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Healthy Selections Cereals, Incorporated (HSC) is a large food-processing company specializing in whole-grain, high-energy, low- calorie, and low-fat cereals that appeal to the health-conscious
Healthy Selections Cereals, Incorporated (HSC) is a large food-processing company specializing in whole-grain, high-energy, low- calorie, and low-fat cereals that appeal to the health-conscious consumer. HSC has a premium image in the market, and most of its customers are loyal and willing to pay a bit extra to get the healthy choice that HSC offers. HSC's cereals are made in a series of processes that begin with sorting, cleaning, preparing, and inspecting the direct materials (grains, nuts, and other ingredients). The materials are then mixed and processed for consistency, cooked, given a final inspection, and packaged. All materials are added only at the beginning of the first process. The inspections in the first and final processes are made at the end of those respective processes, so all direct materials and conversion costs are lost for any defective units detected at the inspection point. The company uses weighted-average process costing and accounts for all waste as normal spoilage. Currently, commodity prices are rising sharply, affecting the costs of many of the ingredients in HSC's products. The CFO, noting the sharp rise in the cost of the company's direct materials, has considered using the FIFO method. The following data are for the first process for the current month. All output is measured in pounds. Beginning WIP Ending WIP Normal spoilage Pounds added this month 17,200 pounds, 25% complete for conversion 12,000 pounds, 40% complete for conversion 1,000 pounds 34,600 pounds The cost information for the first process is as follows: Direct Materials Conversion Total Beginning WIP Current costs $ 3,405 74,000 $ 3,460 112,000 $ 6,865 186,000 Required: 1. Prepare a production cost report for the first process using the weighted-average method. 2. Prepare a production cost report for the first process using the FIFO method.
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