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

question 31

Essay

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: $\begin{array}{lrr} & \text { No. } 545 & \text { No. } 567 \\ \text { Direct materials } & \$ 112,000 & \$ 94,000 \\\text { Number of sweaters } & 800 & 1,300 \\\text { Subsequent processing department } & \text { No. } 3 & \text { No. } 2\end{array}$
Required:
A. Explain the nature of operation costing.
B. Determine the cost of order nos. 545 and 567.

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Definitions:

Developing Countries

Nations with a lower level of material well-being, industrialization, and economic development, often characterized by lower incomes and less stable economic conditions.

Capital

Assets used for the production of goods and services, such as buildings, machinery, and equipment.

Purchase Price

The amount of money that is paid to buy a good, service, or asset.

Rental Price

The cost associated with leasing or renting a property, such as a house, apartment, or commercial space.