Solved: Healthy Selections Cereals Inc HSC is a large food

processing

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.
Beginning work-in-process: ....14,000 pounds, 25% complete for conversion
Ending work-in-process: ......12,000 pounds, 40% complete for conversion
Spoilage:...............1,000 pounds
Pounds added this month ....33,000 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
competitiveenvironment.

ANSWER
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