Question

atok Products, Inc., manufactures a chemical compound that goes through the processing stages prior to completion. Information on work in the first department, Mixing, is given below for September 67,000 lbs. 200,000 lbs. Production data: Pounds in process, September 1: materials 80% complete; conversion 60% complete Pounds started into production during September Pounds completed and transferred out Pounds in process, September 31: materials 75% complete; conversion 25% complete Cost data: work-in-process inventory, September 1: Materials cost Conversion cost Cost added during September: Materials cost Conversion cost 27,000 lbs. $78,500 $20,300 5442,000 $349,825 Cost of the units completed and transferred out is: A S747,863 B. $840,000 C. $480,000 D. $890,625 E. None of the above 4 In a flexible budget, what will happen to fixed costs as the activity level increases? A. The fixed cost per unit will remain unchanged. B. The fixed cost per unit will increase. C. Fixed costs are not included in a flexible budget. D. The fixed cost per unit will decrease. E Total fixed cost will increase. Page 3 of 12

Answer 1

Cost of units transferred out				EUP	Cost/ EUP	Total Cost
Direct Materials				240000	$      2.00	$    480,000.00
Conversion				240000	$      1.50	$    360,000.00
Total costs transferred out						$    840,000.00

Workings:

Equivalent Units of Production (EUP) - Weighted Average Method
				Units	% Mat.	EUP- Mat.	% Conv.	EUP- Conv.
Units completed and transferred out				240000	100%	240000	100%	240000
Units in ending inventory				27000	75%	20250	25%	6750
Equivalent units of production						260250		246750

Cost per Equivalent Unit of Production
					Materials		Conversion
Beginning costs					$      78,500.00		$   20,300.00
During the month costs					$    442,000.00		$ 349,825.00
Total cost				Costs	$    520,500.00	Costs	$ 370,125.00
÷	Equivalent units of production			EUP	260250	EUP	246750
Cost per equivalent unit of production					$                2.00		$             1.50

4) In a flexible budget, as the activity level increases, fixed cost per unit will decrease since fixed cost doesn't change with the change in production units.