Question
Milk is issued at the beginning of the pasteurizing process. The other pasteurizing costs are incurred evenly throughout that process. Similarly, bottles are added at
Milk is issued at the beginning of the pasteurizing process. The other pasteurizing costs are incurred evenly throughout that process. Similarly, bottles are added at the beginning of the bottling process while other costs are incurred evenly. Overhead is applied into the pasteurizing and the bottling, at a rate of 80% and 50% of direct labour cost respectively. It is considered normal for some of the milk to be lost due to evaporation during pasteurizing and some bottles of milk to be rejected during bottling. Quality control inspection is applied at the end of the bottling process to determine whether completed products are safe for consumption. Bottles of milk which are deemed unsafe are rejected and considered as spoilt. It is accepted that spoilage is normal if rejected bottles of milk are no more than 3% of the completed good bottles produced. The loss due to evaporation is assumed to take place at the end of the pasteurizing process. The cost of lost milk is written off as a loss of the period in which it occurs. This cost is measured at the cost of the milk plus the costs of the pasteurizing process, but no bottling cost is charged. Healthy Dairy uses FIFO system of costing.
None of the opening and closing work in process had at that stage entered the bottling process. The units in the closing work in process were on average 50% complete as to pasteurizing. Required: (a) Using the four step approach: (i) Calculate the closing work in process for the pasteurizing process in litres and for the bottling process in bottles.
(ii) Calculate the number of equivalent units processed in September, distinguishing between pasteurizing process and bottling process.
(iii) Calculate the costs per equivalent unit for each product cost category processed in September for the pasteurizing process and the bottling process, the costs of pasteurized milk per litre transferred from the pasteurizing process to the bottling process, the cost of each unit bottled milk from the bottling process, the costs of abnormal spoilage, lost and closing WIP.
(b) Pass all the necessary journal entries.
(c) Use your answer to (a) to explain "transferred-in costs".
The following data summarize the firm's activities during September: $100,000 $20,000 125,000 litres Opening WIP Milk Direct labour cost (pasteurizing) to 31 Aug Milk (40% pasteurized) Costs incurred during September Milk Bottles Direct labour cost (pasteurizing) Direct labour cost (bottling) Production data for September Milk received into pasteurizing Good bottles completed from bottling Spoiled units Lost units $224.000 $48.000 $110.000 $96.000 280,000 450.000 30.000 5.000 litres bottles bottles litres The following data summarize the firm's activities during September: $100,000 $20,000 125,000 litres Opening WIP Milk Direct labour cost (pasteurizing) to 31 Aug Milk (40% pasteurized) Costs incurred during September Milk Bottles Direct labour cost (pasteurizing) Direct labour cost (bottling) Production data for September Milk received into pasteurizing Good bottles completed from bottling Spoiled units Lost units $224.000 $48.000 $110.000 $96.000 280,000 450.000 30.000 5.000 litres bottles bottles litresStep by Step Solution
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