AB Chemicals Limited produces a compound by mixing certain ingredients within two separate processes. For a particular week the recorded costs were:

Discarded materials have scrap values of £0.30 per kilogramme from Process 1 and £1.50 per kilogramme from Process 2. Assume that sales of scrap are made for cash during the week.
There was no work-in-progress at either the beginning or end of the week.
Output during the week was 1 400 kilogrammes from Process 1 and 4 200 kilogrammes from Process 2.

Required:

(a) show the accounts for:
(i) Process 1;
(ii) Process 2;
(iii) abnormal gain/loss;
(iv) profit and loss — relating to transactions in any of the above accounts;
(v) finished goods.

(b) explain, in relation to process costing, the concept of ‘equivalent units’ (4 marks)
and give a simple example using your own figures.

Transcribed Image Text:

Process Material: 2 000 kilogrammes at 2 per kilogramme Labour: 360 Process plant time: 24 hours at 200 per hour Process 2 Material: 3 100 kilogrammes at 6 per kilogramme Labour: 240 Process plant time: 40 hours at 76.30 per hour Indirect production overhead for the week amounted to 2 400 and is absorbed on the basis of labour cost. Normal outputs are: Process 1 80% of input Process 2 90% of input