Multiple Departments and Changes in Output Unit Measurements: (Requires solution of problem 8-35). Mercantile Recovery Corporation (from problem 8-35) has a second department that blends the liquid fuel from the first department with ethanol to generate a liquid fuel with a higher octane content. Due to evaporation during the process, the input quantities will equal 105 percent of the output quantities. The company expresses all input units in terms of the equivalent output that can be obtained after allowing for the evaporation losses. Consequently, all beginning and ending inventory figures are stated in units of expected good output. At the start of the month, there were 800 units in process that were 50 percent complete with respect to the addition of ethanol and 75 percent complete with re- spect to conversion costs. The costs of the beginning inventory are itemized as follows:

During the period, the units received from the first department were put into production. Costs of $3,000 were incurred for ethanol, and costs of $5,000 were incurred for conversion. The ending inventory consisted of 900 units that were 20 percent complete with respect to the addition of ethanol and 30 percent complete with respect to conversion costs.

Required:

a. Prepare a production cost report, using FIFO.

b. Show the flow of costs through T-accounts.

Transcribed Image Text:

Prior department costs $926 Ethanol 76 Conversion costs 150