Process Costing

CHEE
1

Question 1
Mohd Nizam and Senaman Khan are production managers in the Cengal Sdn. Bhd
which manufactures car audio speakers. The speaker goes through 3 processing
department Assembly, Testing and Packaging Department. The company has
recently hired new assistant accountant, who has prepared the following summary
of activity in the Testing Department for June:
Testing Department costs are as follows:
Work in process inventory, June 1 8000 units
Material 100% completed: conversion costs, 88% completed 33630*
Costs transferred in from the Assembly Department
121250
Material added during June 41400**
Conversion costs added during June 145350

Notes:
*consists of cost transferred in, RM13230: material cost, RM5100: and conversion
costs, RM15300
**this material is added when processing is 50% completed in the testing
Department.

Testing Department costs assigned to:
Units completed and transferred to the Packaging Department 341630
(100,000 units x RM 34163)
Work in process inventory, June 30
(5000 units, conversion costs 40% completed) -
Total department costs assigned 341630

After looking at the data above, Mr. Saud, the president of CSB commented, I
cant understand whats happening here. Despite a concentrated effort at cost
reduction, our unit cost actually went up in the Testing Department last month.
With that kind of performance, year-end bonuses are out of the question for the
people in that department.

Process Costing
CHEE
2

REQUIRED:
(a) Prepare a production report for the testing Department for June using the
FIFO method.
(b) Define equivalent units of production.

Question 2
Zuriana Sdn Bhd produces mineral water, which it sells in one liter containers. The
company has two processing departments- Purifying Department and Packaging
Department. Water is processed in the purifying department, where it will go
through a systematic purification system. Materials are added in three stages
during the process. Water is then transferred to the packaging department where it
will be bottle into a plastic containers, label and pack for shipping. Information
relating to the companys for December follows:
1. Raw materials were issued for used in production: Purifying Department
RM 500000; and Packaging Department RM750000.
2. Direct labor costs were incurred: Purifying Department RM180000; and
Packaging Department RM250000.
3. Manufacturing Overhead cost was applied: Purifying Department RM
455000 and Packaging Department RM 325000
4. Purified water of RM1125000 was transferred from Purifying Department to
the Packaging Department.
5. Water amounted to RM2240000 that had been bottled and packed was
transferred from the packaging department to Finished Goods.

At the end of the month, the following information was gathered for Purifying
Department:
Production data:
Unit (liter) in process, December 1:
Materials completed 80%, conversion 60% complete 40000
Unit started into production during December
420000
Unit completed and transferred out ?
Unit (liter) in process, 31 December:
Material 50% completed
Process Costing
CHEE
3

Conversion 30% completed 70000
Cost data:
Work in process inventory, 1 December
Materials RM68750
Conversion 51600
Total cost of work in process
120350
Cost added during December:
Material RM250000
Conversion 195000
Total cost added during December
445000

REQUIRED:
(a) Prepare journal entries to record items 1 through 5 above.
(b) Post the journal entries from (a) above to T-accounts. The balance in the
Purifying Departments work in process on 1 December 2003 was
RM150000 and work in process in the Packaging Departments account
was RM 190000. Balance in the raw material accounts was RM 35000
and finished good account was RM800000. After posting entries to the T-
account, find the ending balance in Work in process account for both
departments.
(c) Prepare a production report for Purifying Department for December
using the weighted-average method.
(d) Assuming that the companys manager feel that the current product cost
calculation is not accurate. The company decided to use the first in, first
out (FIFO) method. As the companys management accountant prepares
a new Production Report using FIFO method for Purifying Department
(do not prepare the cost reconciliation).