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 are Golden Ring Company's conversion costs applied to Large (Work Order 10) from the Mixing Department for each batch?

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 are Golden Ring Company's conversion costs applied to Large (Work Order 10) from the Mixing Department for each batch?

Quizplus · Accepted Answer

The budgeted conversion cost rate per direct labor hour = ($50,000 labor costs + $125,000 overhead costs) / 2,500 direct labor hours = $70 per direct labor hour.

To find the conversion costs applied to Large (Work Order 10), we need to know the direct labor hours required to mix the ingredients for each batch. One batch of Large requires 2,500 bottles, and it takes 3 minutes to mix the ingredients needed for each bottle. Therefore, it takes 2,500 x 3 = 7,500 minutes to mix the ingredients for one batch of Large.

Convert minutes to direct labor hours: 7,500 minutes / 60 minutes per hour = 125 direct labor hours.

Conversion costs applied to Large (Work Order 10) = 125 direct labor hours x $70 per direct labor hour = $8,750 per batch.

Therefore, the correct answer is D) $17,500 (for two batches).

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