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Pure4sure PLC manufactures a product that passes through two different processes. A and B. It has provided the following data for process A:
Material input onto the process 20,000 units
Direct material $50,000
Direct labour $40,000
Units transferred to next process 18,000
Normal loss 1,600 units
Production overheads 120% of direct labour
Scrap value of normal loss is nil1. What is the normal cost per unit for process A?
2. What is the value of the abnormal loss for process A?Normal cost is worked out on the assumption that everything went according to plan, ie that if 20,000 units were input, 18,400 would be produced (normal/expected loss = 1,600).
Cost per unit = (50,000 + 40,000 + 1.2 x 40,000)/18,400 = 138,000/18,400 = 7.5 per unit.
Abnormally lost units identified at the end of the process cost the same to make as good units….just think of them as having a scratch on them so that they need to be scrapped.
The 400 abnormally lost units cost 400 x 7.5 = 3000 to make.
Q2, above, asks for the value of these. That would be zero as lost units have nil scrap value, but I think the question means to ask the cost of the abnormal loss, ie 3,000.
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Question 4
Direct Products Ltd manufactures and sells four products, A, B, C and D. Due to a limit on the
labour capacity of 1,200 direct hours in the next period the company considers it will not be
able to meet its anticipated sales demand and is therefore considering buying in some units
from an outside supplier to make up any shortfall. There is no finished goods stock. The
following budgeted information has been provided for the next period.
A B C D
Sales demand (units) 600 200 300 200
Selling price per unit RM25 RM40 RM30 RM50
Direct material (per unit) RM2 RM4 RM3 RM4
Direct labour hours (per unit) 1 1.5 1 2
Direct labour is budgeted at RM10 per direct labour hour.
Variable overheads are budgeted at RM2 per direct labour hour.
Fixed production overheads absorbed at a rate of RM8.00 per unit produced are expected to be
RM10,400.
An outside supplier has quoted RM19, RM28, RM21 and RM37 per unit respectively for
products A, B, C and D.
Required
(a) Advise the company on which products, and how many, it should buy in order to achieve
the budgeted output at minimum cost. Support your advice with calculations.
(b) Produce a budgeted manufacturing and trading account for the period.Is (a) is using makw/buy-in problems and limiting factors?
May i know how to do (b)?This forum is to answer short questions, not to solve whole exercises.
But, yes it is limiting factors and make/buy.
For part (b), you will have calculated the optimal production in (a), so this part simply requires a profit and loss account (or manufacturing account and trading account) based on that production.
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