Calculate for me in 5 hours please

timer Asked: Apr 7th, 2018

Question description

Sweet Harmony Ltd is a sole distributor of a reputable brand of headphones in this region. It imports completely knocked down kits (CKD) from an international headphone manufacturer and then assembles and packs these into finished products (earphones) before transferring them to the finished goods store for distributions in the region.

The CKD are issued and utilised at the beginning of the assembly process. The other assembly costs are incurred evenly throughout that process. When the assembly process is complete, the packing process is undertaken.

Overhead is applied into the assembly and the packing, at a rate of 100% and 20% of direct labour cost respectively.

It is considered normal for some earphones to be spoiled during assembly and packing. Quality control inspection is applied at the end of the packing process to determine whether units are spoiled.

It is accepted that spoilage is normal if spoiled units are no more than 5% of the completed good units produced.

Despite vigilant security measures, it is common that some units are lost, probably by pilferage. The cost of lost units is written off as a loss of the period in which it occurs. This cost is measured at the cost of the CKD kits plus the assembly process, but no packing cost is charged. Sweet Harmony Ltd uses FIFO system of costing.

The following data summarize the firm’s activities during May.

Opening WIP

CKD kits$120,000

Direct labour cost (assembly) to 30 Apr$50,000

No. of units (60% assembled)100,000 units

Cost incurred during May

CKD kits$240,000

Direct labor cost (assembly)$80,000

Direct labor cost (packing)$60,000

Production data for May

CKD kits received into assembly224,000 units

Good earphones completed from packing180,000 units

Spoiled units20,000 units

Lost units4,000 units

None of the opening work in process had at that stage entered the packing process. Similarly, there is no closing work in process at the end of the month in the packing process. However, the units in the closing work in process were on average, 25% complete as to assembly.


Using the four-step approach:

  • Calculate the number of units in the closing work in process for assembly and packing.
  • Calculate the number of equivalent units processed in May, distinguishing between assembly processes and packing process.
  • Calculate the costs per equivalent units for each product cost category processed in May for the assembly process and the packing process, the costs of units transferred from the assembly process to the packing process, the cost of completed units from the packing process, the costs of abnormal spoilage, lost units and closing WIP. (36 marks)
  • Pass all the necessary journal entries. (5 marks)
  • Use your answer to (a) to explain "transferred-in costs". (9 marks)

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