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 $11.00 each. (The Mexican currency is the peso and is denoted by $.) 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:

	Quantity Schedule
	Units to be accounted for:
	Work in process, April 1 (materials 100% complete; conversion 95% complete).........	11,000
	Started into production......................................	150,000
	Total units to be accounted for........................	161,000
	Units accounted for as follows:
	Transferred to the next department.................	155,000
	Work in process, April 30 (materials 100% complete, conversion 30% complete).........	6,000
	Total units accounted for..................................	161,000
	Total Cost
	Cost to be accounted for:
	Work in process, April 1.....................................	$  22,810
	Cost added during the month...........................	599,000
	Total cost to be accounted for..........................	$621,810
	Cost Reconciliation
	Cost accounted for as follows:
	Transferred to the next department.................	$604,500
	Work in process, April 30...................................	17,310
	Total cost accounted for....................................	$621,810

        Cooperative San José has just been acquired by another company, and the management of the acquiring company wants some additional information about its operations.

Required:

( 1). What were the equivalent units for the month?

(2). What were the costs per equivalent unit for the month? The beginning inventory consisted of the following costs: materials, $19,450; and conversion cost, $3,360. The costs added during the month consisted of: materials, $375,000; and conversion cost, $224,000.

(3). How many of the units transferred to the next department were started and completed during the month?

(4). The manager of the Mixing Department, anxious to make a good impression on the new owner, stated, “Materials prices jumped from about $1.80 per unit in October to $2.50 per unit in April, but due to good cost control I was able to hold our materials cost to less than $2.50 per unit for the month.” Should this manager be rewarded for good cost control? Explain.

Answer 1

Answer 1

	Material	Conversion Cost
Equivalent units	161,000	156,800

Calculations:

	Material	Conversion Cost
Equivalent units	=155000+(6000*100%)	=155000+(6000*30%)

Answer 2

Cost per equivalent unit

$ 2.45

$ 1.45

Calculations:

	Material	Conversion Cost
Cost of beginning Inventory	$   19,450	$                3,360
(+)Cost added	$ 375,000	$           224,000
Total Cost	$ 394,450	$           227,360
(Divide) Equivalent units	161,000	156,800
Cost per equivalent unit	$       2.45	$                  1.45

Answer 3

Units started and completed

144,000

Calculations:

Units completed	155,000
(-) Opening WIP	11,000
Units started and completed	144,000

Answer 4

NO

Calculations:

This is because he purchased the material of $ 375,000 for the material of 150,000 units. The cost per unit is $ 2.5 per unit.

In case of any doubt, please comment.