Cost Management 6th Edition by Edward Blocher,David Stout ,Paul Juras,Gary Cokins

Exercise 9

Weighted-Average Process Costing; Spoilage (Appendix) Alexander Paint Company, which manufactures quality paint to sell at premium prices, uses a single production department. Production begins by blending the various chemicals that are added at the beginning of the process and ends by filling the paint cans. The gallon cans are then transferred to the shipping department for crating and shipment. Labor and overhead are added continuously throughout the process. Factory overhead is applied at the rate of $3 per direct labor dollar. The company combines labor and overhead in computing product cost.
Prior to May, when a change in the manufacturing process was implemented, work-in-process inventories were insignificant. The changed manufacturing process, which has resulted in increased equipment capacity, allows increased production but also results in considerable amounts of work in- process inventory. Also, the company had 1,000 spoiled gallons in May-one-half of which was normal spoilage and the rest abnormal spoilage. The product is inspected at the end of the production process.
These data relate to actual production during the month of May:

Required
1. Prepare a production cost report for May using the weighted-average method.
2. Was the change in the manufacturing process to increase capacity an appropriate strategic move for the company Why or why not
3. How does the change in manufacturing process potentially affect the company's sustainability performance