Question 2

Hot Handle Company (HH) manufactures non-stick frying pans. HH uses process

costing and weighted average costing to account for product costs. The manufacturing process takes place in two sequential departments. Frying pans completed in Moulding Department during a certain calendar month are transferred to Assembly Department to be attached with the handle and packaging, in the following month. The cost data relating to April and May 2020:

	Moulding Department (April 2020)	Assembly Department (May 2020)
Direct material incurred	$134,000	$156,000
Conversion costs incurred	$228,000	$306,000
Beginning WIP	$0	DM $2,000 CC $1,000 Transferred in $2,000
Ending WIP	$0	$?

There was no beginning and ending work in process ("WIP") in April 2020 for the Moulding Department. All material and conversion costs are added evenly throughout the Moulding process. In Assembly Department, handles (raw material) are added at the beginning of the production process. Frying pans are inspected at 90% point in Assembly Department. If a frying pan does not pass the inspection, no packaging cost is added to the product cost, and the defective frying pans are discarded. At the end of the production process in Assembly Department, good frying pans are transferred to the warehouse for storage.

There were 4,000 units of frying pans in WIP at the beginning of May 2020 in Assembly Department. These frying pans were 50% complete with respect to conversion costs. Conversion costs are incurred evenly throughout the production process. At the end of May 2020, there were 1,000 frying pans in WIP and these frying pans were 80% complete with respect to conversion costs. During May 2020, 180,000 frying pans were started. At the end of May 2020, 177,000 finished frying pans were transferred to the warehouse. Normal spoilage is set at 3% of inspected frying pans.

Required:

(a)Compute the units of normal and abnormal spoilage for May 2020 in the

Assembly Department.

(7 marks)

(b) Using Weighted Average process costing, calculate (i) the cost per equivalent

unit of production for each of the relevant cost categories in HHs Assembly Department for May 2020 (round your costs per equivalent unit to 2 decimal place of a dollar); (ii) the cost incurred for spoilage and WIP at the end of May 2020; and (iii) the cost per frying pan manufactured in May 2020.

(21 marks)

(c) Write journal entries to close the spoilage costs (normal and abnormal) at the end of May 2020 from Assembly Department.

(5 marks)