3) Grande Corporation assembles bicycles by purchasing frames, wheels, and other

Question

3) Grande Corporation assembles bicycles by purchasing frames, wheels, and other parts from various suppliers Consider the following data: * The company plans to sell 25,000 bicycles during each month of the year's first quarter. * A review of the accounting records disclosed a finished-goods inventory of 1,400 bicycles on Januery 3 an expected finished-goods inventory of 1,850 bicycles on January 31 * Grande has 4,300 wheels in inventory on January 1, a level that is expected to drop by 5% at momt end. * Assembly time totals 30 minutes per bicycle, and workers are paid $14 per hour * Grande accounts for employee benefits as a component of direct labor cost. Pension and insurance average $2 per hour (total); additionally, the company pays Social Security taxes that amount to 8% of gross wages earned. Required: A. How many bicycles does Grande expect to produce (i.e., assemble) in January? B. How many wheels are budgeted to be purchased in January? C. Compute Grande's total direct labor cost for January D. Briefly explain how the company's purchasing activity would affect the end-of-period balance shee

Explanation / Answer

Solution- A: 24,550 units.

Production of Bicycles: Closing Stock + Sale – Opening Stock

                              : 1400 + 25,000 – 1850

                              : 24,550 units.

Solution- B: 48,885 wheels

Opening Stock + Purchases – Closing Stock = Stock consumed in production.

4,300 + Purchases- 4085 = 49,100

Purchases = 49,100 + 4085 – 4300

                 = 48,885

Please note 1 bicycle would be requiring 2 wheels. While calculating consumption, No. of wheels will be calculated as 24,550 * 2= 49,100 wheels

Solution-C: Total Direct Labor cost: $212,112

Total bicycles to be Assembles: 24,550 units

Assembly Time per bicycle: 30 minutes = ½ hour

Total Hours required: 24,550 * ½ = 12,275 hours

Amount paid to worker: 12,275 hours * 14 = $171,850

Pension and Insurance= 12,275 hours * 2 = $24,550

Total Gross pay = $171850 + $24,550 = $196,400

Social Security Tax = 8% * 196,400 = $15,712

Total labor cost = Gross Pay + Social Security Tax = $196,400 + $15,712 = $   212,112

Solution-D:

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