QUESTION 2 (33 marks) (Module 5) Mist Fertilizer Ltd manufactures pre-mixed gard
ID: 2536655 • Letter: Q
Question
QUESTION 2 (33 marks) (Module 5) Mist Fertilizer Ltd manufactures pre-mixed garden fertilizer for the garden centre retail market. The original ingredients including nitrogen, phosphorous and potassium components are mixed in the Primary Process Department (PPD). The fertilizer mix is then transferred to the Granulating and Blending Department (G&BD) for blending and drying (and where a final ingredient is added 70% through the process) and then the mix is transferred to the Bagging Department (BD) where the product is finished and bagged ready for sale. Conversion costs (labour and overheads) are assumed to be incurred evenly throughout the process. In the Granulating and Blending Department (G&BD) at the commencement of June 2018, there were 10,800 kgs of mixture in progress, 50% complete, costing at 1 June 2018 $40,550 from the prior PPD, as well as $10,400 for conversion costs incurred in the G&BD so far. During the month of June, a further 80,000 kg of fertilizer mix came into the G&BD from the PPD, with costs attached from that prior department amounting to $109,270. The cost of mixture ingredients in the G&BD for June amounted to $108,960 while conversion costs incurred were $250,525. At the end of June there were 15,300 kgs of mixture on hand at the 75% point in the process, the rest having been transferred to the Bagging Department (BD). Required Using the excel templates provided below, determine the cost of the completed Granulating and Blending Department mixture for June, the cost of the incomplete mixture at the end of June, complete the Granulating and Blending Department Work In Process (WIP) Inventory Ledger Account for June, and prepare the general journal entry for materials transferred out of Granulating and Blending Department WIP during June using: a) the Weighted Average costing assumption (15 marks). b) the FIFO assumption (16 marks). c)
DATA
XZY Ltd
Product X
Product Y
Product Z
Average selling price
$ 8.00
$ 6.00
$ 40.00
Average variable overheads
$ 1.60
$ 1.20
$ 8.00
Prime costs (direct materials & labour)
$ 5.00
$ 3.00
$ 26.00
Total capacity at sales product mix
8,000,000
5,000,000
600,000
Aactual production
7,900,000
4,800,000
560,000
XZY Ltd
Schedule of Contribution Margin not Realized
Product X
Product Y
Product Z
Average selling price
Average variable overheads
Prime costs (direct materials & labour)
Contribution per unit
Total capacity at sales product mix
Aactual production
Lost production (B)
Capacity not utilized (%)
Contribution margin not realized (AxB)
DATA
XZY Ltd
Product X
Product Y
Product Z
Average selling price
$ 8.00
$ 6.00
$ 40.00
Average variable overheads
$ 1.60
$ 1.20
$ 8.00
Prime costs (direct materials & labour)
$ 5.00
$ 3.00
$ 26.00
Total capacity at sales product mix
8,000,000
5,000,000
600,000
Aactual production
7,900,000
4,800,000
560,000
Explanation / Answer
Solution:
XZY Ltd
Schedule of Contribution Margin not Realized
Product X
Product Y
Product Z
Average selling price (1)
$8
$6
$40
Average variable overheads (2)
$1.60
$1.20
$8
Prime costs (direct materials & labour) (3)
$5
$3
$26
Contribution per unit (A) [(1 - 2 - 3)]
$1.40
$1.80
$6.00
Total capacity at sales product mix
8,000,000
5,000,000
600,000
Aactual production
7,900,000
4,800,000
560,000
Lost production (B)
100,000
200,000
40,000
Capacity not utilized (%)
1.25%
4.00%
6.67%
Contribution margin not realized (AxB)
$140,000
$360,000
$240,000
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XZY Ltd
Schedule of Contribution Margin not Realized
Product X
Product Y
Product Z
Average selling price (1)
$8
$6
$40
Average variable overheads (2)
$1.60
$1.20
$8
Prime costs (direct materials & labour) (3)
$5
$3
$26
Contribution per unit (A) [(1 - 2 - 3)]
$1.40
$1.80
$6.00
Total capacity at sales product mix
8,000,000
5,000,000
600,000
Aactual production
7,900,000
4,800,000
560,000
Lost production (B)
100,000
200,000
40,000
Capacity not utilized (%)
1.25%
4.00%
6.67%
Contribution margin not realized (AxB)
$140,000
$360,000
$240,000