Question

Problem 6-49 Weighted-Average Method; Transferred-in Costs; Spoilage (Appendix) (LO 6-2, 6-4, 6-6, 6- 9) APCO Company manufactures various lines of bicycles. Because of the high volume of each line, the company employs a process costing system using the weighted average method. 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 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 below. Defective bicycles are identified at the inspection point when the assembly labor process is 70% complete; all assembly materials have been added at this point. The normal rejection rate for defective bicycles is 5% of the bicycles reaching the inspection point. Any defective bicycles above the 5% quota are considered to be abnormal. All defective bikes are removed from the production process and destroyed. Assembly Department Cost Data Transferred-in from Molding Assembly Assembly Department Materials Conversion $ 93,200 $ 8,310 $ 13,800 1, 246,600 102,120 244,620 $1,339,800 $110,430 $258,420 Total Cost of Bike through Assembly $ 115, 310 1,593,340 $1,708,650 Prior period costs Current period costs Total costs Assembly Assembly Department Production Data Percentage Complete Assembly Bicycles Transferred-in Materials 3, 110 100% 100% 56,000 100 45,500 100 100 4,220 100 Assembly Conversion 80% Assemb Beginning inventory Transferred-in from molding during year Transferred out to packing during year Ending inventory 100 20 50 Required: 1. Compute the number of defective, or spoiled, bikes that are considered to be a. Normal spoilage b. Abnormal spoilage. 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 materials. c. Bicycles produced with regard to assembly conversion.

Answer 1

Part 1

Normal spoilage = 2689 units

Abnormal spoilage = 6701 units

Part 2

	Transferred-in	Materials	Conversion
Equivalent units of production	59110	57000	52917

Part 3

Cost per equivalent unit

$29.49

Part 4

Normal spoilage	164171
Goods units completed in the assembly department	1031485
Abnormal spoilage	409115
Ending work in process inventory	103879

Explanation

Process Cost Report
Inspection Point	70%
	Percent complete
	Whole units	Materials	Conversion costs	Transferred-in
Beginning WIP	3110
Units started or Trans-in	56000
Total to account for	59110
Units Finshed or Trans-out	45500	100%	100%	100%
Normal spoilage	2689	100%	70%	100%
Abnormal spoilage	6701	100%	70%	100%
Ending WIP	4220	50%	20%	100%
Total accounted for	59110
Supporting Calculation: Determining Number of Spoiled Units (bikes)
Normal spoilage (in units):
Bikes passing through assembly dept during May		59110
Less: bikes not inspected during current year:
Beginning WIP inventory	3110
End WIP inventory	4220	5330
Bikes that reached the insp point this year		53780
Normal defect (spoilage) rate		5%
Normal spoilage (units)		2689
Abnormal spoilage (defective units):
Total bikes lost		9390	(59110-45500-4220)
Normal spoilage, in units		2689
Amount of abnormal spoilage, in units		6701
Transferred In	59110	57000	52917
Materials
Conversion
Calculating Equivalent Unit Costs:		Added by Assembly Department
	Trans-in	Materials	Conversion	Total
Beginning WIP	93200	8310	13800	115310
Current Costs	1246600	102120	244620	1593340
Total	1339800	110430	258420	1708650
Cost per EU	22.67	1.94	4.88	29.49
COST SUMMARY - WEIGHTED AVERAGE
Finished Goods	45500
Good production	1031485
Normal spoilage	164171
TOTAL		1195656
Abnormal Spoilage		409115
Ending WIP	4220
Trans-in	95667
Materials	4093
Conversion	4119	103879
Total Costs Accounted For		1708650

Total spoilage = 1708650-(1031485+103879) = 573286

Normal spoilage = 573286*2689/9390 = 164171

Abnormal spoilage = 573286*6701/9390 = 409115