Suppose that Pacific Electronics manufactures a variety of cell phone models.

These models are

assembled in the assembly department. Upon completion, units are transferred to the testing
department. We focus on the assembly department process for one model, SG-40. All units of
SG-40 are identical and must meet a set of demanding performance specifications. The process-
costing system for SG-40 in the assembly department has a single direct-cost category—direct
materials— and a single indirect-cost category—conversion costs. Direct materials are added at
the beginning of the assembly process. Conversion costs are added evenly during assembly.