43. (Normal and abnormal spoilage; WA) Grand Monde Company manufactures various lines of bicycles. Because of the high volume of each type of product, 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 transferred to the Assembly Department where they are partially assembled. After assembly, the bicycle is sent to the Packing Department.

Cost-per-unit data for the 20-inch dirt bike has been completed through the Molding Department. Annual cost and production figures for the Assembly Department are presented at the top of the shown below.

Damaged bicycles are identified on inspection when the assembly process is 70 percent complete; all assembly material has been added at this point of the process. The normal rejection rate for damaged bicycles is 5 percent of the bicycles reaching the inspection point. Any damaged bicycles above the 5 percent quota are considered to be abnormal. All damaged bikes are removed from the production process and destroyed.

a. Compute the number of damaged bikes that are considered to be 1. a normal quantity of damaged bikes.
2. an abnormal quantity of damaged bikes.

b. Compute the weighted average equivalent units of production for the year for 1. bicycles transferred in from the Molding Department.
2. bicycles produced with regard to assembly material.
3. bicycles produced with regard to assembly conversion.

c. Compute the cost per equivalent unit for the fully assembled dirt bike.

d. Compute the amount of the total production cost of $1,672,020 that will be associated with the following items:
1. Normal damaged units 2. Abnormal damaged units 3. Good units completed in the Assembly Department 4. Ending Work in Process Inventory in the Assembly Department

e. Describe how the applicable dollar amounts for the following items would be presented in the financial statements:
1. Normal damaged units 2. Abnormal damaged units 3. Completed units transferred to the Packing Department 4. Ending Work in Process Inventory in the Assembly Department

f. Determine the cost to Grand Monde Company of normal spoilage. Discuss some potential reasons for spoilage to occur in this company. Which of these reasons would you consider important enough to correct and why?
How might you attempt to correct these problems?

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PRODUCTION DATA Beginning inventory (100% complete as to transferred-in; 100% complete as to assembly material; 80% complete as to conversion) Transferred in during the year (100% complete as to transferred-in) Transferred to Packing Ending inventory (100% complete as to transferred-in; 50% complete as to assembly material; 20% complete as to conversion) COST DATA 3,000 units 45,000 units 40,000 units 4,000 units Transferred-In Direct Material Beginning inventory Current period $ 82,200 1,237,800 $ 6,660 Totals $1,320,000 96,840 $103,500 Conversion $ 11,930 236,590 $248,520