Orville Knitters Manufactures Sweaters and Uses an Operation-Costing System

Orville 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:
A.Explain the nature of operation costing.
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

B.Determine the cost of order nos.545 and 567.