Santana Mortgage Company uses a process costing system to ac

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

Materials

Conversion Costs

Unit costs

Applications completed:

   Work in process, September 1

$

   Conversion costs

$

   Started and completed

$

Work in process, September 30:

   Materials

   Conversion costs

Total costs

$

Solution

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

Materials Conversion costs

The equivalent units of service (production) 1140 948

(660 + 480* X 100%) (660 + 480 X 60%)

190 + 950 - 660 = 480 Closing stock

Unit costs

Total Material cost = 1320 + 4892 = 6212

Material cost per unit = 6212 / 1140 = 5.45 per unit

Total conversion cost = 5060 + 12500 + 8707 = 26267

Conversion cost per unit = 26267 / 948 = 27.7 per unit

Cost reconcilation schedule

Transferred out ( 5.45 X 660 + 27.7 X 660) = 21879

Work in process, Sep 30

Materials (480 X 5.45 ) 2616

Conversion costs ( 288 X 27.7) 7978 10594

Total costs 32473