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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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View Full Document 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) The average RM cost of each unit located beyond B is
equivalent to
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This note was uploaded on 10/06/2010 for the course FNCE 100 taught by Professor Jaffe during the Spring '10 term at UNC Asheville.
 Spring '10
 jaffe

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