Shisky Co is a specialist in making whisky and uses two consecutive processes Process 1 and Process 2.

Each month for Process 1, it is anticipated that there will be 15,000 litres of input. Normally there will be 3,000 litres of waste which can be sold for 0.20 per litre to a local feed producer. The complete output from this process will then be transferred to Process 2 the following month. There is no uncompleted WIP at the beginning or end of each month.

In January 2021 the following input costs and actual output costs have been recorded with respect to Process 1 below:

Process 1	January 2021
Materials	130,000
Conversion	110,000
Actual Output	11,500 litres

Required:

1. Prepare the Process 1 cost account for January 2021

Please Turn Over

As stated above, part of the input to Process 2 comes from Process 1. Other materials (of negligible volume), conversion costs and other information regarding Process 2 for February 2021 are as follows:

Process 2	February 2021
Input:
Materials costs	50,000
Conversion costs	129,000
Output:
Completed output (actual)	20,000
Closing WIP - units	3,000
- % complete	50%

Materials are added at the end of the process, conversion costs accrue evenly across each month. There is no uncompleted WIP at the beginning of February 2021.

Required:

2. Using your answer from Part a), prepare the Process 2 cost account for February 2021 showing clearly the value of any WIP and finished goods.

There is currently spare capacity in the Shisky Co distillery and the Sales Director is keen to win a national supermarket contract. The standard cost for a one litre bottle of whisky is estimated to be about 20. The supermarket is willing to offer 19 a bottle for a one litre bottle. The supermarket requires Shisky Co to give a decision within 24 hours.

Required:

3. In your role as the Management Accountant write a report to the Sales Director discussing whether Shisky Co should consider taking on the contract. In your answer you should consider financial as well as non-financial factors.