In numerous industries all materials needed for the product are put in process in the first department. However, additional materials might also be required in subsequent departments in order to complete the units. The addition of such materials has two possible effects on units and costs in process
1. The additional materials merely increase the unit cost since these materials become a part of the product manufactured and do not increase the number of final units. For example, in a finishing plant of a textile company, the material added is often a bleach; in a wire company, a plating mixture; in an automobile assembly plant, additional parts. These materials are needed to give the product certain specified qualities, characteristics, or completeness.
2. The added materials increase the number of units and also cause a change in unit cost. In processing a chemical, water is often added to the mixture causing an increase in the number of units and a spreading of costs over a greater number of units.
In the simplest case, added materials, such as parts of an automobile, do not increase the number of units but increase total costs and unit costs. A materials unit cost must be computed for the department, and a materials cost must be included in the work in process inventory.
INCREASE IN UNIT COST DUE TO ADDITION OF MATERIALS
The cost of production report of the Finishing Department is used to illustrate the different effects of the addition of materials on total and unit costs of a department.