Upton Knitters manufactures sweaters and uses an operation-costing system. All sweaters are processed through Department no. 1, with subsequent processing taking place in Department no. 2 or Department no. 3, depending on the type of fabric used. Twenty thousand sweaters were produced during the year; there was no beginning or ending work in process. Sixty percent of the goods were sent to Department no. 2 for manufacturing.Conversion cost incurred in the three departments totaled $504,000, subdivided as follows: Department no. 1, $360,000; Department no. 2, $60,000; and Department no. 3, $84,000.Data pertaining to two representative orders, nos. 545 and 567, were:?No. 545No. 567Direct materials$112,000$94,000Number of sweaters8001,300Subsequent processing departmentNo. 3No.
2Required:A. Explain the nature of operation costing.B. Determine the cost of order nos. 545 and 567.
What will be an ideal response?
A. Operation costing is used by firms that produce different models of similar products. The products go through essentially the same manufacturing process, so conversion costs can be assigned in a manner similar to that used in process-costing systems. Materials, on the other hand, are unique to the individual goods being produced and, accordingly, the cost is assigned by batch (or in a manner similar to that used in job costing).
B. Conversion cost per sweater:
Department no. 1: $360,000 ÷ 20,000 sweaters = $18.00
Department no. 2: $60,000 ÷ (20,000 × 60%) sweaters = $5.00
Department no. 3: $84,000 ÷ (20,000 × 40%) sweaters = $10.50
| ? | No. 545 | No. 567 |
| Direct materials | $112,000 | $94,000 |
| Conversion cost: No. 1 | ? | ? |
| 800 sweaters × $18; 1,300 sweaters × $18 | 14,400 | 23,400 |
| Conversion cost: No. 2 | ? | ? |
| 1,300 sweaters × $5 | ? | 6,500 |
| Conversion cost: No. 3 | ? | ? |
| 800 sweaters × $10.50 | 8,400 | ? |
| Total | $134,800 | $123,900 |
You might also like to view...
Peter and Paul are business associates. The police enter the business with a search warrant because Peter is under investigation for a crime. When the police ask Paul to answer some questions, he agrees, but one of the questions, if answered, might make him culpable too. Paul must answer the question because he is not under investigation and therefore does not currently have the right against self-incrimination.
Answer the following statement true (T) or false (F)
Some differences between people, such as height and weight, are innate.
Answer the following statement true (T) or false (F)
Research indicates that high-performance project teams are much more likely to develop under certain conditions. One of these conditions is that members report solely to the ________.
Fill in the blank(s) with the appropriate word(s).
What are the different strategic approaches to the marketplace?
What will be an ideal response?