Q.18-5SE - Horngren'S Financial And Managerial Accounting

Question

Question: Spring Fresh produces premium bottled water. Spring Fresh purchases artesian water, stores the water in large tanks, and then runs the water through two processes: filtration and bottling.

During February, the filtration process incurred the following costs in processing

200,000 liters:

Wages of workers operating filtration equipment	$19,950
Manufacturing overhead allocated to filtration	20,050
Water	110,000

Spring Fresh had no beginning Work-in-Process Inventory in the Filtration Department in February and uses the weighted-average method.

Requirements

1. Compute the February conversion costs in the Filtration Department.

2. The Filtration Department completely processed 200,000 liters in February. What was the filtration cost per liter?

 

Step-by-Step Solution

Answer

Answer: 

1. The February conversion cost in the filtration department is $40,000

2. The filtration cost per liter in February is $0.20 per liter.

Step 1: Conversion cost in the filtration department

$$\begin{gathered} \mathbf{\text{Conversion cost=Direct labour cost +Manufacturig Overhead}} \\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{ }\mathbf{\$}\mathbf{19}\mathbf{,}\mathbf{950}\mathbf{+}\mathbf{\$}\mathbf{20}\mathbf{,}\mathbf{050} \\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{40}\mathbf{,}\mathbf{000} \end{gathered}$$

Step 2: Filtration cost per liter

$$\begin{gathered} \mathbf{\text{Filtration cost per Liter=}}\frac{\mathbf{C}\mathbf{o}\mathbf{n}\mathbf{v}\mathbf{e}\mathbf{r}\mathbf{s}\mathbf{i}\mathbf{o}\mathbf{n}\mathbf{ }\mathbf{C}\mathbf{o}\mathbf{s}\mathbf{t}}{\mathbf{E}\mathbf{q}\mathbf{u}\mathbf{a}\mathbf{l}\mathbf{e}\mathbf{n}\mathbf{t}\mathbf{ }\mathbf{C}\mathbf{o}\mathbf{m}\mathbf{p}\mathbf{l}\mathbf{e}\mathbf{t}\mathbf{e}\mathbf{d}\mathbf{ }\mathbf{u}\mathbf{n}\mathbf{i}\mathbf{t}\mathbf{s}} \\ \mathbf{\text{ = }}\frac{\mathbf{\$}\mathbf{40}\mathbf{,}\mathbf{000}}{\mathbf{200}\mathbf{,}\mathbf{000}} \\ \mathbf{\text{ =\$0.20}} \end{gathered}$$