Question 1

Interest rates are 10%. What is the present value of £60,000 receivable in 6 years' time?

Accepted Answer

The present value (PV) of a future amount can be calculated using the formula PV = FV / (1 + r)^n, where FV is the future value, r is the interest rate per period, and n is the number of periods. Here, FV = £60,000, r = 10% or 0.10, and n = 6 years. Plugging these values into the formula gives PV = £60,000 / (1 + 0.10)^6 = £60,000 / (1.10)^6 ≈ £33,868.

Question 2

UTD Limited operates a process accounting system for its production of chemicals. During the month of January, Process Y used 6,000 litres of material at a cost of £38,880. Labour and overhead costs during the month were £19,440. Normal losses in the process are 10% of input materials. 5,400 litres of chemicals were produced from Process Y in January. What is the value per litre of finished production for the month of January?

Accepted Answer

D

Question 3

Selling normal losses from a process reduces costs on the process account.

Accepted Answer

Selling normal losses from a process does not reduce costs on the process account. Instead, it reduces the value of the inventory account.

Question 4

In February, 8,000 litres of material were input to a process at a cost of £18,432. Normal loss in the process is expected to be 4% of input materials. Process conversion costs for the month totalled up to £15,360. The process produced 7,560 litres of finished production in February. What were the values attributed to normal and abnormal losses in February?

Accepted Answer

Normal loss is 4% of input materials, which is 8,000 litres x 4% x £18,432 / 100 = £528. Actual loss is 8,000 litres - 7,560 litres = 440 litres. The value of abnormal loss is 440 litres x £18,432 / 8,000 = £1,056. Therefore, the value of normal loss is £528 and the value of abnormal loss is £1,056.

Question 5

In April, BFS Limited used 10,000 litres of input materials in its paint- making process. These materials cost £21,600. In addition, the paint- making process for the month consumed £14,400 of conversion costs. Normal losses in the paint-making process are 4% of input materials. 9,680 litres of paint were produced in April. What is the total cost of finished production of paint in April?

Accepted Answer

The answer of In April, BFS Limited used 10,000 litres...

Question 6

VBT Limited produced 4,700 litres of power washer fluid in June. Normal losses are 6% of input materials. All losses have a disposal cost of £0.94 per litre. Materials for the month cost £18,800 while conversion costs were £11,750. There were no abnormal gains or losses in production of power washer fluid in June. What is the per litre cost of the finished production of power washer fluid in June?

Accepted Answer

The total input is 4,700 litres / (1 - 0.06) = 5,000 litres. Total costs are £18,800 (materials) + £11,750 (conversion) + (5,000 litres * 0.06 * £0.94 disposal cost) = £30,750. The cost per litre is £30,750 / 4,700 litres = £6.56.

Question 7

When waste products from processes are sold, the proceeds from the sale of both normal losses and abnormal losses are credited to the process account.

Accepted Answer

The proceeds from the sale of normal losses can be credited to the process account to reduce the cost of the process. However, proceeds from the sale of abnormal losses are usually credited to the Abnormal Loss Account, not directly to the Process Account, as abnormal losses are considered outside the normal operating efficiency of the process.

Question 8

The disposal of normal losses from a process reduces the costs of that process.

Accepted Answer

Normal losses are anticipated and factored into the costing of a process, so their disposal does not reduce the process costs; instead, it is considered part of the overall cost calculation.

Question 9

In September, STF Limited used 4,000 litres of material in its production of high strength sealant. Normal losses are 10% of input materials. All losses can be sold for £0.72 per litre. Materials for the month cost £34,560 while conversion costs were £16,128. 3,600 litres of high strength sealant were produced during September. What is the per litre cost of the finished production of high strength sealant in September?

Accepted Answer

The total cost of production includes both material and conversion costs, which is £34,560 + £16,128 = £50,688. Given that 3,600 litres of sealant were produced, the per litre cost is £50,688 / 3,600 = £14.08. However, the question asks for the cost of the finished production, which should account for the sale of normal losses. Normal losses are 10% of 4,000 litres = 400 litres, which can be sold for £0.72 per litre, giving £288. Subtracting this from the total cost gives £50,688 - £288 = £50,400. Therefore, the adjusted per litre cost is £50,400 / 3,600 = £14.00.

Question 10

Gaseous Generation Limited produces gases for industrial use. In May, Process Gamma used 10,000 cubic metres of gas at a cost of £34,960. Waste gases generated by Process Gamma are expected to be 8% of input materials. Process Gamma conversion costs for May were £23,000. Waste gases from Process Gamma can be sold for 46 pence per cubic metre. Production in May was 9,000 cubic metres. What are the cost of finished production and the cost of abnormal losses that will be presented in the process account for Process Gamma for the month of May?

Accepted Answer

The answer of Gaseous Generation Limited produces gases for industrial...

Question 11

XJC Limited makes and sells paints to the home decorating market. During October the company produced 4,810 litres of paint. Normal losses are expected to be 5% of input materials. These normal losses can be sold for 64 pence a litre. 5,000 litres of material were put into the paint-making process during October at a cost of £28,535. Conversion costs for the month were £12,000. What is the total cost of actual finished paint production for October?

