Lucan Limited has two processes Material is introduced at th

Lucan Limited has two processes. Material is introduced at the beginning of the process in Department A, and additional material is added at the end of the process in Department B Conversion costs are applied uniformly throughout both processes. Data for the month of March 2017 includes the following Opening work in progress (units) Units put into process Units completed during March Closing work in progress (units) Material costs added for 50,000 units Dept. A Nil 50,000 48,000 2,000 22,000 N/A 19,600 Dept. B 12,000 Transferred from A 44,000 16,000 N/A 13,200 63,000 Material costs added this month Conversion costs added during March In Department A, there was no opening WIP. Closing stock was 50 per cent complete and there were no gains or losses during the month In Department B, opening work in progress was 50 percent complete and valued at 21,000 (comprising prior department costs, 9,800 and conversion costs, 11,200). Closing stock was 25 percent complete and there were no gains or losses during the period Requirement (a)Prepare the Process T Account for Department A under (i)The FIFO Method, and (10 marks) (ii)The Weighted Average Cost Method (10 marks)

Solution

Solution:

Part 1 --- Process T-Account for Department A using FIFO Method

FIFO Method in Process Costing

Physical Units Count

In FIFO method, the unit of beginning inventory is completed first and then Units received during the period is completed.

Equivalent units of Material

In FIFO method,

- First we calculate the cost per equivalent units of material and conversion by using the cost incurred during the current period i.e. current period cost and divide by equivalent units of production.

- While calculating the equivalent cost per unit of production beginning WIP cost is ignored.

Cost Accounted for:

Cost of Beginning Units is the sum of following

(i) Current Period Cost (i.e. the cost of equivalent production units part of beginning inventory completed during the period and

(ii) the cost of beginning inventory

The part of beginning inventory completed during the period is calculated by multiplying the cost of equivalent units with the completed equivalent part of beginning units during the current period

Ending Inventory

The Ending Inventory is valued at current period cost i.e. the cost added during the current period/month.

Process Account for Department A (Under FIFO Method)

Particulars

Units

Amount

Particulars

Units

Amount

Opening Work in process

0

€ 0.00

Completed and Transferred to Department B (Refer Note 1)

48,000

€ 40,320.00

Direct materials

50,000

€ 22,000.00

Closing Work in progress (Refer Note 1)

2,000

€ 1,280.00

Conversion Costs

€ 19,600.00

€ 41,600.00

€ 41,600.00

Note 1 --- Calculation of Cost of Units completed and transferred to Department B by Department A and the cost of ending work in progress in Department A

Calculation of Equivalent Units of Production

Equivalent Units

Whole Units

Direct Material

Conversion

Beginning goods in process

0

0

0

Completed and Transferred to Dept. B during the period (100% completed in all respect)

48,000

48,000

48,000

Closing work in progress (100% complete w/r to material and 50% complete w/r to labor)

2,000

2,000

1,000

Total units to be assigned cost

50,000

50,000

49,000

Calculation of Cost per Equivalent Unit of Production in Department A

Direct materials

Conversion

Cost per Equivalent Unit:

Total Cost added during the period

€ 22,000

€ 19,600

Total equivalent units

50,000

49000

Cost per Equivalent Unit

€ 0.44

€ 0.40

Assignment of Cost to Completed and Transferred Units to Dept B and Closing Work In Progress

Cost allocated to completed and partially completed units:

Direct materials

Direct labor

Total

Completed and Transferred Units to Department B from Dept. A

€ 21,120.00

€ 19,200.00

€ 40,320.00

Closing Work In Process (Dept.A)

€ 880.00

€ 400.00

€ 1,280.00

Part 2 --- Process T-Account for Dept A under Weighted Average Method

Weighted Average (Average Cost) Method

Physical Units Count

Under this method the percentage completion done in the Beginning Inventory is ignored while calculating the equivalent completed units during the current period. Beginning Inventory Units are treated as fresh units introduced for production.

Cost Accounted for:

- The cost of opening work-in-progress and cost of the current period are aggregated and the aggregate cost is divided by output in terms of completed equivalent units.

- The units of Beginning Inventory of WIP and their cost are taken in full under this method

Ending Inventory

The Ending Inventory of WIP is valued at total cost i.e. Cost added during the month/period and Cost of Beginning WIP.

Note --- Since there is no opening inventory in Department A, the Process T-Account will be same as the Part 1 we prepared for FIFO Method.

Process Account for Department A (Under Weighted Average Method)

Particulars

Units

Amount

Particulars

Units

Amount

Opening Work in process

0

€ 0.00

Completed and Transferred to Department B (Refer Note 1)

48,000

€ 40,320.00

Direct materials

50,000

€ 22,000.00

Closing Work in progress (Refer Note 1)

2,000

€ 1,280.00

Conversion Costs

€ 19,600.00

€ 41,600.00

€ 41,600.00

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Process Account for Department A (Under FIFO Method)
Particulars	Units	Amount	Particulars	Units	Amount
Opening Work in process	0	€ 0.00	Completed and Transferred to Department B (Refer Note 1)	48,000	€ 40,320.00
Direct materials	50,000	€ 22,000.00	Closing Work in progress (Refer Note 1)	2,000	€ 1,280.00
Conversion Costs		€ 19,600.00
		€ 41,600.00			€ 41,600.00