   Chapter 20, Problem 20.8APE

Chapter
Section
Textbook Problem

Using process costs for decision makingThe costs of energy consumed in producing good units in the Baking Department of Pan Company were $14,875 and$14,615 for June and July, respectively. The number of equivalent units produced in June and July was 42,500 pounds and 39,500 pounds, respectively. Evaluate the change in the cost of energy between the two months.

To determine

Process costs

It is a method of cost accounting, which is used where the production is continuous, and the product needs various processes to complete. This method is used to ascertain the cost of the product at each process or stage of production.

Equivalents units for production

The activity of a processing department in terms of fully completed units is known as equivalent units. It includes the completed units of direct materials and conversion cost of beginning work in process, units completed and transferred out, and ending work in process.

To Calculate: The equivalent cost per unit of energy for the month of June.

Explanation

Calculate equivalent cost per unit of energy for company P as shown below:

Equivalent cost per unit of energy for June) =Total energy cost during the period Equivalents unitsȀ

To determine

To Calculate: The equivalent cost per unit of energy for the month of July.

To determine

To Evaluate: The changes in cost of energy between June and July.

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