Question 1 Sonora makes a unique M syrup using cane sugar and traditional herbs. The M syrup is sold in 300 ml bottles and is also prized as a flavouring for drinks and desserts because it is a healthy, versatile sweetener. It also has high nutritional value as it contains minerals and antioxidants to a great amount. It also provides essential nutrients such as calcium, zinc, potassium, and vitamin B2. It also improves digestion by supporting gut flora. The bottles are sold for $32 each. The first stage in the production process is carried out in the Mixing plant, which removes foreign matter from the raw materials and mixes them in the proper proportions in large vats. The cost of water is included in the material costs at the Mixing plant. The liquid is then transported to the Finishing plant where further material is added and bottled. The cost of transport (computed at 10% of cost transferred from Mixing plant to Finishing plant) is included in the transferred in cost for the Finishing plant. The cost of bottles is included in the material cost incurred in the Finishing plant. The Mixing plant's output at the end of one month is transferred to the Finishing plant in the following month. The company applies the weighted- average method in its process costing system. There are two plants in Singapore: a mixing plant in Simei and a finishing plant in Bedok These two plant also constitute the Singapore Division. At the mixing plant, all material is added at the start of the manufacturing process. Work in process (WIP) inventory at 1 February consists of 30,000 units of M Syrup (conversion 80% complete). One unit of M syrup equals 300 ml. 200,000 units were started in Feb. A total of 182,000 units were completed and transferred out at the end of Feb. WIP inventory on 28 Feb were 40,000 units (conversion 40% complete). Cost of WIP at 1 Feb was $126,120 (direct material $75,000 and the rest conversion cost). The cost added during Feb amounted to $1,180,320 ($601,200 direct material cost and the remaining conversion costs). The M syrup is inspected at the 50% mark during mixing and if found unsuitable will be discarded. The normal spoilage is equal to 2% of units reaching the 50% mark. Abnormal spoilage is written off as a loss. Gary and Mary are production managers in Sonora, which has several dozen plants scattered in locations throughout the world. There are two plants in Singapore. Mary manages the finishing plant in Bedok while Gary manages the mixing plant in Simei. Production managers are paid a salary and get an additional bonus equal to 2 months of monthly salary if the division meets or exceeds its gross profit target for the year. Sonora pays its production managers lower than the market and provides higher bonuses. Typically, on an annual basis, its production manager's pay including bonus will be 10% higher than the market. However, without bonuses production managers will earn 10% lower than the market. Sonora believes this method of remuneration can provide incentive for production managers to achieve efficiency that will translate to higher gross profit for the company. Incentive pay like bonuses are included inHQ admin expenses. A division in Sonora consists of all manufacturing plants in a country. The bonus is determined in May after the company's annual report has been prepared and issued to shareholders. The global syrup market is highly competitive in nature having a large number of domestic and multinational players competing for market share and with innovation in products being a major strategic approach adopted by leading players. It is expected to witness significant growth over the next five years' period. The increasing demand for various types of syrups from the food and beverage industry and, the pharmaceutical industry is the key factor driving the growth of this market. Also, the changing taste and flavour preferences of the consumers are expected to enhance the market growth. Sonora had had to spent substantial amounts of resources on advertising, marketing and branding to maintain its premium status for M syrup. Asia-Pacific is forecasted to foresee the fastest growth over the next five years' period. Increasing demand for processed products, rising population base, and high disposable income level are estimated to fuel the market growth. Also, growing retail sectors in economic growth countries such as India and China are contributing to the growth of the market. Indian government's initiative to launch food parks and food processing Special Economic Zones is dedicated to boosting the F&B industry. These developments are estimated to facilitate investment in the syrup market. Shortly after Chinese New Year this year, Mary received a phone call from Gary that went like this: Gary: Happy CNY! How's it going Mary? Mary: Everything is fine, Gary. How's it going with you? Gary: Great! I just got preliminary profit figures for the division for last year and we are within $15,000 of making our division's target gross profit - and you know what that means bonus! All we have to do is pull a few strings, and we'll meet the target! Mary: Huh? What do you mean? Gary: You see we need to achieve the target gross profit but are a little short ... Well, your estimate for the percentage completion of your ending work in process inventories for March can make the difference to the profit for the year! Mary: I don't know if I can do that, Gary. Those percentage completion figures are supplied by Tom, my lead supervisor, who I have always trusted to provide reasonable estimates every month. Besides, I have already sent the percentage completion figures to corporate headquarters. Gary: You can always tell them there was an error and you have the correct figure now. Think about it for a while, Mary. All of us ... managers are all doing as much as we can to pull this bonus out of the hat. You may not want the bonus cheque but the rest of us can sure use it. I have a daughter getting married this year. We are so close to it! Mary's Bedok plant began the month of March with no work in process inventory. During the month, 182,000 units were transferred in from the Mixing plant in Simei. In March 160,000units were completed and sold. The total cost incurred in the Finishing plant was $658,328 (consisting of $208,788 conversion costs). Material is added at the start of the manufacturing process and conversion costs added evenly throughout the process. WIP at the end of March was 20% complete in respect of conversion costs and there were no spoilage units in the Finishing plant for March. Required: (a) Use process costing to construct a production cost report for Feb for Simei and for March for Bedok plant. In your report, you should calculate the costs per EU for each cost category (to the nearest cent) and spoilage costs (nearest dollar). Use the cost information to calculate the unit product costs for M syrup for March. (State any assumptions you made). Based on the product costs per unit (nearest cent) explain if Sonora should maintain its current selling price for M syrup.| (45 marks)