Krispy & Co manufactures a single product that goes through two processes, mixin
ID: 2369075 • Letter: K
Question
Krispy & Co manufactures a single product that goes through two processes, mixing and cooking. The following data are for the mixing department for June. Work-in process inventory, June 1 25, 000 units Conversion 75% Work-in process inventory, June 30 15, 000 units Conversion 30% Units started into production 50,000 Units completed and transferred out ? Costs Work-in process inventory, June 1 Material A $ 70,500 Material B 90,250 Conversion 114,250 Cost added during June Material A 155,000 Material B 130,400 Conversion 306,500 Material A is added at the beginning of production process in the mixing department. Material B is also added in the mixing department, but not until the units are 50% complete with regard to conversion. Conversion costs are incurred uniformly during the process. The Company uses weighted average cost method. Required: (i) Prepare a four step production cost report for Krispy & Co for the month of June. (Note: In your production report units and costs of materials A, B should be identified separately, round your $$ values to 2 decimal places.) (ii) Assume that you are the company
Explanation / Answer
The calculation requires a very long time but the certain formulas required are given below:
AC = AVC + AFC
Where
AVC = TVC /Q
AFC = TFC /Q
AC = average cost
AVC = Average variable cost
AFC = Average fixed cost
TVC = Total variable cost
TFC = Total fixed cost
Q = Quantity (the number of units produced)
PRICING, P = AVC + AFC + X /Q
Marginal Revenue:
MR = d (TR)/ dQ = d (PQ)/ dQ = P + dP*Q /dQ'
MR = P (1 + 1/EP ) P (1 + 1/EP) = AC
which can be written as
P (EP + 1 /EP) = AC
Solving for P yields
P = AC (EP /EP + 1)
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