Bubbly Inc. produces and sells candies. Bubbly purchases raw materials, stores them in warehouse, and then runs them through two processes: production and packaging. During September, the production process incurred the following costs in processing 20,000 candies:
$$\begin{array} { | l | r | }
\hline \text { Wages of workers operating production equipment } & \$ 56,500 \
\hline \text { Manufacturing overhead allocated to the production department } & 8,500 \
\hline \text { Direct materials } & 135,000 \
\hline
\end{array}$$ Use the FIFO method to compute the September conversion costs in the Production Department.

Question

Bubbly Inc. produces and sells candies. Bubbly purchases raw materials, stores them in warehouse, and then runs them through two processes: production and packaging. During September, the production process incurred the following costs in processing 20,000 candies:
$$\begin{array} { | l | r | } 
\hline \text { Wages of workers operating production equipment } & \$ 56,500 \
\hline \text { Manufacturing overhead allocated to the production department } & 8,500 \
\hline \text { Direct materials } & 135,000 \
\hline
\end{array}$$ Use the FIFO method to compute the September conversion costs in the Production Department.

Quizplus · Accepted Answer

To compute the conversion costs, we need to subtract the direct materials cost from the total cost incurred in the production process. 
Total production process cost = Wages + Manufacturing Overhead + Direct Materials
Total production process cost = $56,500 + $8,500 + $135,000 = $200,000
Conversion costs = Total production process cost - Direct materials cost
Conversion costs = $200,000 - $135,000 = $65,000
Therefore, the correct answer is A) $65,000.

Bubbly Inc Use the FIFO Method to Compute the September Conversion Costs