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    Lec # 50 - Q-3 Spr-17

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    Bilal Gfx

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    © All Rights Reserved
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    Lec # 50 - Q-3 Spr-17

    Uploaded by

    Bilal Gfx
    3 views3 pages

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    Copyright:

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    3 views3 pages

    Lec # 50 - Q-3 Spr-17

    Uploaded by

    Bilal Gfx

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 3

    [S17Q3]

    Q.3 Ravi Limited (RL) is engaged in production of industrial goods. It receives orders from steel
    manufactures and follows job order costing. The following information pertains to an order
    received on 1 December 2016 for 6,000 units of a product:

    (i) Production details for the month of December 2016:

    Units
    Produced and transferred to finished goods 3,200
    Delivered to the buyer from the finished goods 3,000
    Units rejected during inspection 120
    Closing work in process (100% material and 80% conversion) 680

    (ii) Actual expenses for the month of December 2016:

    Rupees
    Direct material 1,140,000
    Direct labour (6,320 hours) 948,000
    Factory overheads 800,000

    Additional information:
    ▪ Factory overheads are applied at Rs. 120 per hour. Under/over applied factory overheads are
    charged to profit and loss account.
    ▪ Units completed are inspected and transferred to finished goods. Normal rejection is estimated at
    10% of the units transferred to finished goods. The rejected units are sold as scrap at Rs. 150 per
    unit.
    ▪ RL uses weighted average method for inventory valuation.

    Required:
    (a) Prepare work in process account for the month of December 2016. (08)
    (b) Prepare accounting entries to record:
    ▪ over/under applied overheads
    ▪ production losses and gains (05)
    Answer to Q-3 [Spr-17]
    Ravi Limited
    (a)
    Work in Process account
    Units Rs. Units Rs.
    Material (balancing) 4,000 1,140,000 Transferred out * 3,200 2,490,332
    Labor 948,000 Normal loss [3,200 x 10%] 320 48,000
    FOH applied [6,320 x 120] 758,400 Closing WIP 680 463,714
    Abnormal gain [320 - 120] 200 155,646

    4,200 3,002,046 4,200 3,002,046


    -
    * After adjusting the rounding off difference

    W-1
    Equivalent production
    -------- Eq. units --------
    Units % Material Conversion
    Transferred units 3,200 100% 3,200 3,200
    Abnormal gain (200) 100% (200) (200)
    Closing WIP: 680
    Material 100% 680 -
    Conversion 80% - 544

    [A] 3,680 3,544

    Cost per unit ------------ Rs. ------------


    Material Conversion
    Total cost 1,140,000 1,706,400
    Scrap value of normal loss [320 x 150] (48,000) -
    [B] 1,092,000 1,706,400

    Per unit cost [B / A] 296.74 481.49

    Statement of evaluation Rs.


    Cost of completed units 2,490,336
    [3,200 x (296.74 + 481.49)]

    Cost of closing WIP:


    Material [680 x 296.74] 201,783
    Conversion [544 x 481.49] 261,931
    463,714

    Cost of abnormal gain 155,646


    [200 x (296.74 + 481.49)]
    (b)
    Entries Dr. Cr.
    (i) P & L [800 - 758.4] 41,600
    FOH control 41,600
    [Under applied FOH charged to P&L]

    (ii) Scrap inventory 48,000


    WIP 48,000
    [Normal loss recorded]

    (iii) WIP 155,646


    Abnormal gain 155,646
    [Abnormal gain recorded]

    (iv) Abnormal gain 155,646


    P&L 125,646
    Scrap inventory [200 x 150] 30,000
    [Abnormal gain charged to P&L]

    (v) Cash [120 x 150] 18,000


    Scrap inventory 18,000
    [Rejected units sold as scrap]

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