Sport Conversion cost $ Material cost Total cost $ 4,136,960 $ 2,856,960 $ 1,280,000 Custom 1,607,040 $ 1,980,000 Total 4,464,000 3,260,000 3,587,040 $ 7,724,000 Unit cost Conversion cost Direct labor Overhead Material cost Total cost Unit cost Sport Custom Total $ 0 SASA $ 0 $ 0 $ 0 $ 0 $ 0
Larned Recreational builds two models of dune buggies: Sport and Custom. Both models require the same assembly and finishing process and are assembled in the same factory. They differ in the quality and detail of the materials. The following data reflect expected operations for the upcoming year.
| Sport | Custom | Total | |
|---|---|---|---|
| Number of units | 3,200 | 1,800 | 5,000 |
| Direct materials cost per unit | $ 400 | $ 1,100 | |
| Conversion costs: | |||
| Direct labor | $ 1,856,000 | ||
| Overhead | 2,608,000 | ||
| Total | $ 4,464,000 |
Required:
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Larned Recreation uses operations costing and assigns conversion costs based on the number of units assembled. Compute the cost per unit of the Sport and Custom models for the upcoming year.
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The financial team at Larned suggests that a two-stage system be used to compute the product cost of the two models. Their recommendation is to assign direct labor cost based on the number of units and overhead cost based on direct materials cost. Compute the cost per unit of the Sport and Custom models for the upcoming year using the team's recommendation.
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