[A16Q3]

Q.3 Bela Enterprises (BE) produces a chemical that requires two separate processes for its
completion. Following information pertains to process II for the month of August 2016:

kg Rs. in '000
Opening work in process (85% to conversion) 5,000 2,000
Costs for the month:
Received from process I 30,000 18,000
Material added in process II 15,000 10,000
Conversion cost incurred in process II - 11,000
Finished goods transferred to warehouse 40,000 -
Closing work in process (60% to conversion) 4,000 -

In process II, material is added at start of the process and conversion costs are incurred evenly
throughout the process. Process losses are determined on inspection which is carried out on
80% completion of the process. Process loss is estimated at 10% of the inspected quantity and
is sold for Rs. 100 per kg.
BE uses FIFO method for inventory valuation.

Required:
(a) Prepare a statement of equivalent production units. (04)
(b) Compute cost of:
(i) finished goods (ii) closing WIP (iii) abnormal loss/gain (09)
(c) Prepare accounting entries to record production gain/loss for the month. (03)
Q-3 Aut-16 [SOLUTION]
Bela Enterprises
(a)
Statement of Equivalent Units
------------ Equivalent Units -----------
Output Total Units % complete Process I New material Conversion
Opening WIP: 5,000
- Conversion 15% 750
Started and Finished units 35,000 100% 35,000 35,000 35,000
Closing WIP: 4,000
- Process I 100% 4,000
- New material 100% 4,000
- Conversion 60% 2,400
Abnormal Loss (W-1): 1,900
- Process I 100% 1,900
- New material 100% 1,900
- Conversion 80% 1,520
Total Units 45,900 40,900 40,900 39,670

(b)(i) Cost of Finished Goods Rs.

Opening WIP:
b/f balance 2,000,000
New material -
Conversion [750 x 277.29 (W-3)] 207,968
2,207,968
Started and finished in the Period:
[35,000 x 951.86 (W-3)] 33,315,100
35,523,068

(ii) Closing WIP

Process I [4,000 x 430.07 (W-3)] 1,720,280
New material [4,000 x 244.50 (W-3)] 978,000
Conversion [2,400 x 277.29 (W-3)] 665,496
3,363,776

(iii) Abnormal Loss

Process I [1,900 x 430.07 (W-3)] 817,133
New material [1,900 x 244.50 (W-3)] 464,550
Conversion [1,520 x 277.29] 421,481
1,703,164
(c)
Entries Dr. Cr.
(i) Scrap inventory 410,000
WIP-2 410,000

(ii) Abnormal Loss 1,703,164

WIP-2 1,703,164

(iii) Scrap inventory [1,900 x 100] 190,000

P&L 1,513,164
Abnormal Loss 1,703,164

(iv) Cash [6,000 x 100] 600,000

Scrap inventory 600,000

Working - 1 Units
Opening WIP 5,000
Material Added 15,000
Received from Process 1 30,000
Closing WIP (4,000)
Normal Loss [W-2] (4,100)
Abnormal loss (bal.) (1,900)
Output 40,000

Working - 2
New material 15,000
Add: Received from Process 1 30,000
Less: Closing WIP (4,000)
Inspected Quantity 41,000
Normal Loss 4,100

Working - 3
Statement of Cost per Equivalent Units
Conversion
Process I Material Cost
Cost
Total cost for the period 18,000,000 10,000,000 11,000,000
Scrap value (410,000) - -
[4100 Kg x Rs.100/Kg] 17,590,000 10,000,000 11,000,000

Equivalent Units 40,900 40,900 39,670

Total
Cost Per Eq. Unit 430.07 244.50 277.29 951.86