Suppose the marketing manager's suggestion is followed. What will be the unit cost of a bike produced in November?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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 | $ | 7,175,000 | $ | 2,550,000 | $ | 2,075,000 | $ | 2,550,000 | |||||
| Conversion costs | |||||||||||||
| Assembly | 6,457,500 | ||||||||||||
| Customization | 892,500 | ||||||||||||
| Total conversion costs | $ | 7,350,000 | |||||||||||
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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