Okara Quality Carpets Ltd makes a product which involves two processes. Process 1 results in the production of a low-priced by-product which the company sells. 2000 units of the product were made in process I and transferred to process 2. Work in progress at the end of process 2 consisted of 800 units complete as to 75% material and 50% labour. Further production details are as follows.

Required 

Prepare Process accounts 1 and 2 to show the cost of producing 2000 units. Show detailed workings for the valuation of finished units and work in progress in process 2.

Data per unit Material Cost of material Labour hours per unit Labour hourly rate Production overhead absorption Sale proceeds of by-product Process 1 4 kg $12 per kg 3 Process 2 2.5 kg $3.25 per kg 5 $14 $11 $36 per labour hour $27 per labour hour $1630