Question

Santana Mortgage Company uses a process costing 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,  100
2.		Applications started in September,  1,000
3.		Completed applications during September,  800
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		$ 1,000
Conversion costs		3,960
September costs:
Direct materials		$ 4,500
Direct labor		12,000
Overhead		9,620

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.

Santana Mortgage Company uses the FIFO method. Also, assume that the applications in process on September 1 were 100% complete as to materials (forms) and 40% complete as to conversion costs.

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

		Materials		Conversion Costs
The equivalent units of service (production)

Compute the unit costs. (Round unit costs to 2 decimal places, e.g. 2.25.)

		Materials		Conversion Costs
Unit costs		$		$

Prepare a cost reconciliation schedule. (Round unit costs to 2 decimal places, e.g. 2.25 and final answers to 0 decimal places, e.g. 1,225.)

Costs accounted for:
Applications completed:
Work in process, September 1		$
Conversion costs				$
Started and completed						$
Work in process, September 30:
Materials
Conversion costs
Total costs						$

Answer 1

1) Equivalent unit

	Material	Conversion
Beginning work in process	100*0% = 0	100*60% = 60
Unit transferred out	700	700
Ending work in process	300	300*60% = 180
Equivalent unit	1000	940

2) Unit cost

	Material	Conversion
Cost added	4500	21620
Equivalent unit	1000	940
Cost per equivalent unit	4.5	23

3) Cost reconciliation

Costs accounted for:
Applications completed:
Work in process, September 1	4960
Conversion costs (60*23)		1380
Started and completed (27.5*700)			19250
Work in process, September 30:
Material (300*4.5)			1350
Conversion Cost (180*23)			4140
Total Costs			31080