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

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.