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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
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 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 to the packaging department at the start of the At the end of June 2017, there were 40,000 litres of the oil remaining in work in process (WIP) ofthe 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 Refining $7,700,000 S1,800,000 2,200,000 1,420,000 Packaging Direct material Direct labour Manufacturing overhead 9,540,000 Total 710,000 $19,440,000 $3,930,000
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