On July 31, 2020, Cullumber Company engaged Minsk Tooling Company to construct a special-purpose piece of factory machinery. Construction begun immediately and was completed on November 1, 2020. To help finance construction, on July 31 Cullumber issued a $324,000, 3-year, 12% note payable at Netherlands National Bank, on which interest is payable each July 31. $216,000 of the proceeds of the note was paid to Minsk on July 31. The remainder of the proceeds was temporarily invested in short-term marketable securities (trading securities) at 10% until November 1. On November 1, Cullumber made a final $108,000 payment to Minsk. Other than the note to Netherlands, Cullumber’s only outstanding liability at December 31, 2020, is a $29,500, 8%, 6-year note payable, dated January 1, 2017, on which interest is payable each December 31.Calculate the interest revenue, weighted-average accumulated expenditures, avoidable interest, and total interest cost to be capitalized during 2020.

a. Interest revenue = $2,700

b. Weighted-average accumulated expenditures = $54,000

c. Avoidable interest = $6,480

d. Total interest cost to be capitalized = $6,480

Explanation:

The computation of interest revenue, weighted-average accumulated expenditures, avoidable interest, and total interest cost to be capitalized is shown below:-

a. Interest revenue = (Issued notes payable - Interest payable) × Short-term marketable securities × From 1 Aug to 31 Oct ÷ Total number of months in a year

= ($324,000 - $216,000) × 10% × 3 months ÷ 12

= $108,000 × 10% × 3 months ÷ 12

= $2,700

b. Weighted-average accumulated expenditures = Interest payable × Short-term marketable securities × From 1 Aug to 31 Oct ÷ Total number of months in a year

= $216,000 × 3 months ÷ 12

= $54,000

Here we will not consider 1 Nov because it contains 0 months so answer is $54,000

c. Avoidable interest = Weighted-average accumulated expenditures × Notes payable percentage

= $54,000 × 12%

= $6,480

d. Total interest cost to be capitalized = Weighted-average accumulated expenditures × Notes payable percentage

= $54,000 × 12%

= $6,480

We simply applied the above formulas

(a) The ideal machine assignment time is 7 minutes

(b) Duration of the repeating cycle is 25 minutes. Yes, there will be idle operator time of 7 minutes

(c) Cost per unit produced if three machines are assigned to an operator is $13.88 per unit

Explanation:

Loading = 3 minutes

Unloading = 2 minutes

Run time = 20 minutes

Inspection and packing times = 1 minute

Operators cost $10 per hour

Machines cost $30 per hour

(a) Ideal machine assignment = Machine cycle time ÷ Operator time per machine

Here, Machine cycle time = run time + load time + unload time

= 20 + 3 + 2

= 25  minutes

Operator time per machine = load time + unload time + inspection and packing time = 3 + 2 + 1 = 6

Hence, Ideal machine assignment = 25 ÷ 6 = 4.166=4.17 machine

(b) The number of machine assigned is less than ideal machine assignment hence, Operator will be idle.

Duration of repeating cycle = loading time + unloading time + machine run time = 3+2+20 = 25 minutes

Idle operator time = Cycle time - (number of machines assigned × (load time+ unload time+ inspection and packaging time))= 25- [3×(3+2+1)]

=25-18

=7 minutes

(c) Total cost of per unit produced = ((cost per operator hour + number of machines assigned × cost of per machine hour) × ((loading & unloading time + machine run time)÷60) )) ÷ number of machine

=( (10+[3×30]) × ((3+2+20) ÷ 60)) ÷ 3

=(100 × .416) ÷ 3

= 25 ÷ 3

= $13.88 per unit.