Intermediate: Preparation of process accounts with output fully completed and a discussion of FIFO and average methods ofWIP valuation

(a) Z Ltd manufactures metal cans for use in the food processing industry. The metal is intro¬ duced in sheet form at the start of the process. Normal wastage in the form of offcuts is 2% of input. The offcuts can be sold for £0.26 per kilo. Each metal sheet weighs 2 kilos and is expected to yield 80 cans. In addition to wastage through offcuts, 1% of cans manu¬ factured are expected to be rejected. These rejects can also be sold at £0.26 per kilo.

Production, and costs incurred, in the month just completed, were as follows:

There was no opening or closing work in process.
Required:
Prepare the process accounts for the can manufacturing operation for the month just completed.
(15 marks)

(b) Another of the manufacturing operations of Z Ltd involves the continuous processing of raw materials with the result that, at the end of any period, there are partly completed units of product remaining.
Required:
With reference to the general situation outlined above (i) explain the concept of equivalent units (3 marks)
(ii) describe, and contrast, the FIFO and average methods of work in process valuation.

Transcribed Image Text:

Production: Costs incurred: Direct materials: Direct labour and overhead: 3 100 760 cans 39 300 metal sheets at 2.50 per sheet 33087