Question Three a) Prepare Process Account for process July 2019 using the above figures. Step 1: Calculate Equivalent Units of Production (EUP) Completed Units: 7,600 litres Closing Work-in-Progress (WIP) Units: 400 litres | Cost Element | Completed Units (7,600 litres) | Closing WIP (400 litres) | Total Equivalent Units | | :----------- | :------------------------------ | :----------------------- | :--------------------- | | Materials | $7,600 \times 100\% = 7,600$ | $400 \times 100\% = 400$ | $7,600 + 400 = 8,000$ | | Labour | $7,600 \times 100\% = 7,600$ | $400 \times 80\% = 320$ | $7,600 + 320 = 7,920$ | | Overhead | $7,600 \times 100\% = 7,600$ | $400 \times 80\% = 320$ | $7,600 + 320 = 7,920$ | Step 2: Calculate Cost Per Equivalent Unit Total Direct Materials Cost: Sh. 32,000 Total Direct Labour Cost: Sh. 15,840 Total Absorbed Production Overhead Cost: Sh. 23,760 $$ \text{Cost per EUP (Materials)} = \frac{\text{Sh. } 32,000}{8,000 \text{ units}} = \text{Sh. } 4.00 \text{ per unit} $$ $$ \text{Cost per EUP (Labour)} = \frac{\text{Sh. } 15,840}{7,920 \text{ units}} = \text{Sh. } 2.00 \text{ per unit} $$ $$ \text{Cost per EUP (Overhead)} = \frac{\text{Sh. } 23,760}{7,920 \text{ units}} = \text{Sh. } 3.00 \text{ per unit} $$ $$ \text{Total Cost per EUP} = \text{Sh. } 4.00 + \text{Sh. } 2.00 + \text{Sh. } 3.00 = \text{Sh. } 9.00 \text{ per unit} $$ Step 3: Calculate Cost of Completed Units and Closing WIP Cost of Completed Units: $7,600 \text{ units} \times \text{Sh. } 9.00/\text{unit} = \text{Sh. } 68,400$ Cost of Closing Work-in-Progress: Materials: $400 \text{ units} \times 100\% \times \text{Sh. } 4.00/\text{unit} = \text{Sh. } 1,600$ Labour: $400 \text{ units} \times 80\% \times \text{Sh. } 2.00/\text{unit} = \text{Sh. } 640$ Overhead: $400 \text{ units} \times 80\% \times \text{Sh. } 3.00/\text{unit} = \text{Sh. } 960$ Total Closing WIP Cost: $\text{Sh. } 1,600 + \text{Sh. } 640 + \text{Sh. } 960 = \text{Sh. } 3,200$ Step 4: Prepare the Process Account $$ \begin{array}{|l|r|r|l|r|r|} \hline \textbf{Particulars} & \textbf{Litres} & \textbf{Amount (Sh.)} & \textbf{Particulars} & \textbf{Litres} & \textbf{Amount (Sh.)} \\ \hline \text{To Materials} & 8,000 & 32,000 & \text{By Completed Units} & 7,600 & 68,400 \\ \text{To Labour} & & 15,840 & \text{By Closing WIP} & 400 & 3,200 \\ \text{To Overhead} & & 23,760 & & & \\ \hline \textbf{Total} & \textbf{8,000} & \textbf{71,600} & \textbf{Total} & \textbf{8,000} & \textbf{71,600} \\ \hline \end{array} $$ d) Discuss briefly how to measure performance in a decentralized company. In a decentralized company, performance measurement focuses on evaluating the effectiveness of individual divisions or responsibility centers. Key methods include: Return on Investment (ROI):* Measures the profitability of an investment center relative to the assets employed, encouraging efficient asset utilization. Residual Income (RI):* Calculates the profit an investment center earns above a minimum required return on its operating assets, promoting decisions that increase overall company value. Balanced Scorecard:* Provides a comprehensive view of performance by considering financial, customer, internal business process, and learning and growth perspectives, aligning divisional goals with strategic objectives. Transfer Pricing:* Establishes prices for internal transfers of goods or services between divisions, influencing the reported profitability of both the selling and buying divisions and motivating managers.