Daina Limited manufactures a unique hair oil branded Dainaline.The product undergoes two manufacturing processes before emerging as a complete product.The following information relates to production undertaken during the month of September 2003.

Process

1

2

Input

Added Costs:

Material

Labour

Overhead

Normal loss

Scrap value

Output:

To process 2:200,000 litres

250,000 litres @ Sh. 62.50 per litre

5,750,000

4,812,500

2,062,500

10% of input

Sh. 18.75 per litre

To finished goods

To W.I.P C/f

- Previous process costs

- Added material

- Labour

- Overhead

4,606,250

3,806,250

2,640,000

5% of input

Sh. 42.50 per litre

162,500 litres

25,000 litres

100%

80%

70%

50%

There was no opening work-in-progress in either of the two processes.Losses in process 2 had the following degree of completion: previous process costs 100%, added material 70%, labour 50% and overheads 50%.

Required:

(a)Process accounts for both processes for the month of September 2003 (show all your computations).(16 marks)

(b)Explain the implication of the following to the costs of equivalent units:

(i)Normal loss(2 marks)

(ii)Scrap value(2 marks)

(Total: 20 marks)