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.