Question 1
Happy Drink Ltd is the licensed bottler of a reputable overseas beverage company for Smgapore. It imports concentrates, mixes them with other ingredients and bottles the resulting beverage under the brand name “Refresh” for sales m Singapore.
In the Mixing Process, other ingredients (water, flavouring agents, sugar and carbon dioxide) are added to the concentrates. These are then transferred to the Bottling Process where the beverage is then bottled mto standard 250ml cans and transferred to the finished goods store for deliveries to the customers.
Concentrates are issued at the beginning of the Mixing Process. The other mixing costs (including other ingredients) are incurred evenly throughout that process. Similarly, cans are added at the beginning of the Bottling Process while the other costs are incurred evenly.
Overhead is apphed mto the mixing and the bottling, at a rate of 50% and 100% of direct labour cost respectively.
It is considered normal for some of the beverage to be “lost” due to evaporation during mixing and some cans of beverage to be rejected during bottling. Quality control inspection is apphed at the end of the Bottling Process to determine whether completed products are safe for consumption. Those canned dnnks that are deemed unsafe are rejected and considered as spoilt.
It is acceptable that spoilage is normal if rejected cans of beverage are no more than 2% of the completed good cans of beverage produced.
The loss of the beverage in the Mixing Process is assumed to take place at the end of the process. The cost of this loss is written off as a loss of the penod m which it occurs. This cost is measured at the cost of the concentrates plus the costs of the Mixing Process, but no bottling cost is charged.
Happy Drink Ltd uses FIFO system of costing.
The following data summarize the firm’s activities during August:
Opening WIP Concentrates Other ingredients
Direct labour cost (mixing) to 31 Jul
30% of conversion done
Costs incurred during August
Concentrates
Other ingredients
Cans
Direct labour cost (mixing)
Direct labour cost (bottling) Production data for August Umts started in Mixing Process