Vinal Ltd. produces Article B from a material, which passes through two processes, namely P and Q. The details relating to a month are as under,
|
Particulars |
Process P |
Process Q |
|
Materials introduced units |
10,000 |
|
|
Transferred to next process |
9,000 |
|
|
Work in progress: At the beginning of the |
|
|
|
month – units |
|
600 |
|
At the end of the month units |
|
400 |
|
Expenses: Work in progress – beginning of the month |
|
|
|
Materials introduced at the beginning of the month |
Rs. 1,20,000 |
Rs. 9,400 |
|
Labor and overheads: |
Rs. 27,600 |
Rs. 18,200 |
Stage of completion of work in progress:
Process P: Closing work in progress 20% complete in respect of labor and overheads
Process Q: Opening work in progress 331/3% complete in respect of labor and overheads
Closing work in progress 25% complete in respect of labor and overheads
The finished output B, emerging out of Process Q is sold for Rs. 20 per unit
The management is considering an alternative by which the finished output B could be further processed by installing a new machine at a capital cost of Rs. 8 lakhs. In such an event, the final product known as article N produced by this operation could be sold at Rs. 25 per unit. The operating expenses of the aforesaid further treatment are estimated at Rs. 23, 000. The company desires a return on investment of 25%
Required:
I] Prepare the process cost accounts for Process P and Q [Show the working of equivalent units and cost per equivalent unit in each process according to FIFO method]
II] Prepare a statement of profitability of Product B as it emerges from Process Q
III] Advise the management whether further treatment of Product B by installing the new machine should be taken up or not.