Yummy Gummies, Co. is a company that produces organic gluten-free gummy vitamins and sells them in packs. Their management has decided that would like to expand operations from a few local grocery stores to include all health food stores in the state. They know that they will need to have a firm handle on all of their costs, including their actual product costs. Their accountant Savannah has already implemented process costing and will be completing a year-to-year comparison for management. Aside from expansion, management would like to identify any increases in costs that they find concerning and address them as soon as possible. The process costing information for last year:
Process costing information for the current year:
What would Savannah note as the change in cost per equivalent units for the Direct Materials using horizontal analysis? (Round intermediate calculation to two decimal places.)

Question

Yummy Gummies, Co. is a company that produces organic gluten-free gummy vitamins and sells them in packs. Their management has decided that would like to expand operations from a few local grocery stores to include all health food stores in the state. They know that they will need to have a firm handle on all of their costs, including their actual product costs. Their accountant Savannah has already implemented process costing and will be completing a year-to-year comparison for management. Aside from expansion, management would like to identify any increases in costs that they find concerning and address them as soon as possible. The process costing information for last year:
 Process costing information for the current year:
 What would Savannah note as the change in cost per equivalent units for the Direct Materials using horizontal analysis? (Round intermediate calculation to two decimal places.)

Quizplus · Accepted Answer

This question requires calculation of the cost per equivalent unit for the Direct Materials (Gummy Vitamins) for each year using the Weighted-Average method (as indicated by the data given). This means the Beginning WIP Inventory must be included. Last year: ($2,348 + $36,707)/22,456 = $1.74 per unit. This year: ($2,886 + $39,003)/28,996 = $1.44 per unit. For the horizontal analysis, use the following formula: (Current Year - Previous Year)/Previous Year = ($1.44 - $1.74)/$1.74 = (0.1724) or 17.24% decrease.