Intermediate: FIFO method and losses in process The manufacture of one of the products of A Ltd requires three separate processes. In the last of the three processes, costs, production and stock for the month just ended were:

(1) Transfers from Process 2: 180000 units at a cost of £394200.

(2) Process 3 costs: materials £110520, conver¬ sion costs £76 506.

(3) Work in process at the beginning of the month: 20000 units at a cost of £55 160 (based on FIFO pricing method). Units were 70% complete for materials, and 40% complete for conversion costs.

(4) Work in process at the end of the month: 18 000 units which were 90% complete for materials, and 70% complete for conversion costs.

(5) Product is inspected when it is complete. Normally no losses are expected but during the month 60 units were rejected and sold for £1.50 per unit.

Required:

(a) Prepare the Process 3 account for the month just ended. (15 marks)

(b) Explain how, and why, your calculations would be affected if the 60 units lost were treated as normal losses. (5 marks)

(c) Explain how your calculations would be affected by the use of weighted average pricing instead of FIFO.