In Process II of Shaba Limited, the transfer from Process I was 3,800 litres valued at $1.15 per litre. Additional direct materials were 4,000 litres at $0.80 per litre, direct labour was $1,753, and production overhead was charged at 100% of direct labour. Normal loss is 10% of input, with any loss sold as scrap for $0.70 per litre. There was no work in progress. Calculate the cost per litre (per complete unit) of Process II's expected output.

Model answer

1.5

Also accepted: $1.50, 1.50, $1.5

Explanation

Input to Process II = 3,800 + 4,000 = 7,800 litres. Total cost = transfer 3,800 ×

1.15 =

4,370, plus materials 4,000 ×

0.80 =

3,200, plus labour $1,753, plus overhead (100% × $1,753) = $1,753, giving $11,076. Normal loss = 10% × 7,800 = 780 litres, scrap value = 780 ×

0.70 =

546. Net cost =

11,076 −

546 = $10,530. Expected output = 7,800 − 780 = 7,020 litres. Cost per litre = $10,530 ÷ 7,020 = $1.50.

Derived from ZIMSEC Accounting Paper 2, June 2018, Q3

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