Question

Egyptian Spa produces two different spa​ products: Relax and Refresh. The company uses three operations to manufacture the​ detergents: mixing,​ blending, and packaging.

Because of the materials used, Relax is produced in powder form in the mixing department and then transferred to the blending department and then onto packaging. Refresh is produced in liquid form in the blending department and is then transferred to packaging. Egyptian Spa applies conversion costs based on labor­hours 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 machine­hours 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 and the budgeted conversion costs for May are as​ follows:

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:

	Allocation of	Budgeted
Department	Conversion Costs	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.

Answer 1

1. Conversion Cost Rates for Each Department
Allocation Base	Relax	Refresh	Total
No. of Container	24000	18000
Labour Hour (3/60)	1,200.00	900.00	2,100.00
Machine Hour (0.5/60)	200.00	150.00	350.00

Department	Cost Pool	Cost driver	No. of Activity	Activity Rate	No. of Activity	Allocated Cost	No. of Activity	Allocated Cost
Mixing	11760	Direct Labour Hour	2100	5.6	1200	6720	900	5040
Blending	20160	No. of Container	42000	0.48	24000	11520	18000	8640
Packaging	2800	Machien Hour	350	8	200	1600	150	1200

Budgeted Cost of Goods Manufacture
	Relax	Refresh
Direct material	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