Coastal Cycles makes three models of electric bicycles: E20, E35, and E60. The models differ by the stze 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 E6O undergoes further process in Customization Department, which is actually just a small area in the same bullding 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. Total 120 3,000 $4.350.000 Unite produced 2,500 7,000 $11,075,000 1,500 $4.350,000 Materials cost Conversion costs Assenbly Custonization $2,375,000 9.967,500 1,522,500 Total conversion costs 11,490,000 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. 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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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 stze 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 blcycles. 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 bullding 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.
Total
7,000
220
E35
260
Unite produced
3,000
$4,350,000
2,500
$2,375,000
1,500
Materials cost
Conversion costs
Assembly
Customization
$11,075,000
$4,350,000
9,967,500
1,522,500
Total conversion costs $11,490,000
The marketing menager cannot beleve 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.
Required:
a. Suppose the marketing manager's suggestion is followed. What will be the unit cost of a bike produced in November?
Unit Cost
E20
E35
E60
333
Transcribed Image Text:Coastal Cycles makes three models of electric bicycles: E20, E35, and E60. The models differ by the stze 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 blcycles. 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 bullding 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. Total 7,000 220 E35 260 Unite produced 3,000 $4,350,000 2,500 $2,375,000 1,500 Materials cost Conversion costs Assembly Customization $11,075,000 $4,350,000 9,967,500 1,522,500 Total conversion costs $11,490,000 The marketing menager cannot beleve 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. Required: a. Suppose the marketing manager's suggestion is followed. What will be the unit cost of a bike produced in November? Unit Cost E20 E35 E60 333
Expert Solution
Step 1

Given information:

  • Model E20 and E35 are complete and ready for sale after the Assembly process.
  • Assembly Cost should be distributed between all three models on the basis of direct material cost.
  • Model E60 undergoes a further process in customization.
  • Therefore, Customization should be allocated to the E60 model only.
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