Question

Operations Excellence (OE), Inc. has two production departments: Mixing and Packaging. Mixing DepartmentPackaging DepartmentWarehouseOE manufactures two products: Compound H and Compound L. Compound H is a high-end product that requires more expensive materials than Compound L and is produced at smaller volume. The two products go through the two production departments in essentially the same conversion processes. There is no work-in-process inventory for either product. OE uses an operation costing system that assigns materials cost to the specific product for which the underlying materials are used and assigns conversion costs to all products evenly as each product undergoes the same process in each production department. The production and cost data are available for July:Compound HCompound LTotal2,500 Units4,800 UnitsMaterials: Mixing$220,000$100,000$120,000 Packaging 75,900 37,500 38,400Total materials cost$295,900$137,500$158,400Conversion: Mixing$219,000 Packaging 131,400Total conversion cost$350,400Required: Determine the unit cost for Compound H and Compound L.

Answer 1

Answer:

Operations Excellence (OE)

The unit cost for Compound H and Compound L respectively is:

                                            Compound H     Compound L

Unit cost of production             $103                 $81

Explanation:

Production and cost data are available for July:

                                             Total  Compound H     Compound L

Production units                  7,300             2,500                 4,800

Materials:

Mixing                           $220,000      $100,000          $120,000

Packaging                         75,900           37,500              38,400

Total materials cost    $295,900        $137,500          $158,400

Conversion:

Mixing                          $219,000

Packaging                       131,400

Total conversion cost$350,400

Assigned conversion cost per unit = $48

Assignment of conversion costs:        120,000         230,400 (4,800 * $48)

Total production costs $646,300    $257,500       $388,800

Units produced                7,300             2,500              4,800

Unit cost                                                    $103                 $81