Question $3$

Village Cycle manufactures various lines of bikes. Due to the high volume produced for each line, it uses a process costing system using the weighted average method to determine unit costs. Bicycle parts are manufactured in the moulding department and then consolidated into a single bike unit before being transferred to the assembly department where they are partially assembled. Within the assembly department $50\%$ of raw materials are added at the beginning of the production process, with the remainder added when the bikes are $40\%$ complete. Direct labour and manufacturing overhead are used uniformly throughout the production process. After assembly the bike is sent to the packing department. Annual cost and production figures for the assembly department are as follows:

Assembly Department Cost Data:

Prior period costs Current period costs

Transferred in from Moulding

$$82,200$ $$1,237,800$

Assembly Materials

$$6,660$ $$96,840$

Assembly Conversion

$$11,930$ $$236,590$

Assembly Department Production Data:

Beginning inventory Transferred in from moulding Transferred out to packing Ending inventory

Physical units

$3,00045,00040,000$

$4,000$

Percentage complete

$80\%-$

$100\%20\%$

Defective bikes are identified at the inspection point when the assembly process is $70\%$ complete. The normal rejection for defective bikes is $5\%$ per year. Any defective bikes above the $5\%$ quota are considered abnormal. All defective bikes are removed from the production process and destroyed.

$($Cont$$d on next page$)$

Page $5$ of $8$

OFFICE USE ONLY

Question $3($cont$$d$)$ Required:

a$)$ Explain the key assumption underlying the first$-$in$-$first$-$out method with regard to the physical flow of units and calculation of costs per equivalent unit. How does this differ under the weighted average method?

$(2$ marks$)$

b$)$ Compute the number of defective bikes that are considered to be $1)$ normal and $2)$

abnormal.

c$)$ Compute the cost per equivalent unit of a fully assembled bike.

$(4$ marks$)(12$ marks$)$

d$)$ Compute the cost of the following:

$1)$ Units transferred to the packing department

$2)$ Abnormal spoiled units

$3)$ Ending work$-$in$-$process inventory in the assembly department