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Respected Sir,
I have two doubts. The first one is with respect to Process costing and the second one with respect to EOQ.
Doubt 1 –
A firm operates a process costing system. Details of Process 2 for Period one are as follows –
During the period 8,250 units were received from the previous process at a value of $453,750, labour and overheads were $350,060 and material introduced was $24,750.
(I will not give further information as my doubt relates to the cost not the Equivalent Units)
My doubt is why do we add ‘materials introduced’ ($24,750) to the cost of $453,750 while calculating the cost per unit for materials ? What exactly is the explanation of this ‘materials introduced’ ? If it means more material is being introduced, then where are the units ?
I am assuming the units always go with the materials (as u say in your lectures), so the cost of $453,750 is for materials.
DOUBT 2 (EOQ) –
A company uses Material Z (cost $3.50 per kg) in the manufacture of Products A and B.
The following forecast information is provided for the year ahead :Product A Product B
Production (units) 25,300 10,100
Material Z usage (kg per completed unit, net of wastage) 1.8 3.0
Material Z Wastage (%) 5 11(I won’t give further information as my doubt relates to annual demand)
My doubt is, while calculating the total requirement for material Z (in kgs) for the year ahead, why are we taking gross of wastage ? Meaning we are adding back the 5% wasted for Product A and 11% wasted for Product B.
If we are forecasting 5% is going to go waste, then whats the point of ordering it ? I hope my doubt is clear.
Doubt 1: Suppose they are making cars. In the first process maybe they take the steel and turn it into a car. In the second process maybe they take the cars from the first process and then paint them.
The steel and the paint are both materials – paint is introduced into the second process, but it does not mean that they are making more cars!!Doubt 2:
It is common in practice for there to be waste as part of a process. If you were to paint your room you would order a little more paint than in theory you should need because some will always be wasted – if only because some would always drip from the brush onto the floor 🙂
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