APM exam March 2020

This topic has 3 replies, 2 voices, and was last updated 5 years ago by Ken Garrett.

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November 1, 2020 at 1:20 pm #593743
lilygao
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Hi Ken,

Q1 Fold Manufacturing
I could not figure out how to calculate Reworking costs. Could you please help with this?

Thank you!
Lily
November 1, 2020 at 4:09 pm #593754
Ken Garrett
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I think you are referring to the question Folt Manufacturing from March/June 2019.

Cost details: Note 9 = 2.5% fail; reworking per bad product = 20

Average cost per unit is therefore 0.025 x 20 = 0.5

OR

Total cost of failures over remaining production = 250,000 x 0.025 x 20 = 125,000
Cost per unit = 125,000/250,000 = 0.5
November 2, 2020 at 1:03 am #593788
lilygao
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Thank you, Ken

My calculation is:

The cost of failures over the whole production process=2.5% x 250,000/97.5% x 20=128,205

Cost per unit=128,205/250,000=0.513
November 2, 2020 at 6:43 am #593804
Ken Garrett
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250,000 are to be sold. That means that 250,000 will be made, of which 2.5% have to be reworked before they can be sold.

Your approach would be correct if 250,000 were sold after some had been scrapped rather than being reworked.
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