Reference no: EM131357

PART: ONE

Chimanga Changa Ltd makes one product in a single process. The details of the process for period 2 were as follows:

There were 800 units of opening WIP valued as follows:

Material                         K98,000,000

Labour                          K46,000,000

Production Overheads    K7,600,000

During the period 1, 800 units were added to the process and the following costs were incurred:

Material                         K387,800,000

Labour                          K276,320,000

Production Overheads    K149,280,000

There were 500 units of closing WIP, which were 100% complete for material, 90%complete for labour and 40% complete for production overheads.

A normal loss equal to 10% of new material input during the period was expected. The actual loss amounted to 180 units. Each unit of loss was sold for K10,000 per unit. Chimanga Changa uses weighted average costing.

(a) Prepare the process A/C

(b) Describe the distinguishing characteristics of production systems where: (i) Job costing techniques would be used and where (ii) process costing techniques would be used.

(c) Critique the assertion that job costing produces more accurate product cost than process costing

PART: TWO

The accountant's approach to cost-volume-profit analysis has been criticsed in that it does not deal with the following:

(a) Situations where sales volumes differs radically from the production volume

(b) Situations where sales revenue and the total cost functions are markedly non-linear

(c) Changes in the product mix

(d) Risks and uncertainty

REQUIRED: Explain these objections to the accountant's convention cost-volume-profit model and suggest how they can be overcome