Question 5

a) You are provided with the following information about the process costs for Paulas Machines Ltd for December. Material is added at the start of the process and conversion costs are incurred evenly throughout the process.

Work in process (units) - 1 December	250,000
Units started in December	1,250,000
Units completed and transferred out	1,200,000
Normal spoilage units during manufacturing	29,520
Work in process (units) - 31 December	60% complete with respect to conversion.

Spoilage is normally detected 25% of the way through the manufacturing process.

Tasks

1. Prepare a schedule of equivalent units.
2. Assume that the direct material cost per equivalent unit is $1.50 and the conversion cost per equivalent unit is $3.00. Calculate the total cost of finished goods for the month of November.

b) You are presented with the following support department information:

Service provider and allocation base

Support departments

Manufacturing lines

	Department A	Department B	Department C	Line 1	Line 2
Department A (number of jobs)	100	300	200	250	350
Department B (number of employees)	None	None	20	500	500
Department C (number of jobs)	25	80	None	300	420

Support department costs are as follows:

Department A:	$1,100,000
Department B:	$504,000
Department C:	$760,000

Task

Allocate support department costs to Manufacturing line 1 and Manufacturing line 2 using the step-down method.

1. You are presented with the following inventory data:

Estimated cost of ordering and receiving inventory (per order in bags)	$2,000
Estimated annual cost of carrying inventory (per kg)	$0.15
Estimated annual usage (purchased in 15 kg bags)	3,900,000 kg
Lead time per order	2 weeks
Annual manufacturing operating time (in weeks)	50 weeks
Maximum weekly material usage	5,500 bags

Tasks

1. Calculate the economic order quantity, safety stock required, and reorder point (use bags as the units).
2. Briefly explain the meaning of your calculations.

1. A joint manufacturing process is used to manufacture 500,000 kg of CH54 at a cost of $1,750,000.

SN62

350,000 kg of CH54 is used to manufacture 350,000 kg of SN62 at an additional process cost of $700,000. SN62 is sold for $11.00 per kg.

DN2

150,000 kg of CH54 is used to manufacture 100,000 kg of DN2 at an additional process cost of $495,000. DN2 is sold for $9.00 per kg.

Task

Allocate the joint manufacturing cost using the constant gross margin method.