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Corn meal in a continuous, mass production process. Corn is added at the beginning of the process. Normal losses are minimal and abnormal losses infrequently occur when foreign materials are found in the corn meal. Routine inspection occurs at the 95 percent completion point as to conversion.

During May, a machine malfunctioned and dumped salt into 8,000 pounds of corn meal. This abnormal loss occurred when conversion was 70 percent complete on those pounds of product. The error was immediately noticed, and those pounds of corn meal were pulled from the production process. Two thousand additional pounds of meal were detected as unsuitable at the routine inspection point; this amount was considered within normal limits. Production data for the month follow.

Beginning WIP Inventory (85% complete) 40,000 pounds

Started during the month 425,000 pounds

Ending WIP Inventory (25% complete) 10,000 pounds

a. Determine the number of EUP for direct material and for conversion, assuming a FIFO cost flow.

b. If the costs per EUP are $0.08 and $0.15 for direct material and conversion, respectively, what is the cost of the ending WIP Inventory?

c. What is the cost of abnormal loss? How is this cost treated in May?

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9964288

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