Question

Santana Mortgage Company uses a process cost system to accumulate costs in its 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 September 1, 170
2. Applications started in September, 930
3. Completed applications during September, 660
4. Applications still in process at September 30 were 100% complete as to materials (forms) and 60% complete as to conversion costs.


Beginning WIP:
Direct materials $1,310
Conversion costs 4,140
September costs:
Direct materials $5,114
Direct labor 12,820
Overhead 7,581


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.

Required:

a. Determine the equivalent units of service (production) for materials and conversion costs.
b. Compute the unit costs and prepare a cost reconciliation schedule.

Answer 1

Answer: a) The equivalent units for material = 1,100

The equivalent units for conversion cost = 924.

b) The unit cost for material and conversion cost is $5.84 and $26.56 respectively.

c) cost reconciliation schedule is in the explanation column

Explanation:

first , we calculate units in process

Units in Process =  Units of applications Opened + units of application  started -  units of application completed

= 170 + 930 - 660 = 440 units

Equivalent units of production for materials =application units completed + Application units in process  x its percentage complete

660 + (440 x 100%)=660+440= 1,100

Equivalent units of production for conversion  = application units completed + Application units in process  x its percentage complete

660 + (440 x 60%)=660+264=924

Computing  the unit costs

Units of cost as per material

Number of application units during the month = 660units

Wor in process unit = 440units

Material cost during ,month -=$5,114

Beginning work in progress cost for materials =$1,310

Equivalent unts of production for materials = 1,100

Unit cost for material  = Material cost during  the month +Begining work in progress cost for materials/Equivalent units of production for materials = $5,114 + $1,310=$6,424/ 1100=  $5.84

Units of cost as per conversion

Number of application units during the month = 660units

Work in progess unit = 440units

conversion cost during ,month -= direct labour + overhead = $12,820 + $7,581= $20, 401

Beginning work in progress cost for materials =$4,140

Equivalent unts of production for materials = 924

Unit cost = Material cost during  the month +Beginning work in progress cost for materials/Equivalent units of production for materials = $20,401 + 4,140=$24,541 / 924=  $26.56

Cost Reconciliation schedule

Particulars        no of units     materials    conversion   Total

units transferred  660             $5,114         $20,401     $25,515

ending WIP         440              $6,424        $24, 541   $30,965

Total                                        $11,538     $44,942     $56,480