Omaha Foods manufactures

corn meal in a continuous, mass production process. Corn is added at the beginning

of the process. Normal losses are minimal and abnormal losses infrequently

occur when foreign materials are found in the corn meal. Routine inspection occurs at

the 95 percent completion point as to conversion.

During May, a machine malfunctioned and dumped salt into 8,000 pounds of corn

meal. This abnormal loss occurred when conversion was 70 percent complete on those

pounds of product. The error was immediately noticed, and those pounds of corn meal

were pulled from the production process. Two thousand additional pounds of meal

were detected as unsuitable at the routine inspection point; this amount was considered

within normal limits. Production data for the month follow.

Beginning WIP Inventory (85% complete) 40,000 pounds

Started during the month 425,000 pounds

Ending WIP Inventory (25% complete) 10,000 pounds

a. Determine the number of EUP for direct material and for conversion, assuming a

FIFO cost flow.

b. If the costs per EUP are $0.08 and $0.15 for direct material and conversion, respectively,

what is the cost of the ending WIP Inventory?

c. What is the cost of abnormal loss? How is this cost treated in May?

a.				Units		Material		Conversion
	Beginning inventory			40,000
	Pounds started			425,000
	Pounds to account for			465,000
	Beginning inventory completed			40,000
	Started & completed
	Ending inventory			10,000
	Normal spoilage
	Abnormal spoilage			8,000
	EUP (FIFO)
b.	Ending inventory:
	Material
	Conversion
	Total cost
c.	Ending inventory:
	Material
	Conversion
	Total cost