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)	5,000
Started into production	29,000
Total units to be accounted for	34,000
Units accounted for as follows:
Transferred to next department	30,000
Work in process, April 30 (materials 75% complete; conversion 50% complete)	4,000
Total units accounted for	34,000

Cost Reconciliation
Cost to be accounted for:
Work in process, April 1	$	13,400
Cost added during the month		87,800
Total cost to be accounted for	$	101,200
Cost accounted for as follows:
Work in process, April 30	$	8,200
Transferred to next department		93,000
Total cost accounted for	$	101,200

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, $9,000; and conversion cost, $4,400. The costs added during the month consisted of: materials, $57,000; and conversion cost, $30,800.

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 $1.80 per unit in March to $2.30 per unit in April, but due to good cost control I was able to hold our materials cost to less than $2.30 per unit for the month.” Should this manager be rewarded for good cost control?

Answer 1

Part 1

Equivalent units of production
	Materials	Conversion
Transferred to next department	30000	30000
Equivalent units in ending work in process inventory:
Materials: (4000*75%)	3000
Conversion: (4000*50%)		2000
Equivalent units of production	33000	32000

Part 2

Cost per equivalent unit
	Materials	Conversion
Cost of beginning work in process	9000	4400
Cost added during the period	57000	30800
Total cost (a)	66000	35200
Equivalent units of production (b)	33000	32000
Cost per equivalent unit (a) ÷ (b)	$2.00	$1.10

Part 3

Total units transferred	30000
Less units in the beginning inventory	5000
Units started and completed during April	25000

Part 4

No, there is no meaning to reward the manager for good cost control as the reason for the low unit cost of the Mixing Department for April is due to averaging the costs of the prior month with April’s costs. The costs calculated for product costing purposes using weighted average method should neither be used to evaluate cost control nor to measure current period’s performance.