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.