Question

Egyptian Spa produces two different spa products: Relax and Refresh. The company uses three operations to...

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 2 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 .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 $24,000.00 $18,000.00 Direct materials cost $17,160.00 $13,140.00

The budgeted conversion costs for each department for May are as follows:

Department Allocation of conversion costs Budgeted Conversion Cost Mixing Direct labor- costs $11,760.00 Blending Number of containers $20,160.00 Packaging Machine-hours $2,800.00

Requirement 1: Calculate the conversion cost rates for each department

Requirement 2: Calculate the cost of goods manufactured for Relax and Refresh for the month of May

Requirement 3: Calculate the cost per container for each product for the month of May

Business   Accounting   
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Answer #1
Conversion Cost Rate for Each Department
Allocation Base Relax Refresh Total
No. of Container 24000 18000 42000
Labour Hour (2/60)=0.033 800 600 1400
Machine Hour(0.5/60)=0.0083 200 150 350
Department Total Cost Cost Driver Quantity of Cost Driver Conversion cost rate
Mixing $11,760.00 Direct Labour 1400 $8.40 per Labour Hr
Blending $20,160.00 Number of Container 42000 $0.48 per Container
Packaging $2,800.00 Machine Hour 350 $8.00 per Machien Hour
Budgeted cost of Goods Manufactured and Cost per Container
Relax Refresh
Direct Materal $17,160.00 $13,140.00
Mixing $6,720.00 $5,040.00
Blending $11,520.00 $8,640.00
Packaging $1,600.00 $1,200.00
Total $37,000.00 $28,020.00
No. of Container 24000 18000
Budgeted Cost per Container $1.54 $1.56
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