500) 100
Total Full Cost 1,250

(5 marks)

b) Features of a process costing system:

  1. Products are produced in mass quantities.
  2. Production is done in a sequential manner such that the output of one process becomes the input for a subsequent process.
  3. Product costs per unit are obtained through averaging.
  4. There are usually losses associated with process costing in the form of normal and sometimes abnormal losses.
  5. There is usually work-in-progress (WIP) in process costing that requires valuation.
  6. Valuing equivalent units of partly finished units may arise.
  7. Valuing joint and by-products may also arise in process costing. (Any 4 points @ 1.25 marks each = 5 marks)

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