Process Costing and Joint Costing (LECTURE 4)

Question 1

What are the two methods when there is opening WIP?

Answer 1

1. Weighted Average

2. FIFO

Question 2

WEIGHTED AVERAGE

Answer 2

The WA method assumes opening WIP becomes an integral and inextricable part of production. So it would not be possible to separately identify opening WIP.

Question 3

FIFO

Answer 3

Assumes that production concentrates initially on those items in opening WIP.

Current-period approach.

Question 4

What does it mean for WA and FIFO if production is roughly in equilibrium?

Answer 4

Would not anticipate significant differences (in first process) between WA and FIFO.

Question 5

How is CPU calculated in FIFO?

Answer 5

Remove opening WIP from CPU calculation.

In third column complete less open WIP eqs.

Question 6

What are the column headings for weighted average?

Answer 6

Element
Op. WIP £
Current £
Total £
Complete 
WIP eqs
Total 
CPU £

Question 7

What are the headings for FIFO?

Answer 7

Element
Current £
Complete less open WIP EQUs
Closing WIP EQUs
Current total EQUs
CPU £

Question 8

Headings for opening WIP?

Answer 8

Element
Cost £
Complete
WIP eq.
Total
CPU

Question 9

What is the “short cut” method?

Answer 9

Where you don’t identify normal losses in a separate column and instead split them up between completed production and WIP.

Abnormal losses should be separately identified as such when preparing cost-per-unit tables.

Question 10

SCRAP

Answer 10

Scrap is the excess unusable material that is left over after a product has been manufactured. This residual amount has minimal value, and is usually sold off for its material content.

Question 11

WASTE

Answer 11

Unwanted material left over from a production process, or output which has no marketable value.

Question 12

BY-PRODUCT

Answer 12

A product with minor sales value which is made, unintentionally, as a result of a joint process.

Can be sold immediately, or can be subject to further processing.

Question 13

BY-PRODUCT EXAMPLE:

A joint process produces two main products, D and E. By product F is sold for £4/kg after further processing costs of £1.50/kg.

In a period, 94,000 kg of raw material was introduced into a joint process.
30,000 kg of D and 60,000 kg of E emerged.
Joint processing costs were £190,000.

Uses PHYSICAL MEASURES to allocate joint costs.

4,000 kg of by-product F emerged incidentally from the joint process.

Show how joint costs will be allocated.

Answer 13

Charge further processing costs of (4,000 x £1.50) = £6,000 against the sales value of the by-product (4,000 x £4) = £16,000. This gives £10,000.

Now set off the by-product sales revenue against the joint cost.

£190,000 - 10,000 = £180,000

Now allocate revised joint costs between the two products using physical measures.

JOINT COSTS:
D = £60,000
E = £120,000