Question

Kota Mills supply Divine Denim with the organic denim used in their production. After discussions with Helen about the service she was getting from Good Numbers, the manager of Kota Mills decided to use Good Numbers to assist with their management decision making. Kota Mills produces three different weights of denim using two departments. In Department 1, machines weave the cloth. In Department 2 the cloth is dyed a variety of colours. Information for the combined use of resources in both departments for the three types of fabric is outlined below.

Bolts are 20 metres each. All fabric is inspected during production. Robotic equipment inspects the fabric for obvious flaws as the bolts are wound up. Each bolt spends about 5 minutes in the inspection process.

	Denim
	8 ounce	13 ounce	16 ounce	Total	units
Monthly production in units (bolts of fabric)	1,000	4,000	2,000	7,000	bolts
Direct material cost $	8,000	24,000	20,000	52,000	$
Direct labour cost $	660	1,320	920	2,900	$
Direct labour hours	33	66	46	145	hours
Machine hours	500	1,333	1,500	3,333	hours
Number of set-ups for dye colour changes	10	30	20	60	set-ups
Inspection time	83	333	167	583	hours

Combined overhead costs for the two departments follow:

Cost to operate and maintain machines	$ 40,000
Set-up costs	$ 11,000
Inspection costs	$ 6,996
Total	$ 57,996

Previously, Kota Mills used a costing system focused on processes. It allocated direct materials to each product separately but allocated direct labour and conversion costs as if they were incurred equally across the units produced. Under this costing system, the overhead cost for Department 1 is $19,332 and for Department 2 it is $38,664. Direct labour hours and costs in Department 1 are 55 hours at $1,100, and the remaining are in Department 2. Direct materials for Department 1 are $15,000 for 16 ounce denim, $16,000 for 13 ounce denim, and $6,000 for 8 ounce denim. The remaining direct materials are added in Department 2. No beginning or ending inventory or abnormal spoilage is recorded for Kota Mills this period.

Required:

1. Use conventional process costing to allocate the direct materials and conversion costs per department to total bolts produced.
2. Develop a cost per bolt for each type of fabric. (Hint: You will need to first calculate the equivalent cost per bolt for conversion costs for each department)

I need the answer for "cost per bolt for each type of fabric" clearly.

Answer 1

	8 ounce	13 ounce	16 ounce	Total
Monthly production in units (bolts of fabric)	1000	4000	2000	7000
Direct material ($)	8000	24000	20000	52000
Per unit material cost ($)	8	6	10
Direct labour ($)	660	1320	920	2900
Direct labour hours	33	66	46	145
Direct labour cost/hr	20	20	20
machine hours	500	1333	1500	3333
cost to operate and maintain machines				40000
set up costs				11000
Inspection costs				6996

	Department 1	Calculation	Department 2	Calculation
Direct material	37000	15000+16000+6000	15000	52000-37000
Direct labour	1100	given	1800	2900-1100
Hours	55	given	90	145-55
Overheads (Total 57996)	21998	57996*55/145	35998	57996*90/145
Total costs	60098		52798
Total bolts	7000		7000
Cost per bolt	8.585	60998/7000	7.543	52798/7000

	Cost of 8 ounce/bolt	Cost of 13 ounce/bolt	Cost of 16 ounce/bolt	Calculation
Monthly production in units	1000	4000	2000	given
Material	8000	24000	20000	given
Labour	660	1320	920	given
Overhead	13199	26398	18399	total overhead*hours/total hours
Total costs	21859	51718	39319
Cost/bolt for ech type of fabric	21.86	12.93	19.66	total costs/ monthly production in units