Question 4 (40 marks)

Namibia Cleaning Agents (NCA) is a company based in Windhoek that produces and sells a cleaning agent. Due to the sophistication of the production process, NCA uses a process costing system to value its inventory. The production requires that inspection is done at the end of the process and a normal loss of 5% is anticipated at inspection. The following information relates to the production process for July 2022:

Units

Opening inventory of work in progress (25% completed) 105 000

Units introduced 225 000

Units transferred to assembly department 270 000

Closing inventory of work in progress (85% completed) 30 000

Opening Cost (N$)

Material 487 500

Conversion 192 000

Cost incurred in current period:

Material 840 000

Conversion 2 700 000

REQUIRED:

2.1. Prepare the process cost report for the cutting department using the First In, First Out (FIFO) method. (Show all your workings, and where possible, round off your final answers to two decimal places). [17]

2.2. Prepare the process cost report for the cutting department using the Weighted Average Cost (WACO) method. (Show all your workings, and where possible, round off your final answers to two decimal places). [17]

2.3. Explain why the two methods gives different unit costs of finished goods and work in process.

[3]

2.4. Which of the two methods would you recommend to NCA and why? [3]

TOTAL MARKS 40