Orville Knitters Manufactures Sweaters and Uses an Operation-Costing System Required:
A

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. 20,000 sweaters were produced during the year; there was no beginning or ending work in process. 60% of the goods were sent to Department No. 2 for manufacturing.
Conversion costs incurred in the three departments totalled $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: $\begin{array} { l r r } & \underline {\text { No. } 545 } &\underline { \text { No. } 567 } \\\text { Direct materials } & \$ 112,000 & \$ 94,000 \\\text { Number of sweaters } & 800 & 1,300 \\\text { Subsequent processing department } & \text { No. } 3 & \text { No. } 2\end{array}$ Required:
A. Explain the nature of operation costing.
B. Determine the cost of order nos. 545 and 567.