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problem1) Process Costing

The Mercury Pet Food Division of global FMCG company Venus Foods operates three manufacturing plants at its production site in Tasmania. One of these manufacturing plants produces ‘Chunky’ canned dog food. Mercury operates a 24 hour a day, 7 days a week manufacturing facility producing ‘Chunky’ which prepares product costing reports based on a process costing system.

All of the ‘Chunky’ Raw Material ingredients are added at the commencement of the process where the carefully formulated and measured portions the various meats, vegetables, grains and other supplements are mixed together. The cans are introduced when the manufacturing process is 20% complete. The dog food mixture is added to the cans at this point and the cans are sealed and ingredients cooked. For the purpose of accounting the conversion costs of manufacturing are assumed to occur evenly across the whole of the production cycle.
The following information relates to the production of ‘Chunk’ dog food during the month of May 2013.

Work-in-Process: May 1, 2013                           187,652 Cans
                                  Stage of completion                    Value
Ingredients                         100%                               $116,000
Cans                                  100%                                 $32,000
Conversion                           55%                                $28,500
Work-in-Process: May 31, 2013                        158,620 Cans
                                                                                18% Complete

During May 4,875,000 cans commenced production and the following costs were incurred.
Costs incurred during May 2013:

Ingredients                          $3,546,500
Cans                                      $1,052,000
Conversion                          $1,537,500

Required:

(i) Using the Weighted Average Cost Method determine the cost value of closing WIP and the cost value of goods transferred out during the period.

(ii) Using the First In First Out (FIFO) method determine the cost value of closing WIP and the cost value of goods transferred out during the period

problem2) Job costing

The Mercury Pet Food firm has a Maintenance & Service Department which performs all maintenance and repairs on the three pet food manufacturing facility at the company’s manufacturing site in Tasmania.

Because of the range and variety of tasks that the Maintenance & Service Department perform for the different manufacturing facilities a job costing system is used to record costs and jobs are billed at cost. Materials and Direct labour are directly charged to each job and Overhead is allocated using Direct Labour as the cost driver.

According to its accounts on May 1st 2013 the Maintenance & Service Department Work-in-Process (WIP) account had a balance of $45,267 which was made up of the following jobs:

Job            Description             Factory           Materials           Direct Labour    Overhead         Total
675  Re-Build switchboard     Chunky             $12,500                    $6,000           $2,000       $20,500
676       Routine Maint.           Budgie                 $500                     $2,000           $667        $3,167
678        Hydraulic Lift             Budgie             $18,500                        $0               $0          $18,500
680       Routine Maint.          Katekit                $1,500                     $1200            $400       $3,100
Totals                                                          $33,000                    $9,200            $3,067      $45,267

In a normal month the Maintenance & Service Department will incur Direct Labour costs of $120,000 and department overhead is expected to amount to $40,000 per month. During May the following costs were recorded to job cards in the Maintenance & Service Department and Jobs 675 through to 684 were completed and invoiced:

Job No.                         Materials                       Direct Labour
675                                     $0                                  $2,000
676                                   $500                                $4,800
678                                      $0                                  $2,700
680                               $22,500                               $6,000
681                                      $0                                 $15,000
682                                $84,500                             $48,600
683                                  $1,500                              $12,000
684                                $62,500                                $6,000
685                                $25,000                               $24,000
                                      $196,500                             $121,100
Actual overhead for the month of May was find outd to be $38,500.

Required:

(i) Prepare a Job Cost Summary sheet for the month of May to determine the cost of all jobs completed and the closing balance of the WIP account on May 31st.

(ii) Was Overhead over or under-allocated during May, and if so by how much?

problem3) Just-in-time
What are the benefits of operating a JIT manufacturing system? What are the business risks associated with such an approach?

Questio4) Activity Based Costing
What are the benefits of operating an ABC product costing system? Why don’t more firms adopt the ABC approach?
Please note that answering problem 6 and problem 7 will require you to research, read and reference Management Accounting literature beyond the materials provided in the text, study guide and subject Interact site.

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M92793

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