Process Costing, Costing System and Differences - Questions 1-3

Question 1

Lokal Food Manufacturer produces the "Fresh" brand of pasteurised coconut milk from one of its manufacturing processes. The following information of process inputs, outputs and work in process relates to the month of September 2018:

The opening and closing work in process are respectively 30 per cent and 60 per cent complete as to conversion costs.

Raw materials are added at the beginning of the manufacturing process. However, conversion costs are incurred evenly throughout the manufacturing process.

Spoilages are assumed to occur at the stage of completion where inspection takes place and these spoilages can be sold to a bio-fuel company at an estimated disposal value $0.25 per kg. Inspection takes place when the products are 90% complete. The opening work in process included raw material costs of $60,920 and conversion costs of $35,597.

Costs incurred during the period were:

The company uses FIFO method of process costing and assumes that the normal spoilage are 8 per cent of the good units produced. 

Required:

(a) Using the 4 step approach

(i) Compute the cost per equivalent unit for each product cost category for the month of September.

(ii) Calculate the cost of goods transferred to the finished goods store at the end of

(iii) Calculate the cost of abnormal spoilage in September.

(iv) Calculate the cost of ending work in process at the end of September.

(v) Calculate the unit cost of the finished goods transferred (rounded to 2 decimal places).

(b) Pass all the necessary journal entries.

The costing system plays an important role in every organization within the decision making process. Knowing and understanding the costs of your products or services represent a decisive factor for making decisions or planning future activities. 

Required

Select an organization with which you are familiar. Using your own words as much as possible,

and in not more than 1,500 words,

(a) Provide a brief description of the organisation - background, the organizational structure, the nature of business, the industry and the environment it is operating in, its products/services, etc.

(b) Describe the costing system adopted and how it is used to provide vital cost information for the management.

(c) Does the costing system meet the needs of the organization? Discuss.

Manufacturing firms can use actual costing or normal costing to determine the costs of their products. A survey shows that most company do not use the actual costing system to cost their products and services. Instead, normal costing system is commonly used.

Required:

(a) What is normal costing system and explain how it is different from actual costing?

(b) Explain why most companies prefer to use normal costing system instead of the actual costing system.