Question

The following data are given for a cost of Green Company.

Production units Cost in total

100 $500

200 $700

What kind of cost is the above cost?

	A.	Fixed
	B.	Variable
	C.	Mixed
	D.	Direct
	E.	Discretionary

True Company uses the First-In First-Out method of process costing. The following information is given for the company's Milling Department:   

	units	% complete for Materials	% complete for Conversion		Costs incurred
Beginning Work in process	200	30%	40%			Materials	Conversion
Units started	500				Beginning Work in process	$1,500	$1,600
Units completed	600
Ending Work in process	100	20	50		During Current Period	$13,440	$17,100

  The following additional information is given:

Cost per equivalent unit for Material: $24

Cost per equivalent unit for Conversion: $30

Cost of ending work in process: $1,980

    The cost of 600 complete units is:

	A.	$25,330
	B.	$28,560
	C.	$21,600
	D.	$33,800
	E.	$31,660

Answer 1

Answer 1:

Option C: Mixed cost

Explanation:

These cost are mixed costs because these costs are fixed up to a certain level of output/activity, and then it changes into variable cost as it further increases after a certain level.

In simple words, the cost does not increase proportionately. When the units are doubled, the cost does not get doubled.

Hence, option 'C' is correct and rest all are incorrect.

Answer 2:

Option E: $ 31,660

Explanation:

Cost of started and completed units = Units completed * cost per equivalent unit for material and conversion

= 400 * (24 + 30)

= $ 21,600

Cost of opening WIP = (200 * 70% * 24) + (200 * 60% * 30) + 1,500 + 1,600

= $ 6,960 + $ 3,100

= $ 10,060

Total = $ 31,660

Hence, option 'E' is correct and rest all are incorrect.

In case of any doubt, please feel free to comment.