Unit 6: Cost Per Unit

Practice Questions

Process Costing

Question 1

La La Land Ltd operates a single process to manufacture soap.

The following figures relate to a recent period.
Input Material 20,000 kilos at $5 per kilo
Labour 16,000 hours at $6.25 per hour
Overhead 16,000 hours at $3 per hour
There is an expected loss of 5% of input weight, which can be sold for $1.2 per kilo.
The actual output for the period was 19,800 kilos.
Required:
Prepare, showing all relevant workings:
The main process account

Process A/C
Units $ Units $
Material 20,000 100,000 Normal Loss 1,000 1,200
Labour 100,000 Actual Output 19,800 257,192
Variable Overhead 48,000
Abnormal Gains 800 10,392
20,800 258,392 20,800 258,392
Question 2

Billy Buck Ltd manufactures a product by passing a raw material through processes A and B.
Details for a recent period are:

Process A
Input material 10,000 kilos at $3 per kilo
Labour and overhead $17,800
Expected loss is 10% of input
Scrap value of losses $0.3 per kilo
Actual output transferred to process B 8,800 kilos

Process B
Transfer from process A 8,800 kilos
Labour and overhead $26,740
Expected loss is 10% of input
Scrap value of losses $4.4 per kilo
Transfer to finished stock 8,300 kilos

Required:
(a) Prepare accounts for
(i) Process A
(ii) Process B

Process A/C
Units $ Units $
Material 10,000 30,000 Normal Loss 1,000 300
Labour/ Overhead 17,800 Actual Output 8,800 46,445
Abnormal Loss 200 1,055
10,000 47,800 10,000 47,800

Input Cost – Scrap value/actual output + abnormal loss

47,800 – 300/8,800 + 200

5.27777
 Process A/C
Units $ Units $
Actual Output 8,800 46,445 Normal Loss 880 3,872
Labour/ Overhead 26,740 Finish Goods 8,300 72,638
Abnormal Gain 380 3,325
9,180 76,510 9,180 76,510

Input Cost – Scrap value/actual output + abnormal loss

73,185 – 3,872/8,300 – 380

= 8.7516414

Job Costing

Spider Ltd. is a Fashion designer specialising in the designing and manufacture of vogue dresses.
The following data relates to Job Sheer Canvas:

Materials
15 square metres of sheer fabric @ $18.50 per square metre
6 square metres of canvas fabric @ $24.75 per square metre
4 litres of acrylic @ $16.00 per litre
60 fastenings @ $1.50 each
Labour – Department A
5 hours @ $90.00 per hour
Labour – Department B
8 hours @ $120.00 per hour
Overheads
These are charged to completed jobs at the following rates:
Department A – $50.00 per direct labour hour
Department B – $160.00 per direct labour hour
Company policy requires that all prices include a gross profit margin of 40%

Required:
(a) Calculate the full absorption cost of Job Sheer Canvas.
(b) Calculate the selling price of Job Sheer Canvas as dictated by company policy.
Materials
15 square metres of sheer fabric @ $18.50 per square metre 277.50
6 square metres of canvas fabric @ $24.75 per square metre 148.50
4 litres of acrylic @ $16.00 per litre 64.00
60 fastenings @ $1.50 each 90.00
Total Material Cost 580.00
Labour
Labour – Department A 5 hours @ $90.00 per hour 450.00
Labour – Department B 8 hours @ $120.00 per hour 960.00
Total Labour Cost 1,410.00
Overheads These are charged to completed jobs at the following rates:
Department A – $50.00 per direct labour hour 250.00
Department B – $16.00 per direct labour hour 128.00
Total Overhead Cost 378.00
Total Production Cost 2,368.00