Omaha Foods manufacturescorn meal in a continuous, mass production process. Corn is added at the beginningof the process. Normal losses are minimal and abnormal losses infrequentlyoccur when foreign materials are found in the corn meal. Routine inspection occurs atthe 95 percent completion point as to conversion.During May, a machine malfunctioned and dumped salt into 8,000 pounds of cornmeal. This abnormal loss occurred when conversion was 70 percent complete on thosepounds of product. The error was immediately noticed, and those pounds of corn mealwere pulled from the production process. Two thousand additional pounds of mealwere detected as unsuitable at the routine inspection point; this amount was considered
Within normal limits. Production data for the month follow.
Beginning WIP Inventory
(85% complete)
40,000 pounds
Started during the month
425,000 pounds
Ending WIP Inventory
(25% complete)
10,000 pounds
a. Determine the number of EUP for direct material and for conversion, assuming a FIFO cost flow.
b. If the costs per EUP are $0.08 and $0.15 for direct material and conversion, respectively,
What is the cost of the ending WIP Inventory?
c. What is the cost of abnormal loss? How is this cost treated in May?