# Addition of Materials – Increase in Units and Change in Unit Cost

Learning Objective:

1. What is the effect on the calculation in the cost of production report when materials are added in a department subsequent to the first and as a result number of units increase and unit cost is decreased?

When additional materials result in additional units, different computations are necessary. The greater number of units causes a decrease in unit cost which necessitates an adjustment of the preceding department’s unit cost, since the increased number of units will absorb the same total cost transferred from the preceding department.

## Example:

To illustrate the situation of additional units resulting from the addition of materials, assume that the Terminal department of the Clone x Corporation cost for labour and factory overhead of \$32,400 and 19,800, respectively, an additional materials cost of \$17,020, and an increase of 8,000 units as the result of added materials. The effect of these assumptions on the Terminal Department’s cost of production report is shown below:

The Clone x Corporation
Terminal Department (3rd Dept.)
Cost of Production Report
For the Month of January, 19