Problem 6-51 Weighted-Average Method, FIFO Method, and Rising Prices Healthy Selections Cereals Inc (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 which begin with sorting, cleaning, preparing and inspecting the direct materials (grains, nuts, and other ingredients). The materials are then mixed and processed for consistency, followed by cooking, final inspection, and packaging. All materials are added only at the beginning of the first process. The inspection in the first and final processes is made at the end of those respective processes, so all direct materials and conversion costs are lost for 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 is for the first process for the current month. All output is measured in pounds. 25% complete for conversion 40% complete for conversion Beginning WIP Ending WIP Spoilage Pounds added this month Percentage completion for materials (added at start) The cost information for the first process is as follows: 14,000 pounds 12,000 pounds 1,000 pounds 33,000 pounds 100% complete for materials Beginning WIP Current costs Direct Materials Conversion $3,325 $3,380 66,000 104,000 Total $6,705 170,000 Required 1. 2. 3. Prepare a production cost report for the first process using the weighted average method. Prepare a production cost report for the first process using the FIFO method. Interpret the differences between the two methods and which would you recommend to the CFO and why