PART: ONE
Chimanga Changa Ltd makes one product in a single process. The details of the process for period 2 were as follows:
There were 800 units of opening WIP valued as follows:
Material K98,000,000
Labour K46,000,000
Production Overheads K7,600,000
During the period 1, 800 units were added to the process and the following costs were incurred:
Material K387,800,000
Labour K276,320,000
Production Overheads K149,280,000
There were 500 units of closing WIP, which were 100% complete for material, 90%complete for labour and 40% complete for production overheads.
A normal loss equal to 10% of new material input during the period was expected. The actual loss amounted to 180 units. Each unit of loss was sold for K10,000 per unit. Chimanga Changa uses weighted average costing.
(a) Prepare the process A/C
(b) Describe the distinguishing characteristics of production systems where: (i) Job costing techniques would be used and where (ii) process costing techniques would be used.
(c) Critique the assertion that job costing produces more accurate product cost than process costing
PART: TWO
The accountant's approach to cost-volume-profit analysis has been criticsed in that it does not deal with the following:
(a) Situations where sales volumes differs radically from the production volume
(b) Situations where sales revenue and the total cost functions are markedly non-linear
(c) Changes in the product mix
(d) Risks and uncertainty
REQUIRED: Explain these objections to the accountant's convention cost-volume-profit model and suggest how they can be overcome