Chapter D, Problem 8QS

To determine

Concept Introduction:

Conversion costs-

Conversion cost is the sum of direct labor costs and manufacturing overhead costs. It is basically a manufacturing cost which is incurred to convert raw materials into final product.

Conversion costs rate is calculated as follows-

  $Conversioncostsrateperhour=Totalconversioncosts/Totalhours$

Requirement 1-:

To compute:

Conversion cost rate per hour

Answer to Problem 8QS

Conversion cost rate is $625 per hour.

Explanation of Solution

Given,

• Total conversion cost = $1,000,000
• Total hours = 1,600 hours

  $\begin{array}{l}Conversioncostsrateperhour=\frac{Totalconversioncosts}{Totalhours}\\ Conversioncostsrateperhour=\frac{\$1,000,000}{1,600}\\ Conversioncostsrateperhour=\$625perhour\\ \end{array}$

Conclusion:

Thus, conversion cost rate per hour is $625.

To determine

Concept Introduction:

Journal entries-

The business runs with the transactions it makes. Every transaction results in some outcome like the creation of asset, liability, income, loss, gain or expense. The debits and the credits are made on the basis of the rules of the accounting.

Requirement 2-:

To prepare:

To prepare journal entry to apply conversion cost to an order of 520 units.

Answer to Problem 8QS

S. No.	Accounts titles and Explanation	Debit ($)	Credit ($)
A.	Conversion costs	40,625
	Special order		40,625
	(To assign conversion costs to special order)

Explanation of Solution

First we need to find total hours needed for production of 520 units-

  $\begin{array}{l}\begin{array}{l}Totalhours=Totalunits/Unitsproduceinonehour\hfill \\ Totalhours=520units/8units\hfill \end{array}\\ Totalhours=65hours\end{array}$

Conversion cost assigned to 520 units is calculated as under-

  $\begin{array}{l}Conversioncost=Totalhours*Conversioncostrateperhour\hfill \\ Conversioncost=65hours*\$625\hfill \\ Conversioncost=\$40,625\hfill \end{array}$

Conclusion:

Thus, journal entry is prepared to assign conversion costs.