Palmateer Industries Makes an Electronic Component in Two Departments, Machining

question 101

Essay

Palmateer Industries makes an electronic component in two departments, Machining and Assembly.The capacity per month is 30,000 units in the Machining Department and 20,000 in the Assembly Department.The only variable cost of the product is the direct material of $100 per unit.All direct material cost is incurred in the Machining Department.All other costs of operating the two departments are fixed costs.Palmateer can sell as many units of this electronic component as it produces at a selling price of $300 per unit.Required:
Assuming any defective unites produced in either department must be scrapped:
a.Compute the loss that occurs if a defective unit is produced in the Machining Department.
b.Compute the loss that occurs if a defective unit is produced in the Assembly Department.
c.How do your answers in parts (a)and (b)relate to the theory of constraints? Explain.

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Definitions:

Average Cost Method

An inventory valuation method that calculates the cost of goods sold and ending inventory value based on the average cost of all items in inventory.

Ending Inventory

The inventory that remains unsold at the end of an accounting period.

LIFO Method

An inventory valuation method where the last items produced or bought are the first ones to be expensed, leading to lower reported profits and taxes when prices are rising.

Periodic System

An accounting system where updates to inventory levels and costs of goods sold are made at the end of an accounting period rather than being tracked continuously.