Figure 6-21 Golden Ring Company produces two types of product: Large and Larger. Two work orders for two batches of the products are shown below, along with some additional cost information:
In the Mixing Department, conversion costs are applied on the basis of direct labor hours. Budgeted conversion costs for the department for the year were $50,000 for labor and $125,000 for overhead. Budgeted direct labor hours were 2,500. It takes three minutes to mix the ingredients needed for each bottle.
Large (Work Order 10) and Larger (Work Order 11) flow through the Mixing Department first, then through the Cooking and Bottling departments.
Refer to Figure 6-21. What is Golden Ring Company's unit cost of Larger?

Question

Figure 6-21 Golden Ring Company produces two types of product: Large and Larger. Two work orders for two batches of the products are shown below, along with some additional cost information:
 In the Mixing Department, conversion costs are applied on the basis of direct labor hours. Budgeted conversion costs for the department for the year were $50,000 for labor and $125,000 for overhead. Budgeted direct labor hours were 2,500. It takes three minutes to mix the ingredients needed for each bottle.
Large (Work Order 10) and Larger (Work Order 11) flow through the Mixing Department first, then through the Cooking and Bottling departments.
Refer to Figure 6-21. What is Golden Ring Company's unit cost of Larger?

Quizplus · Accepted Answer

To calculate the unit cost of Larger, we need to first calculate the total conversion cost for the Mixing Department.

Budgeted spending rate for conversion cost = $50,000 + $125,000 / 2,500 = $70/hour

Mixing Department conversion cost for Work Order 11: 
Direct Labor Hours = 500 x 3 min/60 min = 25 hours 
Conversion cost = 25 hours x $70/hour = $1,750

Cooking Department cost for Work Order 11: 
Direct Materials = 500 x $5 = $2,500 
Conversion cost = $1,200

Bottling Department cost for Work Order 11: 
Direct Materials = 500 x $2 = $1,000 
Conversion cost = $900

Total cost for Work Order 11 = $9,350 
Unit cost of Larger = Total cost / Number of units = $9,350 / 500 = $23.90

Figure 6-21 Golden Ring Company Produces Two Types of Product