Question

Samanderson, Inc. is in the business of selling ceramic bowls. It has two departments - molding and finishing. Molding department purchases tungsten carbide and produces ceramic bowls out of it. Ceramic bowls are then transferred to finishing department, which designs it as per the requirement of the customers. During the month of July, molding department purchased 650 kgs of tungsten carbide at $210 per kg. It started manufacture of 3,500 bowls and completed and transferred 3,200 bowls during the month. It has 300 bowls in the process at the end of the month. It incurred direct labor charges of $1,000 and other manufacturing costs of $600, which included electricity costs of $900. Stefan had no inventory of tungsten carbide at the end of the month. It also had no beginning inventory of bowls. The ending inventory was 55% complete in respect of conversion costs. Which of the following journal entries would be correct to record direct labor for July?

What is the total conversion costs for the month of July?

a. $1,700
b. $1,500
c. $1,300
d. $1,000

Answer 1

Samanderson, Inc.

The total conversion costs for the month of July is:

= $2,500

Step-by-step explanation:

a) Materials purchased, 650 kgs at $210 = $136,500

Units started 3,500

Units transferred out 3,200

Ending units 300 55% complete

Materials Conversion Total

Costs incurred $136,500 $2,500 $139,000

Equivalent units:

Units transferred out 3,200 3,200

Ending work in process 300 165

Total equivalent units 3,500 3,365

Cost per equivalent unit:

Materials Conversion

Costs incurred $136,500 $2,500

Total equivalent units 3,500 3,365

Cost per equivalent unit $39 $0.7429

Cost assigned to:

Units transferred out $124,800 (3,200 * $39) $2,377 (3,200 * 0.7429)

Ending work in process 11,700 (300 * $39) 123 (165 * 0.7429)