A product passes through three distinct processes to completion. During the first week of March, 500 units are produced. The following information is obtained: Process I: Materials... A product passes through three distinct processes to completion. During the first week of March, 500 units are produced. The following information is obtained: Process I: Materials Rs. 30,000, Labour Rs. 25,000, Direct Expenses Rs. 5,000; Process II: Materials Rs. 15,000, Labour Rs. 20,000, Direct Expenses Rs. 1,000; Process III: Materials Rs. 10,000, Labour Rs. 25,000, Direct Expenses Rs. 5,000. The indirect expenses for the period were Rs. 14,000 apportioned to the processes on the basis of wages. Prepare Process Accounts showing total cost per unit in each process. Read more

Steps to Solve

1. Calculate Total Costs for Each Process

   For each process, add up the costs of materials, labor, and direct expenses:

   • Process I: [ \text{Total Cost I} = \text{Materials} + \text{Labour} + \text{Direct Expenses} = 30000 + 25000 + 5000 = 60000 ]

   • Process II: [ \text{Total Cost II} = \text{Materials} + \text{Labour} + \text{Direct Expenses} = 15000 + 20000 + 1000 = 36000 ]

   • Process III: [ \text{Total Cost III} = \text{Materials} + \text{Labour} + \text{Direct Expenses} = 10000 + 25000 + 5000 = 40000 ]

2. Calculate Total Wages and Apportion Indirect Expenses

   Determine the total labor costs which will be used to allocate the indirect expenses:

   [ \text{Total Wages} = \text{Labour I} + \text{Labour II} + \text{Labour III} = 25000 + 20000 + 25000 = 70000 ]

   Allocate the indirect expenses of Rs. 14,000 according to the proportion of wages for each process:

   • Process I: [ \text{Indirect Expenses I} = \left( \frac{\text{Labour I}}{\text{Total Wages}} \right) \times \text{Indirect Expenses} = \left( \frac{25000}{70000} \right) \times 14000 = 8928.57 ]

   • Process II: [ \text{Indirect Expenses II} = \left( \frac{\text{Labour II}}{\text{Total Wages}} \right) \times \text{Indirect Expenses} = \left( \frac{20000}{70000} \right) \times 14000 = 8000 ]

   • Process III: [ \text{Indirect Expenses III} = \left( \frac{\text{Labour III}}{\text{Total Wages}} \right) \times \text{Indirect Expenses} = \left( \frac{25000}{70000} \right) \times 14000 = 8928.57 ]

3. Calculate Final Total Cost for Each Process

   Add the indirect expenses to the total cost for each process:

   • Process I: [ \text{Final Total Cost I} = \text{Total Cost I} + \text{Indirect Expenses I} = 60000 + 8928.57 = 68928.57 ]

   • Process II: [ \text{Final Total Cost II} = \text{Total Cost II} + \text{Indirect Expenses II} = 36000 + 8000 = 44000 ]

   • Process III: [ \text{Final Total Cost III} = \text{Total Cost III} + \text{Indirect Expenses III} = 40000 + 8928.57 = 48928.57 ]

4. Calculate Cost Per Unit for Each Process

   Divide each process's total cost by the number of units (500):

   • Process I: [ \text{Cost Per Unit I} = \frac{\text{Final Total Cost I}}{500} = \frac{68928.57}{500} = 137.86 ]

   • Process II: [ \text{Cost Per Unit II} = \frac{\text{Final Total Cost II}}{500} = \frac{44000}{500} = 88 ]

   • Process III: [ \text{Cost Per Unit III} = \frac{\text{Final Total Cost III}}{500} = \frac{48928.57}{500} = 97.85 ]