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 amount transferred from the Mixing Department to the Cooking Department for Work Order 10?

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 amount transferred from the Mixing Department to the Cooking Department for Work Order 10?

Quizplus · Accepted Answer

To calculate the amount transferred from the Mixing Department to the Cooking Department for Work Order 10, we need to first calculate the total conversion costs for the Mixing Department, and then allocate these costs to each of the work orders based on their direct labor hours.

Total conversion costs for the Mixing Department:

= Budgeted labor costs + Budgeted overhead costs
= $50,000 + $125,000
= $175,000

Conversion cost rate per direct labor hour:

= Total conversion costs / Budgeted direct labor hours
= $175,000 / 2,500
= $70 per direct labor hour

Direct labor hours required for Work Order 10:

= Number of bottles x Time to mix each bottle / 60 (to convert minutes to hours)
= 5,000 x 3 / 60
= 250 hours

Direct labor cost for Work Order 10:

= Direct labor hours x Conversion cost rate per direct labor hour
= 250 x $70
= $17,500

Allocated overhead cost for Work Order 10:

= Direct labor cost for Work Order 10 x Overhead allocation rate
= $17,500 x 300%
= $52,500

Total cost for Work Order 10:

= Direct materials cost + Allocated conversion costs
= $42,500 + $52,500
= $95,000

Amount transferred from Mixing Department to Cooking Department for Work Order 10:

= Total cost for Work Order 10 - Allocated overhead cost for Work Order 11
= $95,000 - $32,500
= $62,500

Therefore, the answer is B: $62,500.

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