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Question 2 (25 marks) Tame Food Delights Limited produces cat food for the retail market. The production process involves two stages: mixing and baking. Manufacturing
Question 2 (25 marks) Tame Food Delights Limited produces cat food for the retail market. The production process involves two stages: mixing and baking. Manufacturing costs comprise of materials, which are added at the start of the process, and conversion costs (labour and overheads), which are incurred evenly throughout production. The following details relate to the mixing process for the month of May: Degree of completion Cost (5) Opening WIP (39,000 kgs) - Materials 100% 67,350 - Conversion costs 60% 12,045 Materials input and Costs incurred - Materials (630,000 kgs) 837,900 - Conversion costs 396,240 Normal spoilage 5% of materials input Output 615,000 kgs Closing WIP (22,500 kgs) - Materials 100% - Conversion costs 80% Required: (2) Briefly outline the circumstances where process costing may be suitable as a method of valuing production (3 marks) (b) For the month of May prepare the mixing process account using The first in first out (FIFO) method of valuing inventory. (10 marks) The weighted average (WA) method of valuing inventory. (10 marks) 6) In relation to process costing, give TWO reasons why the weighted average method valuing inventory may be preferable to the FIFO method (2 marks) (Total = 25 marks) Question 2 (25 marks) Tame Food Delights Limited produces cat food for the retail market. The production process involves two stages: mixing and baking. Manufacturing costs comprise of materials, which are added at the start of the process, and conversion costs (labour and overheads), which are incurred evenly throughout production. The following details relate to the mixing process for the month of May: Degree of completion Cost (5) Opening WIP (39,000 kgs) - Materials 100% 67,350 - Conversion costs 60% 12,045 Materials input and Costs incurred - Materials (630,000 kgs) 837,900 - Conversion costs 396,240 Normal spoilage 5% of materials input Output 615,000 kgs Closing WIP (22,500 kgs) - Materials 100% - Conversion costs 80% Required: (2) Briefly outline the circumstances where process costing may be suitable as a method of valuing production (3 marks) (b) For the month of May prepare the mixing process account using The first in first out (FIFO) method of valuing inventory. (10 marks) The weighted average (WA) method of valuing inventory. (10 marks) 6) In relation to process costing, give TWO reasons why the weighted average method valuing inventory may be preferable to the FIFO method (2 marks) (Total = 25 marks)
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