Process Costing Variances: Alminex Mining Company uses a process costing system to account for the costs associated with ore benefication processes. Benefication is the process by which the valuable components are extracted or converted from raw ores. For one of these processes, standards call for a yield of 5 percent nickel from a given quantity of ore. For costing accounting purposes, equivalent units are expressed in terms of tons of nickel obtained from a particular quantity of ore. Because yields vary from one batch of ore to another, it is necessary to monitor materials variances carefully. A FIFO costing system is required. The following inventories were on hand at the start of the month:

During the month. 14.000 tons of unprocessed ore were put into production. In this and subsequent months, the yield rate for this 14,000 tons of ore was 5. 1 percent. During the month 680 tons of nickel were sent out of the processing plant. The ore on hand was 25 percent processed with respect to conversion costs at the end of the month, and 60 percent at the beginning of the month. The unprocessed ore entered into production this month had an average actual cost of $11.20 per ton. During the month, there was a $10,814 favorable price variance for conversion costs. Actual conversion costs totaled $1,062,986.

Required: Determine the following:

a. Equivalent units of production for the month in terms of tons of nickel for materials and conversion costs.

b. A cost of production report showing the value of units transferred out and the value of ending inventory.

c. Price and efficiency variances for variable production costs.

Transcribed Image Text:

Unprocessed ore Ore in process (ie., work in process inventory): 100% complete for materials. (This ore had a nickel yield of 30T, which Raw Ore Quantities 2,100 raw ore tons 600 raw ore tons Standard Cost $23,100 6,600 is exactly the 5% standard yield). 19,200