Santana Mortgage Company uses a process costing system to accumulate costs in it

Question

Santana Mortgage Company uses a process costing 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.

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.

Santana Mortgage Company uses the FIFO method. Also, assume that the applications in process on September 1 were 100% complete as to materials (forms) and 40% complete as to conversion costs.

Determine the equivalent units of service (production) for materials and conversion costs.

The equivalent units of service (production)? Materials? Conversion costs?

Unit Costs? Materials? Conversion costs?

Prepare a cost reconciliation schedule. (Round unit costs to 2 decimal places, e.g. 2.25 and final answers to 0 decimal places, e.g. 1,225.)

1. Applications in process on September 1, 190 2. Applications started in September, 950 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.

Explanation / Answer

Solution:

Opening WIP of application = 190

Application started during September = 950

Application completed = 660

Closing WIP of application = 190 + 950 - 660 = 480 application

Now for closing WIP, 100% completed as to material and 60% completed as to conversion cost

Therefore equivalent number of unit completed in closing WIP with respect to material = 480

Therefore equivalent number of unit completed in closing WIP with respect to conversion cost = 480*60% = 288

For Opening WIP already, 100% completed as to material and 40% completed as to conversion cost,

Therefore equivalent number of unit in opening WIP with respect to material = 190

Therefore equivalent number of unit in opening WIP with respect to conversion cost = 190*40% = 76

Equivalent unit of service (production) in material = Unit transferred + Equivalent unit of Closing WIP with respect to material – Equivalent number of units in opening WIP with respect to material

= 660 + 480 - 190 = 950 units

Equivalent unit of service in conversion cost = Unit transferred + Equivalent unit of Closing WIP with respect to Conversion cost - Equivalent number of units in opening WIP with respect to material

= 660 + 288 - 76 = 872 units

Computation of unit cost for September Type of Cost Amount Equivalent Units Per unit Cost Material $4,892.00 950 $5.15 Conversion Cost $21,207.00 872 $24.32

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