Barbara Karloff Inc.recently set up as a microbrewery to manufacture a variety of beers,ales and stouts to customer specifications.The standard sizes per batch are as follows: stout,5,000 gallons;ale,8,000 gallons;and beer,10,000 gallons.A beer batch takes six days to process,ale ten days and stout 14 days,the difference primarily attributable to the number of steps in the brewing process and the amount of time needed to mature the brew to the intended flavor specifications.By tradition,a new batch is started at 7 a.m. ,the start of a work day.It costs $1,800 in labor and variable overhead to set up each batch.The brewery's monthly fixed overhead is $220,000,which is allocated to products based on gallons.Other costing data appears below. $$0.05$0.03$0.25\begin{array}{lccc}\text { Per galon of output } & \text { Beer } & \text { Ale } & \text { Stout } \\\text { Basic direct materials } & \$ 0.40 & \$ 0.60 & \$ 0.90 \\\text { Variable conversion costs } & \$ 0.80 & \$ 1.00 & \$ 1.20 \\& \text { Bottle } & \text { Label } & \text { Case/Crate/Pacl } \\\text { Other direct materials } & \$ 0.05 & \$ 0.03 & \$ 0.25\end{array}$ Basic direct materials are applied at the start of the process.Direct materials costs are charged when used in production and variable conversion costs are applied evenly throughout the production process.All products are sold in 12-ounce bottles.Beer is sold with 24 bottles per case,but ale is packed by the dozen in mini-crates,and stout in 6-packs.
In April,the first month of operations,BKI finished five batches of beer,three of ale and one of stout.Dribbles of liquids from one batch that do not completely fill a bottle are poured away.Bottles from a batch that do not make up a complete case,crate or pack are donated to the company monthly picnic.In reviewing the production records,you find that a batch of stout was started on the 23^rd,a batch of ale on the 27^th,and a batch of beer on the 29^th.These batches constitute ending work in process (EWIP) .
With respect to conversion costs,which is true for the first month of operations? (Do not round your intermediate calculations. )

A) The conversion costs traced directly to stout are $11,226
B) Total conversion costs are $320,895
C) Beer's direct conversion costs amount to $1.016 per gallon
D) $3.945 is ale's conversion cost per gallon
E) None of the choices are correct

Question

Barbara Karloff Inc.recently set up as a microbrewery to manufacture a variety of beers,ales and stouts to customer specifications.The standard sizes per batch are as follows: stout,5,000 gallons;ale,8,000 gallons;and beer,10,000 gallons.A beer batch takes six days to process,ale ten days and stout 14 days,the difference primarily attributable to the number of steps in the brewing process and the amount of time needed to mature the brew to the intended flavor specifications.By tradition,a new batch is started at 7 a.m. ,the start of a work day.It costs $1,800 in labor and variable overhead to set up each batch.The brewery's monthly fixed overhead is $220,000,which is allocated to products based on gallons.Other costing data appears below.

$0.05$0.03$0.25\begin{array}{lccc}\text { Per galon of output } & \text { Beer } & \text { Ale } & \text { Stout } \\\text { Basic direct materials } & \$ 0.40 & \$ 0.60 & \$ 0.90 \\\text { Variable conversion costs } & \$ 0.80 & \$ 1.00 & \$ 1.20 \\& \text { Bottle } & \text { Label } & \text { Case/Crate/Pacl } \\\text { Other direct materials } & \$ 0.05 & \$ 0.03 & \$ 0.25\end{array}

Basic direct materials are applied at the start of the process.Direct materials costs are charged when used in production and variable conversion costs are applied evenly throughout the production process.All products are sold in 12-ounce bottles.Beer is sold with 24 bottles per case,but ale is packed by the dozen in mini-crates,and stout in 6-packs.
In April,the first month of operations,BKI finished five batches of beer,three of ale and one of stout.Dribbles of liquids from one batch that do not completely fill a bottle are poured away.Bottles from a batch that do not make up a complete case,crate or pack are donated to the company monthly picnic.In reviewing the production records,you find that a batch of stout was started on the 23^rd,a batch of ale on the 27^th,and a batch of beer on the 29^th.These batches constitute ending work in process (EWIP) .
With respect to conversion costs,which is true for the first month of operations? (Do not round your intermediate calculations. )

A) The conversion costs traced directly to stout are $11,226
B) Total conversion costs are $320,895
C) Beer's direct conversion costs amount to $1.016 per gallon
D) $3.945 is ale's conversion cost per gallon
E) None of the choices are correct

karrigyn white · Accepted Answer

Final Answer : B, Explanation :  To calculate the total conversion costs, we need to find out the conversion costs for each batch and add them up.For Stout:Direct Conversion Cost = $0.90/gallonVariable Conversion Cost = $1.20/gallonTotal Conversion Cost = $0.90/gallon + $1.20/gallon = $2.10/gallonTotal conversion cost for 5,000 gallons = $10,500For Ale:Direct Conversion Cost = $0.60/gallonVariable Conversion Cost = $1.00/gallonTotal Conversion Cost = $0.60/gallon + $1.00/gallon = $1.60/gallonTotal conversion cost for 8,000 gallons = $12,800For Beer:Direct Conversion Cost = $0.40/gallonVariable Conversion Cost = $0.80/gallonTotal Conversion Cost = $0.40/gallon + $0.80/gallon = $1.20/gallonTotal conversion cost for 10,000 gallons = $12,000Total Conversion Cost = $10,500 + $12,800 + $12,000 = $35,300However, this only includes direct labor and variable overhead costs. We also need to add the monthly fixed overhead cost, which is allocated based on gallons.Total gallons produced = 5,000 gallons of Stout + 8,000 gallons of Ale + 10,000 gallons of Beer = 23,000 gallonsFixed overhead cost per gallon = $220,000 / 23,000 gallons = $9.57/gallonTotal Conversion Cost = $35,300 + ($9.57/gallon x 23,000 gallons) = $320,895Therefore, the correct answer is B.

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