CLASS EXAMPLE 2

Bobo Manufacturers (Pty) Ltd produces chemicals for industrial use.

The process involves two departments namely Mixing and Exiting.
Production data for August is as follows:
Mixing Exiting
Opening work-in-process:
Units 4 800 3 220
Stage of completion (conversion costs) 45% 40%
Cost – previous process: R11 000
Direct materials 5 400 2 500
Conversion costs 735 500

Current input costs:

Previous department ?
Direct materials 44 900 34 100
Conversion costs 9 800 6 500

Closing work-in-process:
Units 3 200 3 400
Stage of completion (conversion costs) 60% 70%

Units completed 28 300 ?

Units put into process 30 200 ?

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Additional information
1. In both the Mixing department and Exiting department, direct materials are added at the
beginning of the production process.
2. In the Mixing department inspection takes place at the beginning of the production process.
Inspection in the Exiting department takes place at the beginning of the process.
3. In both the Mixing and Exiting departments, the expected normal loss is 5% of the units started
in that specific department.
4. A fire swept through the loading area in the Exiting Department, causing damage to loading
equipment and resulting in the loss of 320 units (40% completed).

Required:

a) Determine the number of units and their value to be transferred to the Exiting department if the
company uses the weighted average method of stock valuation.

b) Determine the number of units and their value to be transferred to finished goods if the company
uses the FIFO method of cost valuation.

Show all detailed workings and use four decimals for unit costs and two decimals for cost allocations.

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CLASS EXAMPLE 2: Bobo Manufacturers STEP 1:
Draw a line diagram to further your understanding of the information relating to the process:
Next you can also look at the flow of units (full units, not equivalent units) into & out of the process.

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WA METHOD:
STEP 2: Draft a T-account for Work-In-Process: + Fill in units (as calculated)
STEP 3: Expand the Work-In-Process account by adding the rand values of opening inventory and the
current period’s input:
STEP 4: Carry over the total rand value of the input on the debit side to the output on the credit side,
as a T-account has to balance. Indicate the rand value of normal losses as zero.

Work In Process: Mixing Dept

units R Units R
Opening balance 4 800 6 135 Transferred out 28 300 ?
-Raw Materials 5 400
-Conversion 735 Normal losses 1 510 0

Current input 30 200 54 700 Abnormal losses 1 990 ?

-Raw Materials 44 900
Closing
inventory
-Conversion 9 800 balance 3 200 ?

35 000 60 835 35 000 60 835

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 STEP 5: Schedule of EU Raw Materials Conversion Costs
units TOTAL EU RM EU Convers
Transferred out 1 28 300
Abnormal loss 2 1 990
Closing units 3
3 200
33 490 60 835 50 300 10 535

WA Q:
What % of costs have been added?
Schedule of EU Raw Materials Conversion Costs
units TOTAL EU RM EU Convers
Transferred out 1
(100%) 28 300 28 300 28 300
Abnormal loss 2
(100%, 0%) (a) 1 990 1990 0
Closing units (b) 3
(100%, 60% added) 3 200 3200 1 920
33 490 60 835 33 490 50 300 30 220 10 535
(a) Inspection takes place at the beginning of the process => all the DM have been added, but
none of the CC.
(b) All DM are added at the beginning of the process => DM = 100% added, CC = 60% as
given in the Question

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STEP 5:
Schedule of EU
Conversion
Raw Materials Costs
Equiv Equiv
units TOTAL units RM units Convers

Transferred out 1
(100%) 28 300 52 370 28 300 42 504 28 300 9 866
Abnormal loss 2
(100%, 0%) 1 990 2 989 1 990 2 989 0 0
Closing units 3
(100%, 60%
added) 3 200 5 476 3 200 4 807 1 920 669
33 490 60 835 33 490 50 300 30 220 10 535
50 300 / 10 535 /
33 490 = 30 220 =
Cost per EU R1.5019 R0.3486

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STEP 6:
We are now ready to wrap up the Work-In-Process account by giving costs to output units:

Work In Process: Mixing Dept

units R units R
Opening
balance 4 800 6 135 Transferred out * 1 28 300 52 370
-Raw Materials 5 400
-Conversion 735

Normal losses 1 510 0

Current input 30 200 54 700 Abnormal losses 2 1 990 2 989

-Raw Materials 44 900
-Conversion 9 800 Closing balance 3 3 200 5 476

35 000 60 835 35 000 60 835

* Transferred out 1 28 300 52 370

These units will be transferred to the next dept, Exiting, at the amount as calculated (R52 370)

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CLASS EXAMPLE 2
Bobo Manufacturers (Pty) Ltd produces chemicals for industrial use.
The process involves two departments namely Mixing and Exiting.
Production data for August is as follows:
Mixing Exiting From Mixing
Dept:
Opening work-in-process:
Units 4 800 3 220
Stage of completion (conversion costs) 45% 40%
Cost – previous process: R11 000
Direct materials 5 400 2 500
Conversion costs 735 500

Current input costs:

Previous department ? = R52 370
Direct materials 44 900 34 100
Conversion costs 9 800 6 500

Closing work-in-process:
Units 3 200 3 400
Stage of completion (conversion costs) 60% 70%

Units completed 28 300 ?

