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QuesLIUI 12 MADStil Plc processes unique syrup as flavouring for coffee and desserts for sales in the retail market. The company operates a process costing
QuesLIUI 12 MADStil Plc processes unique syrup as flavouring for coffee and desserts for sales in the retail market. The company operates a process costing system and adopts the weighted average method to value its inventories. The syrup is sold in small bottles for 12 each. The first stage in the production process is carried out in the Mixing Department which removes foreign objects from the raw materials and mixes them in the proper proportions in large containers. The company uses the weighted average method in its process costing system. A draft report for the Mixing Department for January 2018 appears as below: 30,000 Units to be accounted for: Work-in-process, 1 January (90% materials, 80% conversion cost added last month) Started into production Total units 200,000 230,000 Units accounted for as follows: Transferred to the next department Work-in-process, 31 January (75% materials, 60% conversion cost added this month) Total units 190,000 40,000 230,000 98,000 Total cost Cost to be accounted for: Work-in-process, 1 January (materials 67,800; conversion 30,200) Cost added in January (materials 579,000; conversion 248,000) Total cost 827,000 925,000 Cost accounted for as follows: Transferred to the next department Work-in-process, 31 January Total cost 805,600 119,400 925,000 The management has approached you, the newly appointed management accountant, to provide them with more useful information based on the draft report. Required: (a) Determine the costs of (i) completed units transferred to the next department, and the (ii) work-in-process units at the end of the period. Show all relevant workings. [25 marks] (b) The manager of the Mixing Department is proud of the fact that there were no losses reported in the processing. However, he is concerned about how such losses, if any, would be addressed in the management reports. Advise the manager by explaining the treatments for normal losses and abnormal losses in the costing system, and the rationale behind such treatments. [15 marks] [Total 40 marks]
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