Question

Cost management (accounting) Question:

FY2013 FY2014 Cost of Goods Sold: Peanuts Other ingredients Direct labor Overhead $ 189,296 $ 201,379 64,408 767,543 860,545

1. Required: (Ignoring any WIP) Complete the following table to calculate the average cost per kilogram produced in 2014 and 2013

Simplified process costing method (ignores work-in-process inventory)

Ingredients Total 2014 Costs added MM produced Cost per kg 2013 Costs added MM produced Cost per k,g Conversion

2. On the basis of your calculations in (b) above, where do you think the best opportunities for reducing the cost per kg resides?

FY2013 FY2014 Cost of Goods Sold: Peanuts Other ingredients Direct labor Overhead $ 189,296 $ 201,379 64,408 767,543 860,545 1,140,9841,188,372 S 2,166,422 $2,314,704 255,186 268,905 68,599 Cost of Goods Sold Kilograms Produced
Ingredients Total 2014 Costs added MM produced Cost per kg 2013 Costs added MM produced Cost per k,g Conversion
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Answer #1
Part-1
2014 Ingredient Conversion Total
Cost Added (a) $2,65,787.00 $20,48,917.00 $23,14,704.00
(201379+64408) (860545+1188372)
MM Produced (b) 268905 268905 268905
Cost per KG (a/b) $0.99 $7.62 $8.61
2013
Cost Added ( C) $2,57,895.00 $19,08,527.00 $21,66,422.00
(189296+68599) (767543+1140984)
MM Produced (d) 255186 255186 255186
Cost per KG (c/d) $1.01 $7.48 $8.49
Part-2: Above working shows that conversion cost increase from $7.48 to $7.62 impact on Overall cost per kg. Hence it should try to minimise the conversion cost.
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