Question 2(15 marks)

A firm operates a process, the details of which for the period were as follows.There was no opening work-in-progress.During the period 8,250 units were received from the previous process at a value of $453,750, labour and overheads were $350,060 and material introduced was $24,750.At the end of the period, the closing work-in-progress was 1,600 units, which were 100% complete in respect of materials, and 60% complete in respect of labour and overheads.The balance of units were transferred to finished goods.

Requirements:

a)Calculate the number of equivalent units produced.

(3 marks)

b)Calculate the cost per equivalent unit.

(2 marks)

c)Prepare the process account

(7 marks)

d)Distinguish between joint products, and by-products, and briefly explain the difference, in accounting treatment between them

(3 marks)

(Total 15 marks).

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Question 3(10 marks)

The management of Springer plc is considering next year’s production and purchase budget.

One of the components produced by the company, which is incorporated into another product before being sold, has budgeted manufacturing costs as follows:

$

Direct Material14

Direct labour (4 hours at $3 per hour)12

Variable overhead (4 hours at $2 per hour)8

Fixed overheads (4 hours at $5 per hour)20

Total Cost$54per unit

Trigger plc has offered to supply the above component at a guaranteed price of $50 per unit.

Required:

a)Considering cost criteria only, advise management whether the above component should be purchased from Trigger plc.Any calculation should be shown and assumptions made, or aspects which may require further investigation should be clearly stated.

(6 marks)

b)Explain how your advice would be affected by the following:

“As a result of recent government legislation if Springer plc continues to manufacture this component, the company will incur additional inspection and testing expenses of $56,000 per annum, which are not included in the above budgeted manufacturing costs.”

(4 marks)