Paulson Winery in Albany, New York, 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 incurred evenly throughout each process. Data from the month of March for the Fermenting Department are as follows:
Gallons:
Beginning work in process inventory ................................................... 2,100 gallons
Started production ................................................................................ 5,860 gallons
Completed and transferred out to Packaging in March ........................ 6,560 gallons
Ending work in process inventory (80% of the way through the
fermenting process) ............................................................................... 1,400 gallons
Costs:
Beginning work in process inventory ($2,500 of direct materials
and $3,715 of conversion cost) ....................................................................... $ 6,215
Costs added during March:
Direct materials ............................................................................................... $ 9,440
Direct labor ............................................................................................................ 600
Manufacturing overhead .................................................................................... 1,829
Total costs added during March......................................................................$11,869
Requirements
1. Draw a time line for the Fermenting Department.
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 (gallons):
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 gallon transferred out of Fermenting into Packaging? Why would the company's managers want to know this cost?