The production process for Rhino Car Wax begins by mixing all of the required materials. Rhino incurs conversion costs uniformly throughout the process of converting the materials to car wax.
Rhino began March with 1,000 cases of car wax in beginning inventory, 50% done for conversion. During March, Rhino started enough material for 74,500 cases of finished wax. By the end of March, Rhino had completed work on 63,250 cases, and assessed ending WIP inventory to be 60% complete with respect to conversion costs.
Finally, Rhino spent $1,697,500 on conversion costs during March.
Suppose that the standard cost for each equivalent unit of conversion costs is $24.7.
What is the variance relating to conversion costs for March? Enter favorable variances as a positive number and unfavorable variances as a negative number.
Variance relating to conversion costs for march:
Variance in conversion costs
= Actual Conversion cost - standard conversion cost
= $1697500 - $1731470
= -$33970
= $33970 Favourable
(Varaince is favourable, if actual cost < standard cost)
Working Notes:
Calaculation of standard conversion cost:
It was given that, Standard cost for each equivalent unit of conversion cost = $24.7
we need to find the equivalent units of conversion
. | Units | % completed during march | Equivalent units for conversion |
Beginning WIP | 1000 | 50% (100%-50%) | 500 units |
Units started and Completed | 62250 units | 100% | 62250 units |
Ending WIP inventory | 12250 units | 60% | 7350 units |
Total | 70100 units |
- Units started and completed
= Units completed during march - beginning WIP units
= 63250 - 1000
= 62250 units
- Ending WIP inventory
= BeginningWIP + Units started during the year - units completed
= 1000 + 74500 - 63250
= 12250 units
Therefore, standard conversion cost
= Standard conversion cost per equivalent unit × No. Of equivalent units for conversion
= $24.7 × 70100 units
= $1731470
______×______
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