40. (Comprehensive; WA and FIFO) Andaman Company mines salt in southern Florida. Approximately 30 percent of the

Question:

40. (Comprehensive; WA and FIFO) Andaman Company mines salt in southern Florida. Approximately 30 percent of the mined salt is processed into table salt.

Andaman Company uses a process costing system for the table salt operation.

Processing takes place in two departments. Department 1 uses FIFO costing, and Department 2 uses weighted average. The cost of the processed salt transferred from Department 1 to Department 2 is averaged over all the units transferred.

Salt is introduced into the process in Department 1. Spoilage occurs continuously through the department and normal spoilage should not exceed 10 percent of the units started; a unit is 50 pounds of salt.

Department 2 packages the salt at the 75 percent completion point; this material does not increase the number of units processed. A quality control inspection takes place when the goods are 80 percent complete. Spoilage should not exceed 5 percent of the units transferred in from Department 1.

The following production and cost data are applicable to Andaman Company’s table salt operations for July 2001:

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a. Compute the equivalent units of production in each department.

b. Determine the cost per equivalent unit in each department and compute the cost transferred out, cost in ending inventory, and cost of spoilage (if necessary).

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