Question

Healthy Selections Cereals, Inc. (HSC) is a large food-processing company specializing in whole-grain, high-energy, low-calorie, and low-fat cereals that appeal to the health-conscious consumer. HSC has a premium image in the market, and most of its customers are loyal and willing to pay a bit extra to get the healthy choice that HSC offers. HSC’s cereals are made in a series of processes that begin with sorting, cleaning, preparing, and inspecting the direct materials (grains, nuts, and other ingredients). The materials are then mixed and processed for consistency, cooked, given a final inspection, and packaged. All materials are added only at the beginning of the first process. The inspections in the first and final processes are made at the end of those respective processes, so all direct materials and conversion costs are lost for any defective units detected at the inspection point. The company uses weighted-average process costing and accounts for all waste as normal spoilage.

Currently, commodity prices are rising sharply, affecting the costs of many of the ingredients in HSC’s products. The CFO, noting the sharp rise in the cost of the company’s direct materials, has considered using the FIFO method.

The following data are for the first process for the current month. All output is measured in pounds.

Beginning WIP	14,000 pounds, 25% complete for conversion
Ending WIP	12,000 pounds, 40% complete for conversion
Normal spoilage	1,000 pounds
Pounds added this month	33,000 pounds

The cost information for the first process is as follows:

	Direct Materials				Conversion				Total
Beginning WIP	$	3,325			$	3,380			$	6,705
Current costs		66,000				104,000				170,000

Required:

1. Prepare a production cost report for the first process using the weighted-average method.

2. Prepare a production cost report for the first process using the FIFO method.

Answer 1

Answer 1

Step for solution
Step 1	Equivalent Units of production = Physical units multiplied by % of competition
Step 2	Calculate total cost to be accounted for
Step 3	Cost per Equivalent Unit = total cost to be accounted for / Equivalent Units of production
Step 4	Cost assigned to units transferred out = units completed and transferred out * Cost per Equivalent Unit
Step 5	Cost assigned to units ending work in progress = equivalent units in ending WIP inventory * Cost per Equivalent Unit

Healthy Selections Cereals, Inc
First Process production Report
Weighted average Method
Month ended
Summary of Physical units
Units in beginning WIP inventory			14000
Units started during month			33000
Total unit to be accounted for			47000
Normal spoilage			1000
Units completed and transferred out (47000-1000-12000)			34000
Units in ending WIP inventory			12000
Total unit accounted for			47000
Equivalent Units of production
Particulars	Physical units	Direct material		Conversion Cost
		%	Units	%	Units
Units in beginning WIP inventory	14000	100%	14000	100%	14000
Units in Started and completed (34000-14000)	20000	100%	20000	100%	20000
Units in ending WIP inventory	12000	100%	12000	40%	4800
Equivalent Units of production			46000		38800
Summary of cost to be accounted
	Direct material	Conversion Cost	Total
Cost in beginning WIP	3,325	3,380	6705
Cost incurred during Month (Add)	66,000	104,000	170000
Total cost to be accounted for	69325	107380	176705
Cost per Equivalent Unit
Total cost to be accounted for	69325	107380
Equivalent Units of production	46000	38800
Cost per Equivalent Unit	1.507065	2.767526	4.274591
Assign costs to units transferred out and units in ending WIP inventory
Cost assigned to units transferred out
Units completed and transferred out	34000	34000
Cost per Equivalent Unit	1.507065	2.767526
Cost assigned to units transferred out	51240.22	94095.88	145336.1
Cost assigned to units ending work in progress
Equivalent units in ending WIP inventory	12000	4800
Cost per Equivalent Unit	1.507065	2.767526
Cost assigned to units ending work in progress	18084.78	13284.12	31368.91
Total cost assigned			176705

Answer 2

Step for solution
Step 1	Equivalent Units of production = Physical units multiplied by % of competition
Step 2	Calculate total cost to be accounted for
Step 3	Cost per Equivalent Unit =Cost incurred during Month / Equivalent Units of production
Step 4	Cost assigned to units transferred out = Cost in beginning WIP + Cost incurred for complete beginning WIP + Cost of units in Started and completed
Step 5	Cost assigned to units ending work in progress = equivalent units in ending WIP inventory * Cost per Equivalent Unit
For direct material 100% unit completed in previous period. It means remaining 0% completed in this month.
For conversion cost 25% unit completed in previous period. It means remaining 75% completed in this month.

Healthy Selections Cereals, Inc
First Process production Report
First in First out (FIFO) Method
Month ended
Summary of Physical units
Units in beginning WIP inventory			14000
Units started during month			33000
Total unit to be accounted for			47000
Normal spoilage			1000
Units completed and transferred out (47000-1000-12000)			34000
Units in ending WIP inventory			12000
Total unit accounted for			47000
Equivalent Units of production
Particulars	Physical units	Direct material		Conversion Cost
		%	Units	%	Units
Units in beginning WIP inventory	14000	0%	0	75%	10500
Units in Started and completed (34000-14000)	20000	100%	20000	100%	20000
Units in ending WIP inventory	12000	100%	12000	40%	4800
Equivalent Units of production			32000		35300
Summary of cost to be accounted
	Direct material	Conversion Cost	Total
Cost in beginning WIP	3,325	3,380	6705
Cost incurred during Month (Add)	66,000	104,000	170000
Total cost to be accounted for	69325	107380	176705
Cost per Equivalent Unit
Cost incurred during Month	66000	104000
Equivalent Units of production	32000	35300
Cost per Equivalent Unit	2.062500	2.946176	5.008676
Assign costs to units transferred out and units in ending WIP inventory
Cost assigned to units transferred out
Direct material	3325
Conversion Cost	3380
Cost in beginning WIP		6705
Direct material (0*2.0625)	0
Conversion Cost (10500*2.94617563739377)	30934.84419
Cost incurred for complete beginning WIP		30934.84
Direct material (20000*2.0625)	41250
Conversion Cost (20000*2.94617563739377)	58923.51275
Cost of units in Started and completed		100173.5
Cost assigned to units transferred out		137813.4
Cost assigned to units ending work in progress
Direct material (12000*2.0625)	24750
Conversion Cost (4800*2.94617563739377)	14141.64306
Cost assigned to units ending work in progress		38891.64
Total cost assigned		176705