Question

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		11,800			4,600			4,100			3,100
Materials cost	$	8,836,000		$	2,300,000		$	3,116,000		$	3,420,000
Conversion costs
Assembly		7,811,600
Customization		765,000
Total conversion costs	$	8,576,600

Required:

What is the cost per unit transferred to finished goods inventory for each of the three models in November?

Answer 1

Solution: Calculation of cost per unit

	E20	E35	E60
Units Produced	4,600	4,100	3,100
Material Cost	$2,300,000	$3,116,000	$3,420,000
Add: Conversion Costs
Assembly (in the ratio of units i.e. 4,600:4,100:3,100)	$3,045,200	$2,714,200	$2,052,200
Customization	-	-	$765,000
Total Cost	$5,345,200	$5,830,200	$6,237,200
Cost per unit (Total cost/Units produced)	$5,345,200/4,600 = $1,162	$5,830,200/4,100 = $1,422	$6,237,200/3,100 = $2,012

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