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) 5,500
Started into production 29,700
Total units to be accounted for 35,200
Units accounted for as follows:
Transferred to next department 24,000
Work in process, April 30 (materials 75% complete; conversion 50% complete) 11,200
Total units accounted for 35,200

Cost Reconciliation
Cost to be accounted for:
Work in process, April 1 $ 20,900
Cost added during the month 111,740
Total cost to be accounted for $ 132,640
Cost accounted for as follows:
Work in process, April 30 $ 31,360
Transferred to next department 101,280
Total cost accounted for $ 132,640

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, $14,080; and conversion cost, $6,820. The costs added during the month consisted of: materials, $75,344; and conversion cost, $36,396.
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 $2.50 per unit in March to $3.00 per unit in April, but due to good cost control I was able to hold our materials cost to less than $3.00 per unit for the month.” Should this manager be rewarded for good cost control?

Answer 1

1. To calculate the equivalent units of production for materials and conversion, we need to consider the degree of completion of each element for both the work in process at the beginning of the month and for the units started and completed during the month. We then add these up to get the total equivalent units.

Materials:

Work in process, April 1: 5,500 x 0.9 = 4,950 units

Started and completed during April: 29,700 x 1 = 29,700 units

Work in process, April 30: 11,200 x 0.75 = 8,400 units

Total equivalent units for materials: 4,950 + 29,700 + 8,400 = 43,050

Conversion:

Work in process, April 1: 5,500 x 0.8 = 4,400 units

Started and completed during April: 29,700 x 1 = 29,700 units

Work in process, April 30: 11,200 x 0.5 = 5,600 units

Total equivalent units for conversion: 4,400 + 29,700 + 5,600 = 39,700

2. To calculate the cost per equivalent unit for materials and conversion, we divide the total cost for each element by the total equivalent units.

Materials:

Costs from beginning inventory: $14,080

Costs added during April: $75,344

Total costs: $89,424

Cost per equivalent unit: $89,424 / 43,050 = $2.08 per unit

Conversion:

Costs from beginning inventory: $6,820

Costs added during April: $36,396

Total costs: $43,216

Cost per equivalent unit: $43,216 / 39,700 = $1.09 per unit

3. To determine how many of the units transferred out of the Mixing Department in April were started and completed during that month, we need to subtract the work in-process units at the end of April from the total units transferred out.

Units transferred out: 24,000

Work in process, April 30: 11,200

Units started and completed during April: 24,000 - 11,200 = 12,800 units

4. Based on the information given, it's not clear whether the manager should be rewarded for good cost control. The manager's statement suggests that the materials cost per unit stayed below $3.00 despite a price increase, but we don't have enough information to know whether this was due to good cost control or other factors (such as using more efficient production methods or negotiating better prices with suppliers). Further analysis would be needed to determine the cause of the cost savings and whether they were a result of the manager's efforts.

Explanation: