Question

Cooperative San José of southern Sonora state in Mexico makes a unique syrup using cane sugar and local herbs. The syrup is sold in small bottles and is prized as a flavoring for drinks and for use in desserts. The bottles are sold for $12 each. The first stage in the production process is carried out in the Mixing Department, which removes foreign matter from the raw materials and mixes them in the proper proportions in large vats. The company uses the weighted-average method in its process costing system.

A hastily prepared report for the Mixing Department for April appears below:

Units to be accounted for:
Work in process, April 1 (materials 90% complete; conversion 80% complete)	11,500
Started into production	38,000
Total units to be accounted for	49,500
Units accounted for as follows:
Transferred to next department	41,900
Work in process, April 30 (materials 75% complete; conversion 50% complete)	7,600
Total units accounted for	49,500

Cost Reconciliation
Cost to be accounted for:
Work in process, April 1	$	35,765
Cost added during the month		129,812
Total cost to be accounted for	$	165,577
Cost accounted for as follows:
Work in process, April 30	$	17,670
Transferred to next department		147,907
Total cost accounted for	$	165,577

Management would like some additional information about Cooperative San José’s operations.

Required:

1. What were the Mixing Department's equivalent units of production for materials and conversion for April?

2. What were the Mixing Department's cost per equivalent unit for materials and conversion for April? The beginning inventory consisted of the following costs: materials, $23,460; and conversion cost, $12,305. The costs added during the month consisted of: materials, $83,164; and conversion cost, $46,648.

3. How many of the units transferred out of the Mixing Department in April were started and completed during that month?

4. The manager of the Mixing Department stated, “Materials prices jumped from about $1.80 per unit in March to $2.30 per unit in April, but due to good cost control I was able to hold our materials cost to less than $2.30 per unit for the month.” Should this manager be rewarded for good cost control?

Answer 1

Solution 1:

Computation of Equivalent unit of Production - Mixing Department
Particulars	Physical Units	Material	Conversion
Units accounted for:
Unit completed & Transferred out	41900	41900	41900
Ending WIP:	7600
Material (75%)		5700
Conversion (50%)			3800
Equivalent units of production	49500	47600	45700

Solution 2:

Computation of Cost per equivalent unit of Production - Elliott Company
Particulars	Material	Conversion
Opening WIP	$23,460.00	$12,305.00
Cost Added during March	$83,164.00	$46,648.00
Total cost to be accounted for	$106,624.00	$58,953.00
Equivalent units of production	47600	45700
Cost per Equivalent unit	$2.24	$1.29

Solution 3:

Units transferred out of the Mixing Department in April were started and completed during that month = Total units transferred - Units in beginning WIP

= 41900 - 11500 = 30400

Solution 4:

No, manager should not be awarded for good cost control. Material prices jumped from $1.80 to $2.30 per unit in april, however due to material cost in beginning WIP, average cost of material per unit in april is $2.24 per unit. Therefore there is no role manager in controlling cost of material.