Colour World prepares and packages paint products. Colour World has two departments:
(1) Blending and
(2) Packaging.
Direct materials are added at the beginning of the blending
process (dyes) and at the end of the packaging process (cans). Conversion costs are added evenly throughout each process. Data from the month of May for the Blending Department are as follows:
Litres:
Beginning work in process inventory .......................................... 0
Started production...................................................................... 8,000 litres
Completed and transferred out to
Packaging in May................................................................... 6,000 litres
Ending work in process inventory (30% of the way
through the blending process)................................................. 2,000 litres
Costs:
Beginning work in process inventory .......................................... $ 0
Costs added during May:
Direct materials (dyes)............................................................ 4,800
Direct labour.......................................................................... 800
Manufacturing overhead ....................................................... 1,840
Total costs added during May .................................................... $7,440
Requirements
1. Draw a time line for the Blending Department similar to Exhibit 5-6.
2. Summarize the physical flow of units and compute total equivalent units for direct materials
and for conversion costs.
3. Summarize total costs to account for and find the cost per equivalent unit for direct materials and conversion costs.
4. Assign total costs to units (litres):
a. Completed and transferred out to the Packaging Department
b. In the Blending Department ending work in process inventory
5. What is the average cost per litre transferred out of the Blending Department to the
Packaging Department? Why would Colour World’s managers want to know this cost?