Question

Santana Mortgage Company uses a process cost system to accumulate costs in its Application Department. When an application is completed, it is forwarded to the Loan Department for final processing. The following processing and cost data pertain to September.

1.		Applications in process on September 1, 200
2.		Applications started in September, 1,000
3.		Completed applications during September, 700
4.		Applications still in process at September 30 were 100% complete as to materials (forms) and 60% complete as to conversion costs.

Beginning WIP:
Direct materials		$1,240
Conversion costs		4,820
September costs:
Direct materials		$5,120
Direct labor		12,350
Overhead		9,030

Materials are the forms used in the application process, and these costs are incurred at the beginning of the process. Conversion costs are incurred uniformly during the process.

a) Determine the equivalent units of service (production) for materials and conversion costs.

Answer 1

Solution a:

As process costing method is not given, let us assume that company is using weighted average method to account for its cost.

Computation of Equivalent unit of Production - Weighted Average - Application Department
Particulars	Physical Units	Equivalent units
		Material	Conversion
Applications completed & Transferred out	700	700	700
Applications in Ending Work in Process: (200 + 1000 - 700)	500
Material (100%)		500
Conversion (60%)			300
Equivalent units of production	1200	1200	1000