Refer to the data in Exercise 8-48. The marketing manager cannot believe that the controller wants to treat all bicycles the same. He says that in order to understand where to target marketing resources, he needs to understand the profitability (and therefore the costs) of the individual models. He suggests treating the individual models as “jobs” using job costing to calculate the costs of the individual models. He also suggested, based on what he remembered from his cost accounting course, that the conversion costs should be applied to the jobs based on direct material costs.

Required
a. Suppose the marketing manager’s suggestion is followed. What will be the unit cost of a bike produced in November?
b. Would you recommend adopting the marketing manager’s suggestion? Explain.

Exercise 8-48

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Total E20 E35 E60 Units produced 7,000 3,000 2,500 1,500 Materials cost $4,900,000 $1,500,000$1,900,000$1,500,000 Conversion costs Assembly 4,410,000 Customization 525,000 Total conversion $4,935,000 costs