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?
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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
a. Suppose the marketing manager's suggestion is followed. What will be the unit cost of a bike produced in November?
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.
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education