Exercise 2: Preparation of quantity schedule in process costing

Learning objective:
This exercise illustrates the computation of the number of units completed and transferred out during the relevant period. It also illustrates the preparation of a quantity schedule under weighted average and FIFO methods of process costing.

Alfred, a US-based company, produces a chemical known as chemical K-5, which has many industrial uses. Chemical K-5 is processed through four different departments. Production starts in the mixing department, which is the first processing department of the company. The selected data from the mixing department for the month of April is given below:

Required:

1. Compute the quantity of chemical K-5 finished and transferred to the next department during April.
2. Prepare a quantity schedule for the mixing department, assuming Alfred uses a weighted average method of process costing.
3. Prepare a quantity schedule for the mixing department, assuming Alfred uses the FIFO method of process costing.

Solution

1. Quantity finished and transferred to next department:

2. Quantity schedule – weighted average method:

3. Quantity schedule – FIFO method:

Under the FIFO method, we must divide the units transferred out figure into two parts – units completed and transferred out from beginning inventory and units completed and transferred out from production started during the current period.

*Kilograms started and completed during April:
= Kilograms completed and transferred out during April – Kilograms in beginning inventory
= 165,000Kgs – 40,000Kgs
= 125,000Kgs