Monday, June 29, 2015

forex and process costing



         PROBLEM 1:
           The Drilon Delights Company has two processing departments, Cooking and Packaging. Ingredients are placed into production at the beginning of the process in Cooking, where they are formed into various shapes. When finished, they are transferred into Packaging, where the candy is placed into heart and tuxedo boxes and covered with foil. All material added in Packaging is considered as one material for convenience. Since the boxes contain a variety of candies, they are considered partially complete until filled with the appropriate assortment. The following information relates to the two departments for February 2012:
Cooking Department:


Beginning WIP (30% complete as to conversion)
4,500
units
Units started this period
15,000
units
Ending WIP (60% complete as to conversion)
2,400
units
Packaging Department:


Beginning WIP (90% complete as to material, 80% complete as to conversion)
 1,000
units
Units started during period
?

Ending WIP (80% complete as to material and 80% complete as to conversion)
500
units

a. Determine equivalent units of production for both departments using the weighted average method.
b. Determine equivalent units of production for both departments using the FIFO method.


ANS: 

a.
Cooking Department





Materials
Conversion Costs


Transferred Out
17,100
17,100


Ending Work in Process
 2,400
 1,440


TOTAL EUP
19,500
18,540



Packaging Department





Transferred In
Materials.
Conversion
Costs

Transferred Out
17,600
17,600
17,600

Ending Work in Process
   500
   400
   400

TOTAL EUP
18,100
18,000
18,000

b.
Cooking Department





Materials
ConversionCosts


Beginning Work in Process
0
3,150


Transferred from Cooking
12,600
12,600


Ending Work in Process
 2,400
 1,440


TOTAL EUP
15,000
17,190



Packaging Department





Transferred In
Materials
Conversion Costs

Beginning Work in Process
0
100
200

Transferred from Cooking
16,600
16,600
16,600

Ending Work in Process
   500
   400
   400

TOTAL EUP
17,100
17,100
17,200


         PROBLEM 2:

           The following costs were accumulated by Department 2 of Cayetano Company during April:


Cost Transferred
from Dept. 1

Material

Conversion
Costs

Total
Beginning Inventory
P 17,050
0
P 5,450
P 22,500
Current Period Cost
184,000
P 34,000
104,000
 322,000

P 201,050
P 34,000
P 109,450
P344,500

Production for April in Department 2 (in units):

WIP-April 1
2,000   60% complete
Complete period transferred
20,000
WIP-April 30
5,000   40% complete

Materials are not added in Department 2 until the very end of processing Department 2.

Required: Compute the cost of units completed and the value of ending WIP for:

a.
Weighted average inventory assumption

b.
FIFO inventory assumption


ANS: 
a.
Weighted average inventory assumption


Dept 1
MAT
CC
Complete
20,000
20,000
20,000
Eq-End WIP
  5,000
     0
  2,000
EP-WA
25,000
20,000
22,000







Unit
 P201,050 = P8.042
P34,000 = P1.70
P109,450 = P4.975
= P14.717
Cost
25,000
20,000
22,000



End WIP
Dept 1 = 5,000 x P8.042
= P40,210

CC = 2,000 units x P4.975
=   9,950


P50,160

COGM = P344,500 - P50,160 = P294,340

b.
FIFO inventory assumption


Dept 1
MAT
CC
Complete
20,000 
20,000
20,000 
Eq-End WIP
5,000 
0
2,000 
- Eq-Begin
 (2,000)
     0
(1,200)
EP-FIFO
23,000 
20,000
20,800 







Unit
 P184,000 = P8.00
P34,000 = P1.70
P104,000 = P5.00
= P14.70
Cost
23,000
20,000
20,800


End WIP
Dept 1 = 5,000 units x P8.00
= P40,000

CC = 2,000 units x P5.00
=  10,000


P50,000

COGM = P344,500 - P50,000 = P294,500


  1.      On July 1, 2002, Occidental Corporation purchased merchandise on 30-day open account from a New Zealand supplier at an invoice cost of 100,000 New Zealand dollars (NZ$). On that date, spot exchange rates were: buying-NZ$1 = $0.777; selling-NZ$1 = $0.7785. On July 31, 2002, Occidental acquired a draft for NZ$100,000 for $77,600. In the journal entry to record the acquisition of the NZ$100,00 draft, Occidental recognizes a foreign currency:

a)      Transaction loss of $100
b)      Transaction loss of $250
c)      Transaction gain of $250
d)      Transaction gain of $23,400
Correct answer: C
Explanations:
a)      Buying spot rate should not be the basis because the company is going to buy foreign currency from the bank in payment for the purchases.
b)      Using the selling rate, it is not a transaction loss because the company paid less than what has been recognized and recorded at invoice date.
c)      $77,850 - $77,600 = $250 gain
d)      See letter c explanation.

