[kiptoolangat]

Am doing a class assignments on cost accounting. The question below failed me.Kindly solve it for me.Would be grateful.
b) Nitro Manufacturing Company, manufactures a single product that is processed sequentially in three departments I, II and III. The following information is obtained in respect of process in departments II for the month of November 2001.
Opening work-in progress was 2,600 units valued at Sh 6,500.
Degree of completion:

Materials 60%
Labour 50%
Overheads 40%

The transfer from department I during the month was 13,000 units valued at Sh 19,500.

Units transferred to department III were 10,600.
Direct material added in department II amounted to Sh 15,900.
Direct labour amounted to Sh 13,100.
Overhead amounted to Sh 17,500.

Work in progress at 30 November 2001 was 1,500 units which had the following degrees of completion:

Materials 70%
Labour 40%
Overheads 40%

During the month, 900 units were scrapped. Normal loss was 10% of production and the units scrapped realized Sh 2 per unit.

Required:
A statement of production, cost and equivalent units showing:

I) Equivalent units of production by element of cost (4 marks)
ii) Valuation of finished goods (3 marks)
iii) Valuation of closing work in progress (3 marks)
iv) Abnormal gain/loss in units (3 marks)

[morgaine300]

I'm not going to solve it for you. It's your work to be done. Are you saying you don't understand it? It's a big topic that takes up a good chunk of a chapter and really too complicated to just explain in a forum post, meaning you would have to narrow it down and ask some specific questions.

Or do you mean that you did it and got it wrong? If so, post what you did and someone can check it for you.

[rehmanvohra]

I fully agree with morgaine300 so far as the complexity involved in process costing.

As far as I understand the question, there are quite a few points to consider:

1. Treatment of scrap sales presumably follows British pattern, which reduces the cost of materials added in Process II to the extent of notional scrap sales realizable on normal sales.

2. Since the value of opening work in process is stated in total the valuation will be on FIFO basis.

3. The question says "Normal loss was 10% of production". But does not mention the inspection stage, i.e. the incurrence of normal loss at the beginning, during or end of process.