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  • Feb 27, 2011, 06:49 PM
    kluyste1
    Process costing
    I am not sure how to calculate the number of bikes inspected. This is the information given.

    The primary materials used in the Tourist's production process consist of steel tubing for bicycle frames and assembled components (e.g. gear assemblies, pedals, wheels, etc.). The company's accounting system releases purchase orders on line as needed, and the company receives material deliveries on a just in time basis.

    In Department 1, workers use a laser to precision cut all tubing based on the standard design. Workers then weld the precision cut pieces to form the bicycle frames and sand the joints to prepare the frames for painting. After sanding, workers hang the frames on an overhead conveyor that transports them through the next two processes. All bicycle frames undergo a high temperature heat-treating process to strengthen the tubing walls that are weakened during the welding process. After heat treatment, all frames are inspected. At this time, 100 percent of direct materials have been added and 70 percent of conversion work has been done. Defective frames are removed from the production process and destroyed. All frames passing this inspection will pass through an electrostatic painting process in which each frame receives an electrical charge that enhances paint adherence. The company's trademark color for the Tourist is purple. After painting, frames are sent to Department 2 for further processing.

    In Department 2, workers assemble the bicycles. Each bike is inspected when each unit has received 100 percent of assembled components and conversion work. All bikes passing the final inspection are sent to the Finished Goods warehouse.

    The product cost composition of the Tourist line consists of direct materials, direct labor, and manufacturing overhead. Each Tourist bike uses, on average, 2.5 direct labor hours in Department 1 and 1.5 direct labor hours in Department 2.

    Manufacturing overhead are indirect costs to the product lines. Overheads are applied to production process in each department. The company has five overhead cost pools: (1) material handling, (2) labor-related, (3) heat treatment, (4) painting, and (5) quality control.

    Material handling: This cost pool is for all costs associated with ordering, receiving, and moving materials to the using departments. The number of parts in each Tourist is 15 (i.e. steel tubing issued to Department 1 and 14 assembled components issued to Department 2). Material handling cost is applied to production at the rate $2 per part issued.

    Labor-related: This cost pool consists of overhead items such as utilities, equipment depreciation, butane, and indirect materials incurred to support the time consuming activities of cutting, welding, sanding, assembling, and packaging. Labor-related overhead is applied to production in each department at the rate of $12.75 per direct labor hour.

    Heat treatment: This cost pool includes utilities and depreciation of the furnace. Heat treatment cost is applied to production at the rate of $54 per treatment hour. Each frame unit requires 30 minutes of heat treatment.

    Painting: This cost pool includes the cost of painting frames and depreciation of painting equipment. Painting cost is incurred equally per bicycle and applied to production at the rate of $61.25 per bike.

    Quality control: This pool consists of the training cost of factory workers and the salary of factory supervisors and quality control inspectors. Quality control cost is applied to production in each department at the rate of $10.75 per bike inspected.

    The information for the fourth quarter (October-December) of 2010 is presented below:

    Department 1:
    Units in Work-in-Process (WIP) inventory, October 1 250
    Direct materials (steel tubing) costs $19,750, 100% complete
    Conversion costs $16,225, 40% complete
    (Conversion costs in the beginning inventory are comprised of direct labor, $3,000, and overhead applied, $13,225.)
    Units started 2,300
    Units completed and transferred to Dept. 2 2,180

    Spoilage units at first inspection (from units started
    during the fourth quarter) 80
    Current costs added/applied during the quarter:
    Direct materials (steel tubing) costs $184,000
    Direct labor costs $66,480
    Overhead applied to production ??
    Overehad activity measures for the quarter:
    Material handling: 2,300 parts
    Labor-related: 5,560 direct labor hours
    Heat treatment: 1,130 treatment hours
    Quality control: ??? bikes inspected
    Painting: 2,180 bikes painted
    Units in WIP inventory, December 31 ??
    Direct materials (steel tubing) costs 100% complete
    Conversion costs 30% complete

    Department 2:
    Units in WIP inventory, October 1 200
    Prior department (Dept. 1) costs $48,600
    Direct materials (assembled components) costs $16,200, 70% complete
    Conversion costs $5,920, 40% complete
    (Conversion costs in the beginning inventory are comprised of direct labor, $1,440, and overhead applied, $4,480.)
    Units received from Department 1 ??
    Units completed and transferred to Finished Goods 2,100
    Spoilage units at second inspection (from units started
    during the fourth quarter) 100
    Current costs added/applied during the quarter:
    Prior department (Dept. 1) costs ??
    Direct materials (assembled components) costs $255,600
    Direct labor costs $39,120
    Overhead applied to production ??
    Overhead activity measures for the quarter:
    Material handling: 30,100 parts issued
    Labor-related: 3,260 direct labor hours
    Quality control: ?? Bikes inspected
    Units in WIP inventory, December 31 ??
    Direct material (assembled components) costs 50% complete
    Conversion costs 30% complete

    The production record for the fourth quarter of 2010 indicated that the spoilage units discovered at the first inspection point in Department 1 were considered normal, while those at the second inspection point in Department 2 were considered abnormal spoilage. The firm has a policy to charge the cost of normal spoilage to good units transferred out.

    The finished goods inventory of Tourist bicycles on October 1 consisted of 250 bikes with a total cost of $107,500. During the fourth quarter, 2,030 bikes were sold at 130 percent of their cost. The firm uses the perpetual inventory record and the first-in-first-out (FIFO) method to determine the balances on both Cost of Goods Sold and Finished Goods Inventory accounts.


    I also asked my professor and this is what she e-mailed me back

    "You need to compute the number of bikes inspected.
    Note from the case material that, in Dept 1, bikes are inspected when 100% of DM
    have been added and 70% of conversion work has been added. Now, use your
    inventory equation for Dept 1 (see my response to your next question). On the
    right hand side of the equation, you have three batches (TO units, spoiled
    units, and EI units). Check the percentage of completion for DM and conversion
    of each batch. You should be able to conclude whether each has been inspected
    by looking at the percentage of completion. For example, if a batch has 50% for
    DM and 30% of conversion, it must have not been inspected because it has not
    reached 100% DM and 70% conversion. On the other hand, if a batch has reached
    100% DM and 80% conversion, it must have been inspected."

    Any help would be greatly appreciated. I just can't figure it out and I have been working on it all day long.

    Thanks,
    kluyste1

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