Exercise 8-50 (Algo) Job Costing and Process Costing (LO 8-7) 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. Total E20 E35 E60 Units produced 7,000 3,000 2,500 1,500 Materials cost $ 10,425,000 $ 4,050,000 $ 2,325,000 $ 4,050,000 Conversion costs Assembly 9,382,500 Customization 1,417,500 Total conversion costs $ 10,800,000 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?
Exercise 8-50 (Algo) Job Costing and Process Costing (LO 8-7)
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.
| Total | E20 | E35 | E60 | ||||||||||
| Units produced | 7,000 | 3,000 | 2,500 | 1,500 | |||||||||
| Materials cost | $ | 10,425,000 | $ | 4,050,000 | $ | 2,325,000 | $ | 4,050,000 | |||||
| Conversion costs | |||||||||||||
| Assembly | 9,382,500 | ||||||||||||
| Customization | 1,417,500 | ||||||||||||
| Total conversion costs | $ | 10,800,000 | |||||||||||
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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