Question1) Process Costing
The Mercury Pet Food Division of global FMCG company Venus Foods operates three manufacturing plants at its production site in Tasmania. One of these manufacturing plants produces ‘Chunky’ canned dog food. Mercury operates a 24 hour a day, 7 days a week manufacturing facility producing ‘Chunky’ which prepares product costing reports based on a process costing system.
All of the ‘Chunky’ Raw Material ingredients are added at the commencement of the process where the carefully formulated and measured portions the various meats, vegetables, grains and other supplements are mixed together. The cans are introduced when the manufacturing process is 20% complete. The dog food mixture is added to the cans at this point and the cans are sealed and ingredients cooked. For the purpose of accounting the conversion costs of manufacturing are assumed to occur evenly across the whole of the production cycle.
The following information relates to the production of ‘Chunk’ dog food during the month of May 2013.
Work-in-Process: May 1, 2013 187,652 Cans
Stage of completion Value
Ingredients 100% $116,000
Cans 100% $32,000
Conversion 55% $28,500
Work-in-Process: May 31, 2013 158,620 Cans
18% Complete
During May 4,875,000 cans commenced production and the following costs were incurred.
Costs incurred during May 2013:
Ingredients $3,546,500
Cans $1,052,000
Conversion $1,537,500
Required:
(i) Using the Weighted Average Cost Method determine the cost value of closing WIP and the cost value of goods transferred out during the period.
(ii) Using the First In First Out (FIFO) method determine the cost value of closing WIP and the cost value of goods transferred out during the period
Question2) Job costing
The Mercury Pet Food firm has a Maintenance & Service Department which performs all maintenance and repairs on the three pet food manufacturing facility at the company’s manufacturing site in Tasmania.
Because of the range and variety of tasks that the Maintenance & Service Department perform for the different manufacturing facilities a job costing system is used to record costs and jobs are billed at cost. Materials and Direct labour are directly charged to each job and Overhead is allocated using Direct Labour as the cost driver.
According to its accounts on May 1st 2013 the Maintenance & Service Department Work-in-Process (WIP) account had a balance of $45,267 which was made up of the following jobs:
Job Description Factory Materials Direct Labour Overhead Total
675 Re-Build switchboard Chunky $12,500 $6,000 $2,000 $20,500
676 Routine Maint. Budgie $500 $2,000 $667 $3,167
678 Hydraulic Lift Budgie $18,500 $0 $0 $18,500
680 Routine Maint. Katekit $1,500 $1200 $400 $3,100
Totals $33,000 $9,200 $3,067 $45,267
In a normal month the Maintenance & Service Department will incur Direct Labour costs of $120,000 and department overhead is expected to amount to $40,000 per month. During May the following costs were recorded to job cards in the Maintenance & Service Department and Jobs 675 through to 684 were completed and invoiced:
Job No. Materials Direct Labour
675 $0 $2,000
676 $500 $4,800
678 $0 $2,700
680 $22,500 $6,000
681 $0 $15,000
682 $84,500 $48,600
683 $1,500 $12,000
684 $62,500 $6,000
685 $25,000 $24,000
$196,500 $121,100
Actual overhead for the month of May was calculated to be $38,500.
Required:
(i) Prepare a Job Cost Summary sheet for the month of May to determine the cost of all jobs completed and the closing balance of the WIP account on May 31st.
(ii) Was Overhead over or under-allocated during May, and if so by how much?
Question3) Just-in-time
What are the benefits of operating a JIT manufacturing system? What are the business risks associated with such an approach?
Questio4) Activity Based Costing
What are the benefits of operating an ABC product costing system? Why don’t more firms adopt the ABC approach?
Please note that answering Question 6 and Question 7 will require you to research, read and reference Management Accounting literature beyond the materials provided in the text, study guide and subject Interact site.