Question

Santana Mortgage Company uses a process cost system to accumulate costs in its Application Department. When an application is completed, it is forwarded to the Loan Department for final processing. The following processing and cost data pertain to September. 1. Applications in process on September 1, 140 2. Applications started in September, 1,000 3. Completed applications during September, 760 4. Applications still in process at September 30 were 100% complete as to materials (forms) and 60% complete as to conversion costs. Beginning WIP: Direct materials $ 1,120 Conversion costs 4,590 September costs: Direct materials $ 5,526 Direct labor 12,100 Overhead 9,709 Materials are the forms used in the application process, and these costs are incurred at the beginning of the process. Conversion costs are incurred uniformly during the process.

a.) Determine the equivalent units of service (production) for materials and conversion costs

b.) Compute the unit cost

c.) Prepare a cost reconciliation schedule.

Answer 1

		Units
Reconciliation of Units
A	Opening WIP	140
B	Introduced	1,000
C=A+B	TOTAL	1,140
D	Transferred	760
E=C-D	Closing WIP	380

Requirement 1

Equivalent Units

Statement of Equivalent Units
		Material		Conversion Cost
	Units	Complete %	Equivalent units	Complete %	Equivalent units
Transferred	760	100%	760	100%	760
Closing WIP	380	100%	380	60%	228
Total	1,140	Total	1,140	Total	988

Requirement 2

Cost per Equivalent Units
COST	Material	Conversion Cost	TOTAL
Beginning WIP Inventory Cost	$        1,120.00	$            4,590.00	$            5,710.00
Cost incurred during period	$        5,526.00	$         21,809.00*	$         27,335.00
Total Cost to be accounted for	$        6,646.00	$         26,399.00	$         33,045.00
Total Equivalent Units	1,140	988
Cost per Equivalent Units	$ 5.83	$ 26.72

*Conversion cost includes labor and overhead cost

Requirement 3

(Working note )         Statement of cost
Cost	Equivalent Cost/unit	Ending WIP		Transferred
		Units	Cost Allocated	Units	Cost Allocated
Material	$ 5.83	380	$   2,215.33	760	$           4,430.67
Conversion Cost	$ 26.72	228	$ 6,092.08	760	$         20,306.92
TOTAL	$ 33,045.00	TOTAL	$ 8,307.41	TOTAL	$         24,737.59

Reconciliation
Cost to be accounted for
Beginning Work In Progress:
Material	$   1,120.00
Conversion Cost	$ 4,590.00	$        5,710.00
Cost incurred during period:
Material	$   5,526.00
Conversion Cost	$ 21,809.00	$     27,335.00
Total Cost to be accounted for				$ 33,045.00
Cost accounted for
Cost of Units transferred	Equivalent Units	Cost per Equivalent Units	Cost accounted for
Material	760	$                5.83	$ 4,430.67
Conversion Cost	760	$              26.72	$20,306.92
				$         24,737.59
Cost of ending WIP	Equivalent Units	Cost per Equivalent Units	Cost accounted for
Material	380	$ 5.83	$ 2,215.33
Conversion Cost	228	$ 26.72	$   6,092.08
				$            8,307.41
Total Cost accounted for				$         33,045.00