Equivalent production and losses in process


Problem:

Equivalent production and losses in process

A concentrated liquid fertilizer is manufactured by passing chemicals through two consecutive processes. Stores record cards for the chemical ingredients used exclusively by the first process show the following data for May 2000:

Opening stock

4 000 litres

£10 800

Closing stock

8 000 litres

£24 200

Receipts into store

20 000 litres

£61 000

Other process data for May is tabulated below:


Process 1

Process 2

Direct labour

£4880

£6000

Direct expenses

£4270


Overhead absorption



Rates

250% of direct labour

100% of direct labour

Output

8000 litres

7500 litres

Opening stock of work in



Process

5600 litres


Normal yield

85% of input

90% of input

Scrap value of loss



In process 1 the closing stock of work in process has just passed through inspection, which is at the stage where materials and conversion costs are 100% and 75% completed respectively-

(a) Prepare the relevant accounts to show the result of the processes for May 2000 and present a detailed working paper showing your calculations and any assumptions in arriving at the data shown in those accounts.

(b) If supplies of the required chemicals are severely restricted and all production can be sold immediately, briefly explain how you would calculate the loss to the company if, at the beginning of June, 100 litres of the correct mix of chemicals were spilt on issue to process 1.

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Accounting Basics: Equivalent production and losses in process
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