Inter process profits with both opening and closing stocks in processes - Problems

Problem 1

	Process I	Process II	Finished Stock
Opening Stock Direct Material Direct Wages Factory Overheads Closing Stock Inter-process profit included in Opening stock	3,000 6,000 4,480 4,200 1,480	3,600 6,300 4,500 1,800 1,800 600	9,000 4,500 3,300

Output of Process I is transferred to Process II at 25% profit on the transfer price and output of Process II is transferred to finished stock at 20% profit on the transfer price. Stocks in process are valued at prime cost. Finished stock is valued at the price at which it is received from Process II. Sales during the period were 56,000.

Required : Prepare Process Cost Accounts and Finished Stock Account showing the profit element at each stage.

Problem 1

A product passes through two distinct processes viz, A and B. The output of process A is transferred to the next process B after crediting the former account with 1500 being the realizable value from waste and scrap and 2000/- was process profit. There was no work in-progress in any process and the following information was obtained. Work out the Process account.

Process A

Material consumed Wages paid Overhead expenses	12,000 6,000 7,500
	25,500

Process B

Transfer from Process A Wages paid Overhead expenses	26,000 6,500 8,500
	41,000

There was no wastage in Process B and the output was transferred to Finished stock at a price calculated to yield a profit of 33⅓% on total cost. The finished goods stock as at 31^st December, _5 was 9000/- and shown in the Balance Sheet as closing stock.

Was the stock shown in Balance Sheet, justified? If not, what should have been the value of closing stock in your opinion?

Problem 1

A certain product passes through three processes before it is transferred to finished stock. The following information is obtained for the month of January.

	I	II	III	Finished Stock
Opening stock Direct material Direct wages Production overheads Profit on cost of each process Inter process profit for opening stock	20,000 40,000 30,000 28,000 33⅓% –	24,000 42,000 30,000 12,000 25% 4,000	16,000 60,000 32,000 8,000 25% 4,000	60,000 30,000 22,000

Stock in processes are valued at prime cost and finished stock has been valued at price at which it is received from process II. Sales during the period were 7,00,000.

Prepare and compute-

(a) Process cost accounts showing profit element at each stage;

(b) actual realised profit; and

Problem 1

Cheap Sweets Ltd. has divided its manufacture into two processes, A and B. After leaving process B, the product is passed into finished stock.

The output of process A is transferred to process B at a price with gives process A a profit of 25% thereon, and the output of process B is transferred to finished goods at a price which gives process B a profit of 20% thereon.

The following information is provided in respect of the year ended 31^st March, _7:

	Process A	Process B
Stock on 1^st April, _6 Materials used Direct Labour Overheads Stock on 31^st March, _7	3,200 6,400 12,500 2,500 2,100	2,000 2,700 8,500 1,700 900

Process stocks consist of products which have passed through the process completely and are valued at prime cost to the process concerned.

Finished goods were in stock on 1st April, _6 to the value of 10,200 and on 31^st March, _7 to the value of 6,200. Both the opening and closing stocks were valued at the price at which they were transferred from process B.

Sales amounting to 68,400 were effected during the year and included all the goods in stock at the beginning of the year.

The Reserves on 1^st April, _6 for unrealized profit included in stock valuation were: Process B - 350; Finished Goods 3,430.

Prepare the Process accounts, Finished Goods Account and Trading Account for the year ended 31^st March, _7.

Problem 1

A company is engaged in the production of a certain article which passes through two distinct processes to completion. During the three months ended 31^st December, _8, sales of the product amounted to 4,00,000 and the following information relating to the same period is obtained from the costing records:

	Process I	Process II
Raw materials drawn from stores Labour as extracted from cards	1,00,000 50,000	26,000 60,000

In the Process Cost Accounts an overhead charge is made at 20% of labour and it is the practice to transfer the goods from Process I to Process II at a price which includes a profit of 25 per cent on the transfer price and from Process II to Finished Goods Account at a price which includes a profit of 20 per cent on the transfer price.

Stocks valued as indicated below were:

	31.10._8	31.12._8
Raw Materials in Factory: Used in Process I (at cost) Used in Process II (at cost) Goods at completion of Process I situated in department where Process II is carried out (at transfer price) Finished goods at transfer price	20,000 2,000 50,000 40,000	30,000 – 70,000 50,000

(a) Show the Process Cost Accounts for the period.

(b) Assuming the indirect expenses were subsequently found to amount to 24,590, calculate the actual net profit of the business for the period.

Author : The Edifier

Problems 13