Concept explainers
Operation costing. Egyptian Spa produces two different spa products: Relax and Refresh. The company uses three operations to manufacture the products: mixing, blending, and packaging. Because of the materials used, Relax is produced in powder form in the mixing department, then transferred to the blending department, and finally on to packaging. Refresh undergoes no mixing; it is produced in liquid form in the blending department and then transferred to packaging.
Egyptian Spa applies conversion costs based on labor-hours in the mixing department. It takes 3 minutes to mix the ingredients for a container of Relax. Conversion costs are applied based on the number of containers in the blending departments and on the basis of machine-hours in the packaging department. It takes 0.5 minutes of machine time to fill a container, regardless of the product.
The budgeted number of containers and expected direct materials cost for each product are as follows:
Relax | Refresh | |
Number of containers | 24,000 | 18,000 |
Direct materials cost | $17,160 | $13,140 |
The budgeted conversion costs for each department for May are as follows:
Department | Allocation of Conversion Costs | Budgeted Conversion Cost |
Mixing | Direct labor-hours | $11,760 |
Blending | Number of containers | $20,160 |
Packaging | Machine-hours | $ 2,800 |
- 1. Calculate the conversion cost rates for each department.
- 2. Calculate the budgeted cost of goods manufactured for Relax and Refresh for the month of May.
- 3. Calculate the cost per container for each product for the month of May.
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Chapter 17 Solutions
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
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