Question

QUESTION 4

(15 Marks)
In the production of cotton fabric, Fine Fabric makes use of two processes. As a management accountant, you have been
requested to calculate the value of finished goods for the month ended 31 March 2019. You have been provided with the
following information related to Process B for the month ended 31 March 2019:
Opening work-in-progress (OWIP) costs:
Process 1
Material
Conversion costs
Costs incurred during March 2019:
Transferred from the previous process
Material
Conversion costs
Metres of polyester fabric for Process 2 (March 2019):
OWIP (80% complete)
Transferred in from the previous process
Finished goods
Closing WIP (35% complete)
Additional information for Process 2:
●
1 500 metres
1 200 metres
120 metres
*
R
Required:
Calculate the value of finished goods for the month ended 31 March 2019.
420
550
1 600
R
5 470
4 100
12 006
50 metres
Material is issued at the 20% mark of the production process.
Conversion costs are incurred evenly during the process.
Normal wastage is estimated at 10% of input and takes place when production is 40% complete. Cotton fabric
that is wasted has a saleable value of R1.20 per metre.
Abnormal loss units do not share in the normal loss allocation.
The company uses the weighted average stock valuation method.

Required :
Calculate the value of finished goods for the month ended 31 march 2019.

Answer 1

Step-by-step explanation:

To calculate the value of finished goods for the month ended 31 March 2019, we need to consider the costs incurred during the month and the units of production.

Given information:

Opening work-in-progress (OWIP) costs for Process B:

- Material: R420

- Conversion costs: R550

Costs incurred during March 2019 for Process B:

- Transferred from the previous process: R1,600

- Material: R4,100

- Conversion costs: R12,006

Metres of polyester fabric for Process 2 (March 2019):

- OWIP (80% complete): 1,200 metres

- Transferred in from the previous process: 120 metres

- Finished goods: 5,470 metres

- Closing WIP (35% complete): 50 metres

Additional information for Process 2:

- Material is issued at the 20% mark of the production process.

- Conversion costs are incurred evenly during the process.

- Normal wastage is estimated at 10% of input and occurs when production is 40% complete. The saleable value of wasted cotton fabric is R1.20 per metre.

- Abnormal loss units do not share in the normal loss allocation.

- The company uses the weighted average stock valuation method.

Let's calculate the value of finished goods for the month ended 31 March 2019:

1. Calculate the equivalent units of production for Process 2:

Equivalent units = (Units started and completed) + (Units in closing WIP x % completion)

Equivalent units = (1,200 + 120) + (50 x 35%)

Equivalent units = 1,320 + 17.5

Equivalent units = 1,337.5

2. Calculate the cost per equivalent unit:

Cost per equivalent unit = (Costs incurred during March 2019) / (Equivalent units)

Cost per equivalent unit = (R4,100 + R12,006) / 1,337.5

Cost per equivalent unit ≈ R13.84

3. Calculate the cost of completed units:

Cost of completed units = (Units started and completed) x (Cost per equivalent unit)

Cost of completed units = (1,200 + 120) x R13.84

Cost of completed units ≈ R16,608

4. Calculate the cost of abnormal loss:

Abnormal loss units = (Units in closing WIP) x (% completion of abnormal loss)

Abnormal loss units = 50 x (100% - 35%)

Abnormal loss units = 50 x 65%

Abnormal loss units ≈ 32.5

Cost of abnormal loss = (Abnormal loss units) x (Cost per equivalent unit)

Cost of abnormal loss ≈ 32.5 x R13.84

5. Calculate the value of finished goods:

Value of finished goods = Cost of completed units - Cost of abnormal loss

Value of finished goods ≈ R16,608 - (32.5 x R13.84)

Therefore, the value of finished goods for the month ended 31 March 2019 is approximately the calculated result.