Question

The Journey Company operates under a process cost system using the weighted average method. All direct materials are added at the beginning of production in the department, and conversion costs are incurred evenly throughout production. Inspection occurs when production is 100% completed.

Following are data for January. All unfinished work at the end of January is 30% completed. The beginning inventory is 80% completed.

Beginning inventories
Direct Materials	$16,000
Conversion Costs	14,200
Costs added during current period
Direct Materials	$90,400
Conversion Costs	76,405
Physical Units
Units in beginning inventory	4,000
Units started this month	24,000
Total units completed and transferred out	22,600
Normal spoilage	960
Abnormal spoilage	800

A.         Following a material flow analysis, the company’s accountant estimates that 10% of the direct materials and 75% of conversion costs are classified as “waste and emissions.” Assume these percentages apply to both beginning inventories and current period costs.

Prepare a material flow cost report using the Weighted Average method.

B.         Provide a possible explanation for the higher proportion of waste in conversion costs compared to direct materials.

C.         Should the managers of Rally Company establish a goal of eliminating all waste and emissions?

Explain your reasoning.

D.         Suppose the managers are interested in presenting Rally as a company that is concerned about the environment. What are the pros and cons of publicly reporting data about the amount of waste in the company’s manufacturing operations

Answer 1

Material cost report - Weighted Average method
Quantity Schedule & Equivalent Units
Units to be accounted for:
WIP, January 1	4000
Started into production	24000
Total Units	28000

			EU
			Materials		Conversion
			Units	%	Units	%
Units accounted for as follows:
Units completed and transferred out	22600		22600	100	22600	100
WIP, January 31	5400		5400	100	1620	30
	28000		28000		24220
Costs per EU
	Total Cost		Materials		Conversion Costs		Whole Unit
Costs to be accounted for:
WIP, January 1	30200		16000		14200
Costs added during the month	166805		90400		76405
Total Cost	197005		106400		90605
EUs of production			28000		24220
Costs per EU			3.8		3.74		7.54
Cost Reconciliation
	Total		Eus (above)
	Cost		Materials		Conversion
Cost accounted for as follows:
Transferred out
22600 x $7.54	170404		22600		22600
WIP, January 31
Materials: 5400 x $3.80	20520		5400
Conversion: 1620 x $3.74	6058.8				1620
Total WIP	26578.8
Total Cost	196982.8