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

Exercise 21

FIFO Method and Rising Prices Healthy Selections Cereals Inc. (HSC) is a large food-processing company specializing in whole-grain, high-energy, low-calorie and low-fat cereals that appeal to the health-conscious consumer. HSC has a premium image in the market and most of its customers are loyal and willing to pay a bit extra to get the healthy choice that HSC offers. HSC's cereals are made in a series of processes which begin with sorting, cleaning, preparing, and inspecting the raw materials (grains, nuts, and other ingredients). The materials are then mixed and processed for consistency, cooked, given a final inspection, and packaged. Raw materials are added only at the beginning of the first process. The inspections in the first and final processes are made at the end of those respective processes, so all materials and conversion costs are lost for waste detected at the inspection point. The company uses weighted-average process costing and accounts for all waste as normal spoilage.
Currently commodity prices are rising sharply, affecting the costs of many of the ingredients in HSC's products. The CFO, noting the sharp rise in the cost of the company's raw materials (the ingredients for its products), has considered using the FIFO method.
The following data is for the first process for the current month. All output is measured in pounds.
The cost information for the first process is as follows:
Required
1. Calculate a process cost report for the first process using the weighted-average method.
2. Calculate a process cost report for the first process using the FIFO method.
3. Explain which of the two methods you would recommend to the CFO, considering the firm's competitive environment.