Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 57

Spoilage; Weighted-Average Method; Transferred-in Costs (Appendix) APCO Company manufactures various lines of bicycles. Because of the high volume of each line, the company employs a process cost system using the weighted-average method to determine unit costs. Bicycle parts are manufactured in the molding department and then are consolidated into a single bike unit in the molding department and transferred to the assembly department where they are partially assembled. After assembly, the bicycle is sent to the packing department.

Annual cost and production figures for the assembly department are presented in the schedules that follow.

Defective bicycles are identified at the inspection point when the assembly labor process is 70 percent complete; all assembly materials have been added at this point. The normal rejection for defective bicycles is 5 percent of the bicycles reaching the inspection point. Any defective bicycles above the 5 percent quota are considered to be abnormal. All defective bikes are removed from the production process and destroyed.

Required

1. Compute the number of defective, or spoiled, bikes that are considered to be

a. Normal.

b. Abnormal.

2. Compute the equivalent units of production for the year for

a. Bicycles transferred in from the molding department.

b. Bicycles produced with regard to assembly material.

c. Bicycles produced with regard to assembly conversion.

3. Compute the cost per equivalent unit for the fully assembled bike.

4. Compute the amount of the total production cost of $1,672,020 that will be associated with the following items:

a. Normal spoiled units.

b. Abnormal spoiled units.

c. Good units completed in the assembly department.

d. Ending work-in-process inventory in the assembly department.

5. Describe how to present the applicable dollar amounts for the following items in the financial statements:

a. Normal spoiled units.

b. Abnormal spoiled units.

c. Completed units transferred in to the packing department.

	Assembly Department Cost Data			Total Cost of Bike through Assembly
	Transferred in from Molding Department	Assembly Materials	Assembly Conversion Cost
Prior period costs	$ 82,200	$ 6,660	$ 11,930	$ 100,790
Current period costs	1,237,800	96,840	236,590	1,571,230
Total costs	$1,320,000	$103,500	$248,520	$1,672,020

Assembly Department Production Data
	Bicycles	Percentage Complete
		Transferred in	Assembly Materials	Assembly Conversion
Beginning inventory	3,000	100%	100%	80%
Transferred in from molding during year	45,000	100	—	—
Transferred out to packing during year	40,000	100	100	100
Ending inventory	4,000	100	50	20

Step 1 of 4

1.?[see notes (a) and (b) below],2.,3.,4.

 

a. Normal amount of defective or spoiled bikes		?		?
Bikes passing through assembly		48,000
Less:
Bikes not inspected during current year
?	Beginning work-in-process inventory
	(inspected in prior year – 80% complete) 3,000
?	Ending work-in-process inventory
?	(have not reached inspection point –20% complete)	4,000		7,000
Bikes that reached inspection point				41,000
Normal defective/spoiled rate				.05
Normal amount of defective/spoiled bikes				2,050
b.Abnormal amount of defective/spoiled bikes			?		?
Total bikes lost			?4,000		?
Normal amount of defective/spoiled bikes			?		2,050
Abnormal amount of defective/spoiled bikes			?		1,950