Managerial Accounting
Venus Brewery is a craft brewery that produces a special light beer for ladies. The beer are processed sequentially in two departments (Department X and Department Y) before the final products are transferred to the finished goods store.
On 1 February 2016, the work in process in Department Y consisted of 12,000 litres which were 80% completed. During the month, a total of 160,500 litres were started and 148,500 litres were completed and transferred out. On 29 February 2016, 15,000 litres remained uncompleted. The ending work in process was 60% complete.
The cost information for Department Y for the month of February:
$ $
Work in process, 1 February 2016 80,000
Cost transferred in from Department X during February 642,000
Manufacturing costs added in Department Y during February
Direct materials 321,000
Conversion costs 541,275 862,275
Total manufacturing costs, Department Y 1,584,275
In Department Y, direct material and transferred-in costs are added at the beginning of the manufacturing process. However, conversion costs are incurred evenly throughout the manufacturing process.
Inspection at Department Y takes place when the products are 75% complete.
Normal spoilage averages at 5% of the good units produced.
The firm uses the FIFO method of process costing.
Required:
(a) (i) Compute the cost per equivalent unit for each product cost category in Department Y for the month of February.
(ii) Calculate the cost of goods transferred to the finished goods store at the end of February from Department Y.
(iii) Calculate the cost of abnormal spoilage for Department Y in February.
(iv) Calculate the cost of ending work in process in Department Y at the end of February.
(b) Pass all the necessary journal entries.
(c) Define "equivalent unit". Explain how the concept is used in process costing. State the circumstances under which it may be appropriate to ignore the concept of equivalent unit. Give two (2) examples.