Barbara Karloff Inc Basic Direct Materials Are Applied at the Start of the Manufacture

question 10

Multiple Choice

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 overheads to set up each batch. The brewery's monthly fixed overheads are $220,000, which is allocated to products based on gallons. Other costing data appears below. $$\begin{array} { | l | r | r | r | } \hline \text { Per gallon of output } & \text { Beer } & \text { Ale } & \text { Stout } \\\hline \text { Basic direct materials } & \$ 0.40 & \$ 0.60 & \$ 0.90 \\\hline \begin{array} { l } \text { Variable conversion } \\\text { costs }\end{array} & \$ 0.80 & \$ 1.00 & \$ 1.20 \\\hline & \text { Bottle } & \text { Label } & \text { Case/Crate/Pack } \\\hline \text { Other direct materials } & \$ 0.05 & \$ 0.03 & \$ 0.25 \\\hline\end{array}$$ 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 23rd, a batch of ale on the 27th, and a batch of beer on the 29th. These batches constitute ending work in process (EWIP) .
With respect to conversion costs, which is true for the first month of operations?

• A)The conversion costs traced directly to stout are $11,226
• B)Total conversion costs are $320,784
• 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 above

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