Question #4 Process Costing.

Amare Indulge produces face soap and uses a process costing system. The management accountant has assembled the following information for May 2020:

Beginning Work-in-Process Inventory(25% done as to conversion) 20,000 units

Started during the period 240,000 units

Ending Work-in-Process Inventory(30% done as to conversion) 60,000 units

Beginning inventory costs are:

Materials $360,000, Direct Labour $157,800, Factory Overheads $631,200

Costs incurred during the month are:

Materials $1,200,000, Direct Labour $1,725,300, Factory Overhead $4,025,700

All materials are added at the start of production and all completed products are transferred out.

(a) Use the weighted average cost flow assumption to determine the equivalent unit cost, work in progress and prepare the process account for the entity.

(b) Using the FIFO cost flow assumption: determine the equivalent unit cost, work in progress and value output for the entity.

Question #5 Marginal and absorption cost

Over the years, Holsum Producers have been using a policy of marginal costing whereby the variable costs of producing baked products are charged to cost units, and fixed costs of the period are written off in full against the aggregate contribution.

From a previous meeting, it was revealed that there are several drawbacks associated with using marginal costing - one of which include the fact that it does not accurately represent profits.It was therefore suggested by management that the Accountants consider using absorption costing.

Below are data relevant for the years ended December 31, 2019 and December 31, 2020:

2019 2020

Selling Price per unit $450 $500

Direct Labour per unit $ 35 $ 35

Direct Material per unit $ 31 $ 31

Direct Expense per unit $ 15 $ 15

Variable Overheads per unit $ 12 $ 12

Fixed Overheads (Actual) $2,300,000 $ 3,600,000

Variable Selling Cost per unit $ 12 $ 12

Actual Production 180,000 240,000

Actual Sales 140,000 290,000

On January 1, 2019, Holsum Producers had 25,000 baked products at a cost of $2,500,000.

For both periods, the company also had budgeted fixed overhead to be $2,100,000 and budgeted production of 300,000 baked products; and overheads are currently absorbed on a per unit basis.

To show the managers the possible difference in profits, I am required to:

(a) draw up a income statement using marginal costing as well as absorption costing for the year ended December 31, 2019. (10.5 marks)

(b) draw up a income statement using marginal as well as absorption costing for the year ended December 31, 2020. (10.5 marks)

(c) Do the reconciliation between both profits for both years.