Gaspereau Vineyards in Nova Scotia has two departments: Fermenting and Packaging. Direct materials are added at the beginning of the fermenting process (grapes) and at the end of the packaging process (bottles). Conversion costs are added evenly throughout each process. Data from the month of March for the Fermenting Department are as follows:
Litres:
Beginning work in process inventory .......................................... 2,000 litres
Started production...................................................................... 6,000 litres
Completed and transferred out to Packaging in March............... 6,550 litres
Ending work in process inventory (80% of the way through
the fermenting process)........................................................... 1,450 litres
Costs:
Beginning work in process inventory($2,800 of direct materials
and $2,855 of conversion cost)............................................... $ 5,655
Costs added during March:
Direct materials .......................................................................... 8,800
Direct labour .............................................................................. 1,600
Manufacturing overhead............................................................. 2,484
Total costs added during March...................................................... $12,884
Requirements
1. Draw a time line for the Fermenting Department similar to Exhibit 5-6.
2. Summarize the flow of physical units and compute the total equivalent units.
3. Summarize total costs to account for and compute 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 Fermenting Department ending work in process inventory
5. What is the average cost per litre transferred out of Fermenting into Packaging? Why would Gaspereau Vineyard’s managers want to know this cost?