QUESTION 2 Process costing (14 marks)

Earth Makers Inc. makes plant soil mix to sell to nurseries across the country. It uses a process costing system to cost the production of its plant mix soil. The soil mix which consists of all dry ingredients is made in two departments: Mixing and Packaging. In the Mixing Department direct ingredients are added when 20% of the production has taken place. The first 20% of the process involves setting up the measuring, pouring and mixing equipment. Conversion costs are added evenly throughout the process.

The cost accountant is completing the production report for the month of April. At the beginning of the month there was 4,000 kilograms of soil mix ingredients that had 25% of the work completed in March. 24,000 kilograms of soil mix ingredients were added to production in the month of April. During the month, 23,000 kilograms of soil mix were transferred out to the Packaging Department leaving 5,000 kilograms of soil mix ingredients in ending inventory. At the end of the month the production team had just completed the setup and started a new batch to be completed in May. As such, the ending inventory was at 30% completion.

The cost accountant must determine how much of the following costs should be transferred to the Packaging Department and how much remains in ending inventory in the Mixing Department at the end of April.

Cost of beginning work-in-process:

• Direct soil mix ingredients $ 5,080
• Conversion costs $ 920

Cost added during April:

• Direct soil mix ingredients $32,160
• Conversion costs $21,150

Required:

Using the first-in, first-out (FIFO) method determine the assignment of the cost of soil mix transferred-out to the Packaging Department and ending inventory for the Mixing department for the month of April. Use the form on the next page of this exam. (10 marks)

STEP 1: Units to be accounted for:	Quantity Schedule	Production report
Work in process, beginning
Started into production
Total units
		Equivalent units
Units accounted for:		Ingredients	Conversion
STEP 2: Cost to be accounted for:	Total Prod. Costs	Total costs
		Ingredients	Conversion
Total cost (a)
Equivalent units of production (b) (Step 1 above)
Cost per equivalent unit (a / b)
STEP 3: Cost Reconciliation		Equivalent units
		Ingredients	Conversion
Total cost of goods completed
Total ending work in process
Total cost