Question

Hi-Tech Mortgage Company uses a process costing system to accumulate costs in its loan application department. When an application is completed, it is forwarded to the loan department for final processing. The following processing and cost data pertain to September:

1.		Applications in process on		Beginning work in process:
		September 1, 80		Direct materials		$1,160
2.		Applications started in		Conversion costs		3,820
		September, 1,110		September costs:
3.		Completed applications during		Direct materials		$4,790
		September, 860		Direct labour		11,800
4.		Applications still in process at September 30 were		Overhead		14,004
		100% complete in terms of materials (forms) and 60%
		complete in terms of conversion costs.

Materials are the forms used in the application process, and these costs are incurred at the beginning of the process. Conversion costs are incurred uniformly during the process.

Determine the equivalent units of service (production) for materials and conversion costs.

		Materials	Conversion Costs
Total equivalent units

Answer 1

Units in ending inventory = Beginning units + Started units - Completed units

= 80 + 1,110 - 860

= 330

Equivalent units = Units completed + (Completed units X Percentage of completion)

Materials = 860 + (330 X 100%) = 1,190

Conversion costs = 860 + (330 X 60%) = 1,058