The production process for Mahaska Chemicals begins by mixing all of the required materials. Mahaska incurs conversion costs uniformly throughout the process.
Mahaska began December with zero beginning inventory. It started 645,000 pounds of material into production in early December and had 95,000 pounds still in process on December 31. Mahaska estimates the ending work-in-process (EWIP) inventory to be 20% complete with respect to conversion costs.
Finally, Mahaska spent $1,935,000 on materials and $1,024,200 on conversion costs during December.
Determine the cost of the fertilizer finished during December, using the weighted average method.
Equivalent units:
Material = 645,000 (Entire material is introduced at the beginning)
Conversion cost = (645,000 - 95,000) X (95,000 X 20%)
= 569,000
Cost per equivalent unit:
Material = $1,935,000 / 645,000
= $3
Conversion costs = $1,024,200 / 569,000
= $1.80
Cost of fertilisers finished:
= (645,000 - 95,000) X ($3 + $1.80)
= $2,640,000
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