Reference no: EM13569136

Viking Beer is a microbrewery that produces one type of beer. The production level is 18,000 gallons per month, which is bottled in 192,000 twelve-ounce bottles. The beer is brewed in batches of 3,600 gallons, which is the capacity of the fermenting tanks. Each batch requires six days of processing, during which it passes through six separate production processes.

Viking uses process costing. All manufacturing costs incurred during the month are assigned to the 192,000 bottles produced; no valuation is assigned to the 3,600 gallons currently sitting in the fermenting tanks.

Viking has hired Matt Brown, a recent college graduate, as a cost analyst. After learning about the company's cost accounting system, Brown sent the following memo to Viking's controller:

I have two suggestions as to how we might improve our cost accounting system. First, our beer is processed in identifiable batches; so we could use job order, rather than process, costing. This would enable us to determine separately the cost of each batch.  Second, we always have 3,600 gallons of beer in the fermenting tanks. But our cost accounting system assigns all manufacturing costs during the period to the finished goods produced. Some of these costs should be assigned to the beer in the fermenting tanks and identified as "work in process inventory." This can be done by computing the equivalent units that these 3,600 gallons represent.

Instructions

As Viking's controller, draft a memo responding to Brown's suggestions.