Holly Oil Company manufactures motor oil and uses a process costing system. The motor oil is processed in two departments: refining and packaging. Oil that is refined in the refining department is transferred to the packaging department at the start of the packaging process. Conversion costs are added evenly throughout the packaging process. During June 2017, Holly Oil's first month of operations, the company manufactured and sold 350,000 packets of motor oil. This generated total revenue of $27,982,500. Each packet of motor oil contains four (4) litres At the end of June 2017, there were 40,000 litres of the oil remaining in work in process (WIP) of the packaging department. This WIP is 100% complete with respect to material. and 50% complete with respect to conversion costs. There was no ending WIP in the refining department at the end of June 2017. The following table summarises the costs incurred in each department in June Packaging Refining $7,700,000 S1,800,000 2,200,000 Direct material Direct labour Manufacturing overhead |9,540,000 710,000 Total 1,420,000 $19,440,000 $3,930,000 Required (a) Uing FIFO process costing, compute equivalent units of production for Holly Oil in the packaging department and calculate the costs per packet in June 2017 (Clearly show the costs per equivalent unit to the nearest cent for each cost category What is the profit margin per packet of motor oil? (16 marks) (b) Bsed on your computations in (a), write journal entries to transfer the manufacturing costs from the refining department to the packaging department, and record the costs of goods completed and sold in June 2017 (8 marks) Holly Oil Company manufactures motor oil and uses a process costing system. The motor oil is processed in two departments: refining and packaging. Oil that is refined in the refining department is transferred to the packaging department at the start of the packaging process. Conversion costs are added evenly throughout the packaging process. During June 2017, Holly Oil's first month of operations, the company manufactured and sold 350,000 packets of motor oil. This generated total revenue of $27,982,500. Each packet of motor oil contains four (4) litres At the end of June 2017, there were 40,000 litres of the oil remaining in work in process (WIP) of the packaging department. This WIP is 100% complete with respect to material. and 50% complete with respect to conversion costs. There was no ending WIP in the refining department at the end of June 2017. The following table summarises the costs incurred in each department in June Packaging Refining $7,700,000 S1,800,000 2,200,000 Direct material Direct labour Manufacturing overhead |9,540,000 710,000 Total 1,420,000 $19,440,000 $3,930,000 Required (a) Uing FIFO process costing, compute equivalent units of production for Holly Oil in the packaging department and calculate the costs per packet in June 2017 (Clearly show the costs per equivalent unit to the nearest cent for each cost category What is the profit margin per packet of motor oil? (16 marks) (b) Bsed on your computations in (a), write journal entries to transfer the manufacturing costs from the refining department to the packaging department, and record the costs of goods completed and sold in June 2017 (8 marks)
