Question

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:

	Large	Larger
	Work Order 10	Work Order 11
Direct materials (actual costs)	$45,000	$75,000
Applied conversion costs:
Mixing	?	?
Cooking	$12,000	$12,000
Bottling	$10,000	$15,000
Batch size (bottles)	5,000	5,000

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.

What is Golden Ring Company's journal entry to apply conversion costs in the Mixing Department for Work Order 10?

a.

Work in Process-Mixing45,000

Materials45,000

b.

Work in Process-Mixing17,500

Conversion Costs Control17,500

c.

Conversion Costs Control17,500

Work in Process-Mixing17,500

d.

Materials45,000

Work in Process-Mixing45,000

Answer 1

• When Conversion cost is applied to Work in Process, the Work in Process account is DEBITED and Conversion cost account is CREDITED.
• Working

A = 50000 + 125000	Budgeted Conversion Cost	$175,000
B	Budgeted Direct Labor hours	2,500
C = A/B	Conversion cost rate	$70
D	Work Order 10 no. of bottles	5,000
E = 3 min / 60	Hours per bottle	0.05
F = D x E	Total hours used for Work Order	250
G = F x C	Conversion Cost to be applied	$17,500

• Correct Answer = Option ‘B’

Work in Process-Mixing17,500 [Debit]

Conversion Costs Control17,500 [Credit]