Q.

9 Hercules Chemical Company Limited is engaged in the production of chemicals using two
processes. Chemical T is used in Process 1, which produces chemicals L and M along with by-
product N, in the ratio of 6:5:1. However, there is a wastage of 10% at Process 1 due toevaporation
loss, identified at the end of the process.

Chemical M undergoes further processing in Process 2, where it is combined with the chemical V
to produce chemical P. 15% of the input is produced as waste, identified at theend of the process,
which needs to be disposed of at a cost of Rs. 50 per litre.

The following data pertains to the month of August 2023:

Process 1 Process 2
Description
----------- Litres -----------
Input of Chemical T (Cost per litre – Rs. 240) 20,000 -
Input of Chemical V (Cost per litre – Rs. 180) - 1,750
Production:
– Chemical L 8,700 -
– Chemical M 7,250 -
– Chemical N 1,450 -
– Chemical P - 7,650
– Chemical waste 1,350

Direct labour (Rs. 350 per hour) 12,000 hours -

Direct labour (Rs. 300 per hour) - 2,000 hours

Additional information:
(i) Joint costs are allocated on the basis of net realizable value at the split-off point.
(ii) The net realizable value of the by-product N is credited to Process 1.
(iii) Factory overheads are applied at a rate of 180% of the direct labour cost in both
processes. There were no under/over absorbed factory overheads.
(iv) There was no opening or closing work-in-process inventory.
(v) There was no opening inventory of finished goods. However, 500 litres of L and 400
litres of P remained unsold at the end of the month.
(vi) The sale prices of the chemicals are as follows:

Sale price
Direct selling costs
(Rs. per litre)
Chemical L 5,000 Rs. 500 per litre plus 4% commission
Chemical N 1,000 Rs. 40 per litre
Chemical P 7,000 Rs. 600 per litre plus 5% commission

Required:
Prepare the following ledger accounts:
(a) Work-in-process - Process 1 (11)
(b) Work-in-process - Process 2 (05)
Answer # 9:
Hercules Chemical Company Limited
Process 1
Liters Rupees Liters Rupees

Chemical T 20,000 4,800,000 Transferred to finished 8,700 6,699,292

(20,000×240) goods inventory (W-1)
(Chemical L)
Direct 4,200,000 WIP-2 (Chemical M) 7,250 7,918,811
labour (12,000×350) (W-1)
FOH 7,560,000 Finished goods by- 1,450 1,392,000
applied (4,200,000×180%) Product N (W-1)
Normal loss 2,000 -
(20,000×10%)
Abnormal loss 600 549,897
(Bal. fig.) (W-1)
20,000 16,560,000 20,000 16,560,000

Process 2
Liters Rupees Liters Rupees

WIP-1 7,250 7,918,811 Finished goods (Chemical P) 7,650 9,981,311

(Chemical M)
Chemical V 1,750 315,000 Chemical waste 1,350
(1,750×180) [7250+1750] ×15% [Also
given which means
expected is actual]
(1350×180%)
Direct labour 600,000
(2,000×300)
FOH applied 1,080,000
(600,000×180%)
Disposal cost
(1,350×50) 67,500
9,000 9,981,311 9,000 9,981,311

w-1:

Chemical V 1750 L
Process 1
20,000 L L 8,700 L
M 7,250 L
N 1,450 L [By-product]
Normal loss 2000 (20000×10%)
Process 2 P[7,650L]
Abnormal loss 600L waste [1,350L]
W-1.1
Process I Process II

Direct Material (Chemical T) 4,800,000 Direct material 315,000

(20000×240) (1750×180)
(Chemical V)
Direct Labor (12,000×350) 4,200,000 Direct labour 600,000
(2000×300)
F. OH (4,200,000×180%) 7,560,000 F. OH 1,080,000
(600000×180%)
Total 16,560,000 1,995,000

less: Recovery value of by-product (1,392,000) Add: Disposal cost 67,500

[1450×960] (1000-40) of Normal loss
(1350×50)
Net cost 15,168,000 Total 2,062,500

less: Cost of Ab. Loss (549,897)

[15,168,000/8700+7250+600) ×600

Net joint cost (to be allocated) 14,618,103

W-2
Allocation table
Unit Sale price Sale Further Sale Selling expense
produced per liter value processing cost value at
split off
Chemical 43,500,00 - 43,500,00 6,090,000 (8,700×
L 8,700 5,000 0 0 (500+200)
(5,000×4%)
Chemical 53,550,00 2,062,500 (w- 51,487,50 7,267,500 (7,650×
P 7,650 7,000 0 1.1) 0 (600+350)(7,000×5
%)

. NRV Allocation
Chemical L 37,410,000 6,699,292
Chemical P 44,220,000 7,918,811
Total 81,630,000 14,618,103 (w-1.1)