Solex Company produces a high-quality insulation material that passes through two production processes. A quantity schedule for June for the first process follows:

Quantity Schedule

Units to be accounted for:
Work in process, June 1 (materials 75%
Complete: conversion 40% complete) ........ 60,000
Started into production ............................ 280,000
Total units to be accounted for ...................... 340,000

Equivalent Units
___________________________
Materials Conversion
Units accounted for as follows:
Transferred to the next process ..................... 300,000 ? ?
Work in process, June 30 (materials 50%
Complete: conversion 25% complete) 40,000 ? ?
Total units accounted for ............................... 340,000 ? ?

Cost in the beginning work in process inventory of the first processing department were: materials, $56,600; and conversion cost, $14,900. Cost added during June were: materials, $385,000; and conversion cost, $214,500.

Required:

1. Assume that the company uses the weighted-average method of accounting for units and cost. Determine the equivalent unit for June for the first process.
2. Compute the cost per equivalent unit for June for the first process.

Quantity Schedule

Units to be accounted for:
Work in process, June 1 (materials 75%
Complete: conversion 40% complete) ........ 60,000
Started into production ............................ 280,000
Total units to be accounted for ...................... 340,000

Equivalent Units
___________________________
Materials Conversion
Units accounted for as follows:
Transferred to the next process ..................... 300,000 300,000 300,000
Work in process, June 30 (materials 50%
Complete: conversion 25% complete) 40,000 20,000 10,000
Total units accounted for ............................... 340,000 320,000 310,000

For the units transferred to the next process, they are all 100% complete. Therefore, equivalent units for the materials and conversion will be equal to the amount of units transferred.

For the work in process of June 30, the percentage completed for the materials and conversion is different. So, we need to calculate the equivalent units for them separately as follows: -

Materials (50% x 40,000) 20,000 units
Conversion (25% x 40,000) 10,000 units

2. Compute the cost per equivalent unit for June for the first process.

Then, we need to calculate the cost per equivalent unit for June by including the cost in the beginning work in process inventory of the first processing department for materials of $56,600 and conversion cost of $14,900 with the cost added during June for materials of $385,000 and conversion cost of $214,500.

DM Conversion Total

Work in process, June 1 $ 56,600 $ 14,900 $ 71,500
Cost incurred during June $385,000 $214,500 $599,500
Total costs to account for $441,600 $229,400 $671,000

Equivalent unit 320,000 310,000

Costs per equivalent unit $1.38 $0.74 $2.12

$441,600 $229,400 $1.38 + $0.74
320,000 310,000

Page 2

Exercise 5-1 Fixed and Variable Cost Behavior (LOI)
Koffee Express operates a number of expresso coffee stands in busy suburban malls. The fixed weekly expense of a coffee stand is $1,100 and the variable cost per cup of coffee served is $0.26

Required:
1. Fill in the following table with your estimates of total cost and cost per cup of coffee at the indicated levels of activity for a coffee stand. Round off the cost of a cup of coffee to the nearest tenth of a cent.

Cups of Coffee Served in a Week
1,800 1,900 2,000

Fixed cost ............................................... 1,100 1,100 1,100

Variable cost ............................................ 468 494 520

Total cost ................................................ 1,568 1,594 1,620

Cost per cup of coffee served ........................ ? ? ?

As the fixed cost will not change with the number of coffee sold, the fixed cost will be the same.
For the variable cost, we need to multiply the variable cost per cup of coffee served with the number of cups expected to be served in a week.

1,800 cups x $0.26 = $468
1,900 cups x $0.26 = $494
2,000 cups x $0.26 = $520

Then, we will divide the total cost with the number of cups expected to be served in a week to find the cost per cup of coffee served.

$1,568/1,800 cups = $0.87
$1,594/1,900 cups = $0.84
$1,620/2,000 cups = $0.81

2. Does the cost per cup of coffee served increase, decrease, or remain the same as the number
of cups of coffee served in a week increases? Explain.

The cost per cup of coffee served decreases as the number of cups of coffee served in a week increases. This is due to the fact that the average fixed cost will be lower when the amount of cups of coffee served in a week increases.
$0.26