QUESTION

T Ltd manufactures its product using a single process and the following
events occurred during December.

400 kg of material was input to the process at a cost of £5.375 per kg and 100
hours of direct labour were worked at a cost of £9 per hour. Production
overheads are absorbed at a rate of 150% of the direct labour cost. A total of
380 kg of finished product was transferred out of the process.

Normal Loss is 10% of the material input and any losses arise at the start of
the process (i.e. there is no loss in respect of direct labour and production
overhead). All losses are sold for scrap for £2 per kg. There was no opening
or closing inventory.

Required

a) Prepare the process account for December.

9@150%=£13.5
Process Account

Material 400 2,150 Finished output 380 4,560

Conversion costs 2,250
Labour;100@£9= 900
Overhead;100@£13.5=1,350
Normal loss 40 80
Abnormal gain 20 240
420 4,640 420 4,640

Cost per Kg= (Input costs –sales value of scrap)/ Expected outcomes

Cost per kg = [(2,150 + 2,250) – 80] / (380 – 20) = 4,320 / 360 = £12

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b) Answer in Drury chapter 5 summary P127

c) Answer in Drury chapter 5 summary P127

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