Coastal Cycles makes three models of electric bicycles: E20, E35, and E60. The models differ by the size of the battery and the quality of the components. The bicycles are produced in two departments. The Assembly Department purchases components from vendors and assembles them into bicycles. The models E20 and E35 are complete and ready for sale after completing the assembly process. The model E60 undergoes further process in Customization Department, which is actually just a small area in the same building as the Assembly Department. Conversion costs in both the Assembly Department and Customization Department are based on the number of units produced. There are never any work-in-process inventories. Data for production in November are shown in the following table. Units produced Materials cost Conversion costs Assembly Customization Total conversion costs Total 7,000 $10,425,000 E20 E35 E60 9,382,500 1,417,500 $10,800,000 Unit Cost E20 3,000 $4,050,000 E35 2,500 $2,325,000 The marketing manager cannot believe that the Controller wants to treat all bicycles the same. He says that in order to understand where to target marketing resources, he needs to understand the profitability (and therefore the costs) of the individual models. He suggests treating the individual models as "jobs" using job costing to calculate the costs of the individual models. He also suggested, based on what he remembered from his cost accounting course, that the conversion costs should be applied to the jobs based on direct material costs. E60 1,500 $4,050,000 Required: a. Suppose the marketing manager's suggestion is followed. What will be the unit cost of a bike produced in November?
Coastal Cycles makes three models of electric bicycles: E20, E35, and E60. The models differ by the size of the battery and the quality of the components. The bicycles are produced in two departments. The Assembly Department purchases components from vendors and assembles them into bicycles. The models E20 and E35 are complete and ready for sale after completing the assembly process. The model E60 undergoes further process in Customization Department, which is actually just a small area in the same building as the Assembly Department. Conversion costs in both the Assembly Department and Customization Department are based on the number of units produced. There are never any work-in-process inventories. Data for production in November are shown in the following table. Units produced Materials cost Conversion costs Assembly Customization Total conversion costs Total 7,000 $10,425,000 E20 E35 E60 9,382,500 1,417,500 $10,800,000 Unit Cost E20 3,000 $4,050,000 E35 2,500 $2,325,000 The marketing manager cannot believe that the Controller wants to treat all bicycles the same. He says that in order to understand where to target marketing resources, he needs to understand the profitability (and therefore the costs) of the individual models. He suggests treating the individual models as "jobs" using job costing to calculate the costs of the individual models. He also suggested, based on what he remembered from his cost accounting course, that the conversion costs should be applied to the jobs based on direct material costs. E60 1,500 $4,050,000 Required: a. Suppose the marketing manager's suggestion is followed. What will be the unit cost of a bike produced in November?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Coastal Cycles makes three models of electric bicycles: E20, E35, and E60. The models differ by the size of the battery and the quality
of the components. The bicycles are produced in two departments. The Assembly Department purchases components from vendors
and assembles them into bicycles. The models E20 and E35 are complete and ready for sale after completing the assembly process.
The model E60 undergoes further process in Customization Department, which is actually just a small area in the same building as the
Assembly Department.
Conversion costs in both the Assembly Department and Customization Department are based on the number of units produced. There
are never any work-in-process inventories. Data for production in November are shown in the following table.
Units produced
Materials cost
Conversion costs.
Assembly
Customization
Total conversion costs
Total
E20
7,000
3,000
$10,425,000 $4,050,000
E20
E35
E60
9,382,500
1,417,500
$10,800,000
Unit Cost
E35
2,500
$2,325,000
The marketing manager cannot believe that the Controller wants to treat all bicycles the same. He says that in order to understand
where to target marketing resources, he needs to understand the profitability (and therefore the costs) of the individual models. He
suggests treating the individual models as "jobs" using job costing to calculate the costs of the individual models. He also suggested,
based on what he remembered from his cost accounting course, that the conversion costs should be applied to the jobs based on
direct material costs.
E60
1,500
$4,050,000
Required:
a. Suppose the marketing manager's suggestion is followed. What will be the unit cost of a bike produced in November?
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