The Color World Paint Company prepares and packages paint products. The company 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 incurred evenly throughout each process. Data from the month of August for the Blending Department are as follows:
Gallons:
Beginning work in process inventory .............................................................. 0
Started production ........................................................................ 9,000 gallons
Completed and transferred out to Packaging in August .............. 6,500 gallons
Ending work in process inventory (30% of the way through the
blending process) ..........................................................................2,500 gallons
Costs:
Beginning work in process inventory .......................................................... $ 0
Costs added during August:
Direct materials (dyes) ............................................................................ 5,670
Direct labor ................................................................................................. 800
Manufacturing overhead ......................................................................... 2,100
Total costs added during August .......................................................... $8,570
Requirements
1. Draw a time line.
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 (gallons):
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 gallon transferred out of the Blending Department to the Packaging Department? Why would the company's managers want to know this cost?