Question

Cost of Reworked Units

Warren’s Sporting Goods Store sells a variety of sporting goods and clothing. In a back room, Warren’s has set up heat transfer equipment to personalize T-shirts for Little League teams. Typically, each team has the name of the individual player put on the back of the T-shirt. Last week, Shona Kohlmia, coach of the Terrors, brought in a list of names for her team. Her team consisted of 12 players with the following names: Mary Kate, Kayla, Katie, Tara, Heather, Emma, Kimberleigh, Jennifer, Dayna, Elizabeth, Kyle, and Wendy. Shona was quoted a price of $0.60 per letter.

Chip Russell, Warren’s newest employee, took Shona’s order and worked on the job. He selected the appropriate letters, arranged the letters in each name carefully on a shirt, and heat-pressed them on. When Shona returned, she was appalled to see that the names were on the front of the shirts. Jim Warren, owner of the sporting goods store, assured Shona that the letters could easily be removed by applying more heat and lifting them off. This process ruins the old letters, so new letters must then be placed correctly on the shirt backs. He promised to correct the job immediately and have it ready in an hour and a half.

Costs for heat transferring are as follows:

Letters (each)	$0.45
Direct labor (per hour)	8.00
Overhead (per direct labor hour)	4.00

Shona's job originally took one hour and 12 minutes of direct labor time. The removal process goes more quickly and should take only 30 minutes.

Required:

1. What was the original cost of Shona's job? If required, round your answer to the nearest cent.
$

2. What is the cost of rework on Shona's job? Assume that Chip failed to ask whether the names should be placed on the back or the front of the shirts. How should the rework cost be treated? If required, round your answer to the nearest cent.
$

3. Now assume that Shona had mistakenly told Chip to put the names on the front of the shirts. In an effort to keep his customer happy, Jim suggested that Shona pay only for the new letters and the firm would pay for the labor cost. How much did Jim charge Shona in addition to the orginal price of the job?

$

Answer 1

Question:
Requirement 1	What was the original cost of Shona's job? If required, round your answer to the nearest cent.
	$
	Total letters	=4+4+5+5+4+7+4+11+8+5+9+4+5
		75
	Total labour hours	1 hour 12 minutes
	The original cost would be as follows:
	Direct material	$                33.75	($0.45* 75 letters)
	Direct labour	$                  9.60	(60+12)*$8/60min
	Overhead control	$                  4.80	(60+12)*$4/60min
	Total original cost	$                48.15
Requirement 2	What is the cost of rework on Shona's job? Assume that Chip failed to ask whether the names should be placed on the back or the front of the shirts. How should the rework cost be treated? If required, round your answer to the nearest cent.
	Total letters	=4+4+5+5+4+7+4+11+8+5+9+4+5
		75
	Total labour hours	1 hour 12 minutes + 30 minutes
	Direct material	$                33.75	($0.45* 75 letters)
	Direct labour	$                13.60	(60+12+30)*$8/60min
	Overhead control	$                  6.80	(60+12+30)*$4/60min
	Total cost of rework	$                54.15
	The rework cost should not be included in the cost of job, it should be assigned to overhead.
Requirement 3	Now assume that Shona had mistakenly told Chip to put the names on the front of the shirts. In an effort to keep his customer happy, Jim suggested that Shona pay only for the new letters and the firm would pay for the labor cost. How much did Jim charge Shona in addition to the orginal price of the job?
	Price to be paid	$                45.00	($0.60*75 letters)