Question

S. Lee Enterprises produces two models of lawn tractor: SL1 and SL2. The models are both produced in the company’s Louisville factory and go through identical assembly operations. The difference is in the quality (hence, cost) of the parts used. The following data are available for November, the latest month for which information is available:

	SL1			SL2			Total
Number assembled		1,450			1,950			3,400
Materials cost per tractor	$	1,900		$	2,400
Other costs:
Direct labor							$	2,200,000
Supplies								680,000
Other overhead								3,580,000

Required:

S. Lee Enterprises uses operations costing and assigns conversion costs based on the number of units assembled. Compute the cost of each model assembled in November.

	SL1	SL2	Total
Operation cost			$0
Materials cost
Total cost
Number of units
Unit cost

Answer 1

	SL1	SL2	Total
Operation cost	$2,755,000	$3,705,000	$6,460,000
Material cost	$2,755,000	$4,680,000	$7,435,000
Total cost	$5,510,000	$8,385,000	$13,895,000
Number of units	1,450	1,950	3,400
Unit cost	$3,800	$4,300	$8,100

Working Notes:

Conversion cost = Direct labor +Supplies + other overhead

= $2,200,000 + $680,000 + $3,580,000

= $6,460,000

Conversion cost per unit = $6,460,000 / 3,400

= $1,900

SL1 = $1,900 * 1,450

= $2,755,000

SL2 = $1,900 * 1,950

= $3,705,000

Materials cost

SL1 = 1,450 * $1,900

= $2,755,000

SL2 = 1,950 * $2,400

= $4,680,000