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Session 07 Solutions

# Session 07 Solutions - An illustration The raw materials...

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An illustration: The raw materials costs for Dept. X were \$680. During the period, Dept X finished 50 units. In addition, 30 unfinished units remained in the department at the end of the period. The line below represents the production operations in Dept X, where raw materials are added at two points, A and B: Start End A B And, for the period, the flow of product is shown above 50 units Finished 20 units Unfinished 10 units Unfinished Now, the question: What is the cost of raw materials used for the 50 units finished? (And, equivalently, what is the raw materials cost of the 30 unfinished units that remain in the department?)

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To answer the question, we need a standardized (comparable) measure of “finished” and “unfinished”. This standardized measure is an “equivalent unit”, and, to derive it, we need more information. Specifically, we need to know the cost of raw materials used at points A and B. A B With this information we can conclude that: 1) The average RM cost of 1 finished unit is \$10 (= \$4 + \$6) 2)
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