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

question 22

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 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) .
Which is true as far as equivalent units of output are concerned?

• A)53,333 gallons of beer are complete with respect to materials
• B)1,280,000 fluid ounces of ale and 8,888 packs of stout were completed
• C)24,000 gallons of ale have been completed with respect to conversion costs
• D)7,857 gallons of stout have been completed with respect to conversion costs
• E)None of the above

---

Definitions:

Customer Service

The support and guidance offered by a company to its customers or users of its products or services.

Retail Strategy

The planning approach retailers use to attract customers, enhance shopping experiences, and optimize sales and profits.

Distribution Intensity

The level of market coverage pursued by a company, deciding how widely a product will be distributed, ranging from exclusive to intensive distribution.

Scrambled Distribution

involves a retailer carrying an assortment of goods in unrelated product categories, aiming to provide a one-stop shopping experience.