Operation Costing
Ferdon Watches, Inc., makes four models of watches, Gag Gift, Commuter, Sport, and Retirement. Ferdon manufactures the watches in four departments: Assembly, Polishing, Special Finishing, and Packaging. All four models are started in Assembly where all material is assembled. The Gag Gift is transferred to Packaging, where it is packaged and transferred to finished goods inventory. The Commuter and Sport are assembled, then transferred to Polishing. Once the polishing process is completed, they are transferred to Packaging and then finished goods. The Retirement model is assembled and then transferred to Special Finishing, and then Packaging. When packaged, it is transferred to finished goods.
Data for October are shown in the following table. Conversion costs are allocated based on the number of units processed in each department.
|
Gag Gift |
Commuter |
Sport |
Retirement |
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|
Total |
(5,000 units) |
(10,000 units) |
(13,000 units) |
(2,000 units) |
|
|
Conversion costs: |
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|
Assembly |
$120,000 |
$15,000 |
$90,000 |
$156,000 |
$60,000 |
|
Polishing |
69,000 |
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|
Special Finishing |
20,000 |
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|
Packaging |
90000 |
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|
Total conversion |
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|
costs |
$299,000 |
a. Draw the flow of the different models through the production process.
b. What is the cost per unit transferred to finished goods inventory for each of the four watches in October?