  2.      Watt Company, a U.S. multinational enterprise, purchased goods from Kluger Company of Germany on March 1, 2002, for 30,000 euros (C) when the selling spot rate was C1 = $1.0895. Watt's fiscal year-end was March 31, 2002, when the selling spot rate was C1 = $1.0845. Watt acquired C30,000 and paid the invoice on April 20, 2002, when the selling spot rate was C1 = $1.0945. What amounts are displayed in Watt's income statements as foreign currency transaction gains or losses for the years ended March 31, 2002, and 2003? 2002 2003

a)      $0 - $0
b)      $0 - $150 loss
c)      $150 loss - $0
d)      $150 gain - $300 loss
Correct answer: D
Explanations:
a)      March 1, 2002-fiscal year end
At each balance sheet date that occurs between the transaction date and the settlement date, recorded balances that are denominated in a foreign currency are adjusted to reflect the closing exchanged rate in effect at the date of the statement of financial position. Foreign exchange (forex) gain or loss is recognize for the difference in the exchange rate between the transaction date and the balance sheet date.

April 20, 2002- settlement date
At the settlement date, foreign exchange (forex) gain or loss is recognized if the amount of local currency paid upon conversion does not equal the carrying value of the related payable.
b)      c)    d)

2002
March 1          Purchases                                                        $32,685
                                    Accounts payable – FC                                    $32,685
March 31        Accounts payable –FC                                     $150
                                    Forex gain                                                       $150

2002
April 20           Accounts payable –FC                                     $32,535
                        Forex loss                                                        $300
                                    Foreign currency                                             $32,835

  3.      The current/noncurrent and monetary/nonmonetary methods of foreign currency translation differ principally in the translation of:
a)      Sales and cost of goods sold
b)      Depreciation expense and cost of goods sold
c)      Inventories and cost of goods sold
d)      Amortization expense and cost of goods sold
Correct answer: C
Explanations:
a)      In the current/noncurrent method as well as in the monetary/nonmonetary method (temporal method) of foreign currency translation, sales and cost of goods sold are translated at an average exchange rate for the accounting period.
b)      In the current/noncurrent method as well as in the monetary/nonmonetary method (temporal method) of foreign currency translation, depreciation are translated at historical rates.
c)      In the current/noncurrent method of foreign currency translation, inventories (all current assets) are translated at the current exchange rate in effect on the balance sheet date while in the monetary/nonmonetary method (temporal method) of foreign translation, inventories (nonmonetary assets) are translated at appropriate historical rates.

In the current/noncurrent method of foreign currency translation, cost of goods sold are translated at an average exchange rate for the accounting while in the monetary/nonmonetary method (temporal method) of foreign translation, cost of goods sold are translated at appropriate historical rates.
d)      In the current/noncurrent method as well as in the monetary/nonmonetary method (temporal method) of foreign currency translation, amortization expense is translated at appropriate historical rates.

  4.      Delnora Company owns a foreign subsidiary with 3,600,000 local currency units (LCU) of plant assets before accumulated depreciation on December 31, 2002. Of this amount, LCU2,400,000 were acquired in 2000, when the exchange rate was LCU1.6 to $1, and LCU1,200,000 were acquired in 2001, when the exchange rate was LCU1.8 to $1. The exchange rate in effect on December 31, 2002, was LCU2 to $1. The weighted average of exchange rates that were in effect during 2002 was LCU1.92 to $1. Assuming that the plant assets are depreciated by the straight-line method over a 10-year economic life with no residual value, how much depreciation expense relating to the foreign subsidiary’s plant assets is reported in Delnora’s income statement for 2002 if the U.S. dollar is the functional currency of the subsidiary?
a)      $180,000
b)      $187,500
c)      $200,000
d)      $216,667
e)      Some other amount
Correct answer:  D
Explanation:
In the remeasurement of the trial balance of a foreign division or branch, or the financial statements of a foreign subsidiary or other investee, to its U.S. dollar functional currency, the amounts in foreign currency are multiplied by the appropriate exchange rate to obtain the amounts in U.S. dollars.
LCU 240,000 depreciation expense - $150,000
LCU 120,000 depreciation expense - $66,667

  5.      Jemco, Inc., used the current rate method for translating foreign currency amounts on December 31, 2002. On that date, Jemco had foreign subsidiaries with 1,500,000 local currency units (LCU) in long-term receivables and LCU2,400,000 in long-term debt. The exchange rate in effect when the specific transactions occurred involving those foreign currency amounts was LCU2 to $1. The exchange rate in effect on December 31, 2002, was LCU1.5 to $1. The translation of the foregoing foreign currency amounts to U.S. dollars on December 31, 2002, results in long-term receivables and long-term debt, respectively of:
a)      $750,000 to $1,200,000
b)      $750,000 to $1600,000
c)      $1,000,000 to $1,200,000
d)      $1,000,000 to $1,600,000
Correct answer: D
Explanation:
In the translation of the trial balance of a foreign division or branch, or the financial statements of a foreign subsidiary or other investee, from a foreign functional currency to U.S. dollars, the amounts in foreign currency are multiplied by the appropriate current exchange rate to obtain the amounts in U.S. dollars.
LCU 1,500,000 - $1,000,000
LCU 2,400,000 - $A,600,000

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