N12401 MAD II

Seminar 2 Part 2
Process Costing

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These exercises are meant to confirm your understanding of the topic concerned. You are expected
to have gone through the class materials and directed readings thoroughly before attempting these
exercises. As you work through these questions, you may find new terminologies/ideas popping out
occasionally, dont get worried at all, as these are deliberate to trigger further exploration of the
issues concerned. So be adventurous and have fun!
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You are to assume that all the scenarios below follow
the WEIGHTED-AVERAGE METHOD when accounting for units and costs.
Question 1
MASChips specializes in the manufacture of microchips for cellular phones. Direct materials are
added at the start of the production process. Conversion costs are added evenly during the
production process. Some units of this product are spoiled as a result of defects not detectable
before inspection of finished goods. Normally the spoiled units are 15% of the good units transferred
out. Spoiled units are disposed of at zero net disposal price. MASChips uses the weighted average
method of process costing. Summary data for October 2006 are:
Physical Units
(Microchips)
Work in process, 1 October*

400

Started in October 2006

1,700

Good units competed and

transferred out during October 2006

1,400

Work in process, 31 October**

Direct
Materials

Conversion
Costs

$ 64,000

$ 10,200

$378,000

$153,600

300

Costs added during October 2006

* Degree of completion: direct materials, 100%; conversion costs, 30%

** Degree of completion: direct materials, 100%; conversion costs, 40%
Required:
(a)

For each cost category, compute equivalent units.

(b)

For each cost category, calculate costs per equivalent unit.

(c)

Summarise total costs to account for, and assign these costs to units completed and transferred
out, losses (if any) and ending work in process units as appropriate.

N12401 MAD II

Seminar 2 Part 2
Process Costing

Question 2
UBS Sdn Bhd prints textbooks for higher education. The Binding Process shows the following details
in November 2008:
Materials transferred from previous processes: 10,000kg valued at RM40,500
Conversion costs: RM8,424
Output transferred to finished goods: 8,000kg
Closing work-in-progress: 900kg (100% complete for materials, 75% complete for conversion)
Normal process losses are 10% of material input and are detected upon completion. These will have
no scrap value.
Required:
(a) What is the process cost per unit for the Binding Process in the month?
(b) What is the value of closing work-in-progress carried forward on the Binding Process at the end
of the month?

Questions
3. Explain the treatments for normal losses and abnormal losses in the costing system, and the
rationale behind such treatments.
4. Explain briefly the term joint products in the context of process costing.
5. Discuss whether, and if so how, joint process costs should be shared amongst joint products.
6. Discuss the problems which joint products and by-products pose the management accountant,
especially in his attempts to produce useful product profitability reports. Outline the usual
accounting treatments of joint and by-products and indicate the extent to which these treatments
are effective in overcoming the problems you have discussed. In your answer, clearly describe
the differences between joint and by-products and provide an example of each.