Assignment
PerfectGrind is a New Zealand based company that manufactures iconic designed pepper mills that are stocked by specialist kitchenware outlets. A pepper mill is an essential tool in most kitchens to kick up the flavour factor. However, key to a good pepper mill is a strong and stable grinding mechanism. Hence, PerfectGrind manufactures its grinding mechanism with tough hardened steel.
The production process starts with steel sheets going through a machine that cuts the steel into two predefined sized rings: the outer rings (large) and the inner rings (small). The cuts are designed to maximize usage of each sheet and the residuals are returned to the steel sheet manufacturer to be recycled. At the end of each production run, $200 worth of scrap is returned to the manufacturer.
The rings are sorted according to size and transferred to the automated chiselling tool. Here teeth are carved into the outer rings making a row of large ones to crack the peppercorns and a row of small ones for the finer grinding. The inner ring is the moving part of the mechanism. This is stamped with trademark information before a tool edges teeth into it as well. They are designed to grind freely against the outer ring without locking together.
Thick steel wire now uncoils and travels between rollers for straightening. There is a quick rotating action as the rotating cutter slices it into smaller pieces. Each one will become a drive shaft for a pepper mill. A tool slims and trims one end of the shaft so that it will fit into the inner grinding part. Rolling cutters carve threads into the other end for attaching it to the end of a manual mill. Robots install the inner grinding part on the driving shaft. Next, pre-cut pieces of wood are sculpted into the iconic shape recognized by pepper mill fans everywhere.
It is now time to assemble the outer ring, shaft and inner grinding device which they press fit to the wooden pepper mill body. The mill is surrounded with a metal ring and braced with a steel bracket.
Once assembled robotic arms grind the mechanisms for a number of times to confirm this production run can handle the daily grind. Due to the nature of production, 10% of the units are spoiled regardless of efficient running of the production process. The company donates the spoiled units to a charity organization who pull the pieces apart and recycle them or sell the scrap.
Each production run produces 1,000 pepper mills and incurs the following material costs:
Materials cost per run
Steel Sheets $ 2,800.00
Steel Coil $ 1,400.00
Pieces of wood $ 850.00
Metal ring $ 30.00
Steel bracket $ 20.00
Materials for each stage of production are added at the start of the relevant stage. Conversion costs are added evenly during the production run and the table below shows the % of conversion costs believed to have incurred at the end of each stage of the production process
% of Conversion costs incurred at the end of process
Production of outer and inner rings 40%
Production of drive shafts 65%
Wood sculpting 85%
Assembly 100%
In April 2017, the company started 7 production runs and finished one run that was 90% complete on 1st April. At the end of the month, 1 production run was only 65% complete while 6,200 good units were completed and transferred out. Conversion costs for the opening work in process was $2,900 while the conversion costs for the production started in April equalled $23,200. An analysis of the direct materials indicated there were no variances i.e. the costs were in line with the expected material costs per run.
Required:
a) Draw a simple flow chart of the production process showing the activities involved and the flow of costs.
b) Prepare a process cost report for the month of April using the weighted average method.
c) Calculate the cost of good units completed and transferred out?
d) PerfectGrind has been struggling to make ends meet in the last few months and the managers have been asked to come up with suggestions to reduce costs. The production manager thinks they need to re-evaluate the timing of their inspection point as he believes it can have a significant impact on their resource usage. The production manager has asked for your help to identify ideal times for inspection during the production process.
You are required to write a formal report, no longer than 2 pages, clearly stating your recommendation and illustrating the impact of this change using the above data. Your report should also include a discussion of other considerations that should be taken into account in relation to the inspection point decision.