N1B405 MAD II

Seminar 2 Part 2
Process Costing

Indicative Answers
Question 1

MASChips

Given:
Direct mat: 100% converted at start of process.
Conversion costs: added evenly during process.
Normal Losses:
15% of good units transferred out.
Lost at 100% completion stage, Closing WIP will not share the cost!
Cost of normal loss to be borne by expected output: (1) units transferred out and (2) abnormal
Loss
Weighted average method used
Units

(a)

Opening WIP
Started

400
1,700
2,100

Transferred Out
Normal Losses [15%*1400]
Abnormal Losses [Bal fig]
Closing WIP

1,400
210
190
300
2,100

Equivalent Units
Material

Physical units
Transfer out
Normal Losses
Abnormal Losses
Closing WIP
Total
(b)

1,400
210
190
300
2,100

[100%] 1,400
[100%] 210
[100%] 190
[100%] 300
2,100

Conversion
[100%] 1,400
[100%] 210
[100%] 190
[40%] 120
1,920

Cost per Equivalent Unit

Costs ()
Cost per Equivalent
Unit ()

Material
442,000
210.4762

Conversion
163,800
85.3125

Total
605,800

Material

Conversion

Total

294,667
44,200
39,990
63,143
442,000

119,438
17,916
16,209
10,237
163,800

[+54,693] 468,798#

(c) Cost assignments

Transfer out ()
Normal Losses ()
Abnormal Losses ()
Closing WIP
Total ()

[+7,423] 63,622#
73,380
605,800

Note: #Cost of NL 62,116 should be borne by the expected output units (i.e. the transferred out
units and abnormal loss), normally using the units as the distribution factor!

N1B405 MAD II

Question 2

Seminar 2 Part 2
Process Costing

UBS Sdn Bhd

(a) Units to be accounted for: 10,000kg

Units accounted for:
8,000kg transferred out
900kg closing WIP
1,000kg normal loss
100kg abnormal loss [bal fig]
10,000kg
Since losses occur at 100% completion stage Closing WIP will not share the cost!
Cost of normal loss to be borne by expected output: (1) units transferred out and (2) abnormal Loss
Process cost per unit for the Binding Process in the month:
Material costs
Conversion costs
+
Equivalent units for material
Equivalent units for conversion
RM40,500
=

RM8,424
+

8,000+(900*100%)+(1,000*100%)+(100*100%)

8,000+(900*75%)+(1,000*100%)+(100*100%)

= RM4.05 + RM0.8618
= RM4.9118
Cost of NL = RM4.9118*1,000kg = RM4911.8 to be spread over the expected output of 8100kg,
i.e. RM0.6064 per unit of expected output
Thus, the process cost per unit is effectively RM4.9118+RM0.6064=RM5.5182
(b) The value of closing work-in-progress carried forward on the Binding :
(RM4.05*900kg*100%) + (RM0.8618*900kg*75%) = RM4,226.715
Question 3
Explain the accounting treatments for production losses and explain how such treatment should
reflect the responsibility accounting practice. Specifically, explain that the cost of normal losses may
be adjusted with additional disposal costs and/or scrap value relating to such losses. The adjusted
cost is to be borne by the expected output units. The closing work-in-process would also need to
bear a portion of this cost if it has passed the stage of loss. As for the abnormal losses, explain that
this should be assigned with a portion of the production cost and be disclosed separately in the
management reports. The cost of abnormal loss may be adjusted with disposal costs and/or scrap
value of such loss.
Question 4
Refer chapter reading.
Question 5
Explain how the sharing of joint costs amongst the main products may help to value closing stock at
the end of each accounting period, to determine profit, as well for profitability analysis and perhaps
cost-based pricing decisions. Answer should stress that joint cost apportionment should not be
referred when arriving on decisions on further processing.
Question 6
Explain the meaning of joint products and by-products, why and how management should attempt to
treat these products when dealing with the joint process costs (by applying the materiality concept),
how such different treatments impact upon the profitability analysis of these products. Answer must
describe the costing treatment for joint products (sharing of joint costs using the various available
methods) and for by-products (not bearing any of the joint costs but need to account for any further
costs and/or scrap value).