Accepted Answer

The answer of XJC Limited makes and sells paints to...

Question 12

Process Delta produced 8,448 litres of finished production during November. There was an abnormal gain of 48 litres in the month and normal losses are expected to be 4% of input materials. How many litres of material were input into Process Delta during November?

Accepted Answer

To find the input, add the abnormal gain to the finished production: 8,448 + 48 = 8,496 litres. Since normal losses are 4% of input, let X be the input. Then, 0.96X = 8,496. Solving for X gives X = 8,850 litres.

Question 13

TTD Limited produces specialist solvents. In June, 2,000 litres of material costing £44,100 were input to Process Sigma. Conversion costs for the month were £12,936. Normal losses from the process are 2% of input materials and the disposal cost for each litre of losses is £4.90. During June, 1,950 litres of finished product were produced from Process Sigma. What is the cost to be attributed to each unit of finished production, abnormal gains and abnormal losses in Process Sigma for June?

Accepted Answer

The cost per unit is calculated by dividing the total costs (material + conversion) by the expected output after accounting for normal losses. Normal losses are 2% of 2,000 litres, which is 40 litres. Therefore, expected output is 1,960 litres. Total costs are £44,100 + £12,936 = £57,036. Cost per unit = £57,036 / 1,960 = £29.10. However, since 1,950 litres were produced, there is an abnormal loss of 10 litres, which needs to be accounted for. The cost per unit of finished production is £29.20, considering the abnormal loss.

Question 14

TYN Limited produces adhesives. In July, 3,000 litres of material were used to produce 2,790 litres of super-strength glue. Materials costs for the month were £27,072 and labour and overheads added to the process amounted to £18,189. All losses from the process are sold for £2.35 per litre. Normal losses are 6% of input materials. What is the per litre cost of production for super-strength glue in July?

Accepted Answer

The answer of TYN Limited produces adhesives. In July, 3,000...

Question 15

In August, JXZ Limited used 7,500 litres of input materials to produce 7,240 litres of body lotion at a cost of £18,900. Conversion costs for the process were £9,840. Waste products from the body lotion process are sold for 40 pence per litre. Normal losses from the body lotion-making process are expected to be 4% of input materials. What is the production cost of 7,240 litres of body lotion in August?

Accepted Answer

The production cost of 7,240 litres of body lotion includes the cost of input materials (£18,900) and conversion costs (£9,840), totaling £28,740. However, normal losses are expected to be 4% of 7,500 litres, which is 300 litres. These 300 litres of waste can be sold for 40 pence per litre, generating £120 (300 litres * £0.40). Subtracting this from the total costs (£28,740 - £120), the adjusted production cost is £28,620. However, since this option is not available and considering the calculation might involve a mistake in the interpretation of the options provided, the closest correct option based on the initial calculation steps would be £28,740, but since that's not the correct interpretation according to the options, it seems there was a mistake in the calculation explanation. The correct approach should consider all costs and revenues correctly, but without the exact breakdown leading to the options given, there's a misunderstanding in the calculation provided. Given the options and the mistake acknowledged, the correct answer intended seems to be C) £28,779, acknowledging a mistake in the detailed calculation explanation.

Question 16

TDV Limited makes shower gels. In May, the shower gel production process used 20,000 litres of materials at a cost of £11,760 and incurred £3,822 of conversion costs. Normal losses from the shower gel production process are 2% of input materials and all waste products from the process are disposed of at a cost of 24.5 pence per litre. During May 19,700 litres of shower gel were produced. What is the production cost of the 19,700 litres of shower gel produced in May?

Accepted Answer

The answer of TDV Limited makes shower gels. In May,...

Question 17

Which one of the following statements is true?

Accepted Answer

Abnormal losses are considered unexpected and are not part of the standard production costs. They are valued at the unit cost of the expected finished output from a process, which means the cost per unit is calculated based on the normal production costs, and this rate is applied to the abnormal loss units to determine their value.

Question 18

For2For Limited operates a process in which there is opening and closing work in progress. At the start of May, opening work in progress consisted of 4,000 units which were 75% complete with respect to materials. 36,000 units of finished production were completed during May. At the end of the month, there were 5,000 units of work in progress which were 80% complete with respect to materials. What is the number of equivalent units of material added to the process during the month of May using the first in, first out method of valuing finished production and closing work in progress?

Accepted Answer

Equivalent units of material added to the process during the month of May = (4,000 units x 75%) + (36,000 units x 100%) + (5,000 units x 80%) = 37,000 units

Question 19

All inputs and outputs in the process account are valued in terms of both money and units.

Accepted Answer

In process accounting, inputs and outputs are primarily measured in physical units (e.g., kilograms, liters) to track the flow of materials through the production process, although financial values can also be assigned for costing purposes.

Question 20

The weighted average cost method of valuing finished production and closing work in progress takes no account of the equivalent units in opening work in progress.

Accepted Answer

The weighted average cost method of valuing finished production and closing work in progress takes into account the equivalent units in opening work in progress.

Quiz 4: Process Costing, and Capital Investment Appraisal