Question

Organic Grounds produces two brands of coffee: Star and Bucks. The two coffees are produced in one factory using the same production process. The only difference between the two coffees is the cost of the unroasted coffee beans. The following data are available for February: Star Bucks Total Number of pounds of coffee produced 6,000 24,000 30,000 Cost of unroasted beans and packaging per pound $ 4.80 $ 6.50 Other costs: Direct labor $54,000 Indirect materials 27,000 Other overhead 9,000 Required: Organic Grounds uses operations costing and assigns conversion costs based on the number of pounds of coffee produced. Compute the cost unit of each brand of coffee produced in February. (Do not round intermediate calculations. Round "Cost per pound" to 2 decimal places.)

Answer 1

Calculation of cost per unit
	Star ($)	Bucks ($)
cost of unroasted beans	28800	156000
	(4.8*6000)	(6.5*24000)
Conversion cost	18000	72000
	(6000*3)	(24000*3)
Total (A)	46800	228000
No of pound coffee beans produced (B)	6000	24000
Cost per unit (A/B)	7.8	9.5
Apportionment of conversion cost
	Amount ($)
Direct Labor	54000
Indirect Material	27000
Other overhead	9000
Total	90000
Total pound of coffee bean produced	30000
Conversion cost per pound	3	(90000/30000)
Note:
Conversion cost refers to the sum of direct labour and other manufacturing
overhead incurred . Same has been added to arrive at the conversion cost.