A liquid detergent manufacturing company produces one of its detergent product using two processes, the Chemical Mixing Process, and the Colouring Process. The detergent product is manufactured beginning with the Chemical Mixing Process, and ends with the Colouring Process. Information relating to the Colouring Process for a certain month is as follows: Opening inventory 7,000 litres: Degree of completion Cost (RM) Chemical Mixing Process materials 100% 45,000 Added materials 40% 5,000 Conversion costs 30% 15,000 65,000 During the month, 40,000 litres were transferred from the Chemical Mixing Process at a valuation of RM250,000. Added materials cost RM28,000 and conversion costs were RM85,000. Closing inventory for the month amounted to 10,000 litres which were 100% complete with respect to the Chemical Mixing Process materials and 60% complete with respect to added materials. Conversion cost work was 40% complete. The company uses a weighted average cost system for the valuation of output and closing inventory. Required: A) Prepare the following parts of the cost of production report: (i) A quantity schedule showing the computation of equivalent units and cost per equivalent unit for the month. (ii)Cost assignments. B) Prepare the Colouring Process account for the month. C) Explain why the liquid detergent manufacturer uses a Process costing system instead of a Job costing system. D) Is it common for a liquid detergent manufacturer to incur normal and abnormal losses in the manufacturing processes? Explain in relation to the liquid detergent manufacturer how normal and abnormal losses can occur and what accounting treatment is necessary.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
A liquid detergent manufacturing company produces one of its detergent product using two processes, the Chemical Mixing Process, and the Colouring Process. The detergent product is manufactured beginning with the Chemical Mixing Process, and ends with the Colouring Process. Information relating to the Colouring Process for a certain month is as follows:
Opening inventory 7,000 litres:
Degree of completion Cost (RM)
Chemical Mixing Process materials 100% 45,000
Added materials 40% 5,000
Conversion costs 30% 15,000
65,000
- During the month, 40,000 litres were transferred from the Chemical Mixing Process at a valuation of RM250,000. Added materials cost RM28,000 and conversion costs were RM85,000.
- Closing inventory for the month amounted to 10,000 litres which were 100% complete with respect to the Chemical Mixing Process materials and 60% complete with respect to added materials. Conversion cost work was 40% complete.
- The company uses a weighted average cost system for the valuation of output and closing inventory.
Required:
A) Prepare the following parts of the cost of production report:
(i) A quantity schedule showing the computation of equivalent units and cost per equivalent unit for the month.
(ii)Cost assignments.
B) Prepare the Colouring Process account for the month.
C) Explain why the liquid detergent manufacturer uses a
D) Is it common for a liquid detergent manufacturer to incur normal and abnormal losses in the manufacturing processes? Explain in relation to the liquid detergent manufacturer how normal and abnormal losses can occur and what accounting treatment is necessary.
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