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

(a) Z ltd manufactures metal cans for use in the food processing industry. The metal is introduced in sheet form at the start of the process. Norma l 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 SO cans. In addition to wastage through olfcuts, 1% of cans manufactured are expected to be rejected . These rejects can also be sold at £0.26 per kilo.

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

Production: 3 1 00 760 cans Costs incurred:

Direct materials: 39300 metal sheets at

£2.50 per she€'t Direct labour and overhead : £33 087 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 equ ivalent units {3 marks)

(ii) describe, and contrast, the FIFO and average methods of work in process valuation.