IL. Flamingo Salt Flamingo Salt is a UK firm, that describes themselves as \"bul
ID: 2515716 • Letter: I
Question
IL. Flamingo Salt Flamingo Salt is a UK firm, that describes themselves as "bullk suppliers of high quality graded marine road de-icing salt (grit). We also supply in bulk, refined superior quality solar sea salt for the table, industrial use, bleach, dye and leather works, water softening etc." from Flamingo Salt's web page. Flamingo Salt's main factory produces both road salt and table salt (using raw, unprocessed salt as an input). During the month of September, Flamingo Salt produced (i.e., completed) SALT 12,000 metric tons of table salt. 18,000 metric tons of road salt. There are three departments (see next page for a summary of direct labor and overhead costs): Crushing Department: The crushing department takes raw, recently mined salt as an input, crushes it, and removes the largest impurities. All salt products pass through the crushing department. Raw salt is added to the crushing department at the start of the process. Assume that each metric ton of raw salt will produce one metric ton of finished product (i.e., the weight of the impurities screened out is immaterial). Crushing direct labor (at actual cost) and overhead (see next page) are added evenly during the process At the start of September, there was £240,000 worth of work in process in the crushing department, which was 20% done with respect to labor and overhead. This included 6,000 metric tons of raw material, at a total cost of £210,000, and £30,000 worth of conversion costs (labor and overhead). During September, another 30,000 metric tons of raw materials were added to the crushing department (with a cost of £35 per metric ton), and there was no work-in-process in the crushing department at the end of September. Thirty-six thousand metric tons were transferred out of the crushing department: 12,000 metric tons went to the purifying department and 24,000 metric tons went to the mixing department. Purifying Department: The purifying department converts crushed salt (produced by the crushing department) into table salt. Road salt does NOT pass through the purifying department. Purifying department labor (at actual cost) and overhead (see next page) is added evenly during the process. Other than the crushed salt transferred in from the crushing department, there is no material costs in the purifying department. The purifying department had no work-in-process inventory at either the start of September or at the end of September. Mixing Department: The mixing department converts crushed salt (produced by the crushing department) into road salt, by adding small amounts of grit and special chemicals. Table salt does NOT pass through the mixing department. Mixing department labor (at actual cost) and overhead (see next page) is added evenly during the process. Other than the crushed saltExplanation / Answer
1.
Cost of 36,000 metric tons transferred out of crushing department at the time they were transferred out
Since opening stock include 6,000 metric tons complete to the extent of 20% in respect of labour and overheads, balance 80% need to be completed in current month.
Cost of 36,000 metric tons transferred out of crushing department:-
Opening cost=> Material cost $ 210,000
Conversion cost $ 30,000
Current cost=> Material cost $1,050,000 (30,000 M.tons * $35 per M.ton)
Conversion cost $ 240,000 (Actual Direct labour)
$ 576,000 (Estimated overhead*Actual Direct Labour/Estimated Direct Labour)
(900,000*240,000/375,000) (Note1)
Total cost of 36,000 metric tons $2,106,000
Note 1:- Overhead is allocated based on actual direct labour cost using predetermined (i.e estimated) overhead rate and any estimation errors are not prorated to inventory at the end of the period. Overhead rate = Estimated overhead/ Estimated Direct labour i,e 900,000/375,000= 2.4 times of direct labour.
Overheads cost for current period= 2.4 times*direct labour cost i.e 2.4*240,000= 576,000
2.
Total value of Work in process at end of september
WIP= 6000 metric tons of Road Salt at 75% of direct labour and overheads completed
Cost of 6,000 metric tons at the time they were transferred out of crushing department = 2,106,000*6,000/36,000 = 351,000
Cost of Mixing process
Current cost=> Conversion cost $ 45,000 (Direct labour)
$108,000 (Estimated overhead*Actual Direct Labour/Estimated Direct Labour)
(900,000*45,000/375,000) (same as Note1)
Total Coversion cost $153,000
(+) Crushing department cost $351,000
Total value of WIP $504,000
Particulars Raw material % of completion Labour & Overhead % of completion Opening inventory 0 100% 4,800 80% introduction in current process and completed 30,000 100% 30,000 100% Total units 30,000 34,800