Units put into process (= units started) 30 200 ? = 28 300

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Additional information
1. In both the Mixing department and Exiting department, direct materials are added at the
beginning of the production process.
2. In the Mixing department inspection takes place at the beginning of the production process.
Inspection in the Exiting department takes place at the beginning of the process.
3. In both the Mixing and Exiting departments, the expected normal loss is 5% of the units started
in that specific department.
4. A fire swept through the loading area in the Exiting Department, causing damage to loading
equipment and resulting in the loss of 320 units (40% completed).

Required:

a) Determine the number of units and their value to be transferred to the Exiting department if the
company uses the weighted average method of stock valuation.

b) Determine the number of units and their value to be transferred to finished goods if the company
uses the FIFO method of cost valuation.

Show all detailed workings and use four decimals for unit costs and two decimals for cost allocations.

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b) Determine the number of units and their value to be transferred to finished goods
if the company uses the FIFO method of stock valuation
STEP 2: Draft a T-account for Work-In-Process: + Fill in units (as calculated)
STEP 3: Expand the Work-In-Process account by adding the rand values of opening inventory & the
current period’s input:
The transferred-out costs from Mixing Dept represents the current period input for the previous
process costs for Exiting:

Work In Process: Exiting Dept

units R units R
Opening balance 3 220 14 000 Transferred out 26 385
-Previous process 11 000
-Raw Materials 2 500
-Conversion 500 Normal losses 1 415

Current input 28 300 92 971 Abnormal losses 320

-Previous process **52 371
-Raw Materials 34 100
-Conversion 6 500 Closing balance 3 400
31 520 106 971 31 520
** CARRIED OVER FROM Mixing T account R52 370
(rounding difference of R1???) (ignore!)

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STEP 4: Carry over the total rand value of the input on the debit side to the output on the credit side,
as a T-account has to balance. Indicate the rand value of normal losses as zero.
For FIFO: Split Units transferred out into:
(i) units started last period & completed in the current period, &
(ii) units started & completed (26 385 – 3 220 = 23 165) in the current period

Work In Process: Exiting Dept

units R units R
Opening balance 3 220 14 000 Transferred out 26 385 ?
-Previous process 11 000
Opening
-Raw Materials 2 500 inventory 3 220 ?
Started and
-Conversion 500 Completed 23 165 ?

Normal losses 1 415 0

Current input 28 300 92 971 Abnormal losses 320 ?

-Previous process 52 371
-Raw Materials 34 100
Closing inventory
-Conversion 6 500 balance 3 400 ?

31 520 106 971 31 520 106 971

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STEP 5:
Allocation of current period costs

Previous Conversion
TOTAL Material
process costs
Units Rand Units Rand Units Rand Units Rand
Opening 1
stock 3 220

Current 2
production 23 165

Abnormal 3
loss 320

Closing 4
stock 3 400

Total 30 105 92 971 52 371 34 100 6 500

Cost per equivalent unit

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3 Abnormal loss
“A fire swept through the loading area in the Exiting Department, causing damage to loading
equipment and resulting in the loss of 320 units (40% completed).”
Although inspection takes place at the beginning of the process, this abnormal loss (fire) did
not take place at the beginning of the process. When the fire occurred, 100% of materials
had been added (Q states that all materials = added at the beginning of the process)
100% x 320 = 320 EU.
Per the Q, these units had received 40% of CC when the fire occurred
=> CC EU = 40% x 320 = 128

Previous process column in Schedule of EU:

If FIFO is used in Dept 2: (for example Bobo Co Dept 2)

Callculation of Equivalent Units:
Opening bal = 0%
All the rest: 100%

If WA is used in Dept 2: (for example Sharpe Co Dept 2)

Callculation of Equivalent Units:
All the items = 100%

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STEP 5:
Schedule of EU
Conversion costs
TOTAL Previous process Material
(CC)
Units Rand EUnits Rand EUnits Rand EUnits Rand
Opening stock 1
3 220 455 - - - - 1 932 455
(0, 60%)
Current 2
23 165 79 960 23 165 45 125 23 165 29 382 23 165 5 455
production
Abnormal loss 3
320 1 059 320 623 320 406 128 30
(100, 40%)
Closing stock 4
3 400 11 496 3 400 6 623 3 400 4 312 2 380 560
(100, 70%)
Total 30 105 92 971 26 885 52 371 26 885 34 100 27 605 6 500
52 371 / 26 885 = 34 100 / 26 885 = 6 500 / 27 605 =
Cost per EU R1.948 R1.268 R0.2355

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STEP 6: We are now ready to wrap up the Work-In-Process account by giving costs to output units:
Work In Process: Exiting Dept
Units R units R
Open inventory bal 3 220 14 000 Transferred out 26 385 94 415**
Opening
-Previous process 11 000 inventory
-Raw Materials 2 500 ( 14 000 + 455)* 3 220 14 455
Started and
-Conversion 500 Completed 23 165 79 960

Normal losses 1 415 0

Abnormal
Current input 28 300 92 971 losses 320 1 059
-Previous process 52 371
-Raw Materials 34 100
-Conversion 6 500 Closing bal 3 400 11 496

31 520 106 971 31 520 106 971

* Always show this calculation in a test.
** This is the total cost of units transferred to Finished goods.
(if a Q asks you to calculate the total cost of units transferred out, this is the answer.)
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