Exercise 16.1
Listed are eight technical accounting terms introduced or emphasized in this chapter. Work in Process Inventory, Cost of finished goods manufactured, Conversion costs, Cost of Goods Sold, Period costs, Management accounting, Product costs, and Manufacturing overhead. For each of the following statement, indicate the accounting term described, or answer “None” if the statement does not correctly describe any of the terms.
a. The preparation and use of accounting information designed to assist managers in planning and controlling the operations of a business. Management Accounting.
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b. All manufacturing costs other than direct materials used and direct labor. Manufacturing overhead.
c. Direct materials and direct labor used in manufacturing a product. None. This will fall under Prime cost.
d. A manufacturing cost that can be traced conveniently and directly to manufactured units of product. Product cost.
e. The account debited at the time that the Manufacturing Overhead account is credited. Work in Process Inventory.
f. The amount transferred from the Work in Process Inventory account to the Finished Goods Inventory account. Cost of finished goods manufactured.
g. Costs that are debited directly to expense accounts when the costs are incurred. Period costs.
Exercise 16.2
Into which of the three elements of manufacturing cost would each of the following be classified?
a. Tubing used in manufacturing bicycles. Direct Materials.
b. Wages paid by an automobile manufacturer to employees who test-drive completed automobiles. Manufacturing Overhead.
c. Property taxes on machinery. Manufacturing Overhead.
d. Gold bullion used by a jewelry manufacturer. Direct Material.
e. Wages of assembly-line workers who package frozen food. Direct Labor.
f. Salary of plant superintendent. Manufacturing Overhead
g. Electricity used in factory operations. Manufacturing Overhead
h. Salary of a nurse in a factory first-aid station. Manufacturing Overhead
Exercise 16.3
Indicate whether each of the following should be considered a product cost or a period cost . If you identify the item as a product cost, also indicate whether it is a direct or an indirect cost. For example, the answer to item 0 is “indirect product cost.” Begin with item a.
0. Property taxes on factory building.
a. Cost of disposal of hazardous waste materials to a chemical plant. Indirect Product Cost
b. Amounts paid by a mobile home manufacturer to a subcontractor who installs plumbing in each mobile home. Direct Product Cost.
c. Depreciation on sales showroom fixtures. Period Cost.
d. Salaries of security guards in an administrative office building. Period Cost.
e. Salaries of factory security guards. Indirect Product Cost .
f. Salaries of office workers in the credit department . Period Cost .
g. Depreciation on the raw materials warehouse. Indirect Product Cost.
h. Income taxes on a profitable manufacturing company. Period Cost.
Problem 16.7A
The accounting records of Idaho Paper Company include the following information relating to the current year. The company manufactures a single product; during the current ear, 45,000 units were manufactured and 40,000 units were sold.
A. Prepare a schedule of the cost of finished goods manufactured for the current year. (Show a supporting computation of the cost of direct materials during the year.)
| Schedule of cost of finished gods manufactured for the current year | ||
| Work in process inventory, beginning of the year | $40,000 | |
| Manufacturing costs assigned to product: | ||
| Direct materials used | $335,000 | |
| Direct labor | $375,000 | |
| Manufacturing Overhead | $637,500 | |
| Total Manufacturing costs | $1,347,500 | |
| Total cost of all work in process during the year | $1,387,500 | |
| Less: Work in process inventory, ending of the year | ($37,500) | |
| Cost of finished goods manufactured | $1,350,000 | |
Supporting computation of direct materials used.
| Computation of direct materials used | |
| Materials inventory on January 1 | $25,000 |
| Purchases of direct materials during the year | $330,000 |
| Direct materials available for use | $355,000 |
| Less: Materials Inventory on December 31 | ($20,000) |
| Direct materials used | 335,000 |
B. Compute the average per-unit cost of production during the current year.
Average per-unit cost = (cost of finished goods manufactured/Number of units produced)
Average per unit cost = ($1,350,000 / 45,000 units)
Average per-unit cost = $30
C. Compute the cost of goods sold during the year, assuming that FIFO method of inventory costing is used.
Computation of cost of goods sold |
||
| Beginning inventory of finished goods | 10,000 units @ $21 per unit | $210,000 |
| Current year manufactured units | 30,00 units @ $30 per unit | $900,000 |
| Cost of goods sold | 10,000 + 30,000 = 40,000 units | $1,110,000 |
D. Compute the cost of inventory of finished goods at December 31 of the current year, assuming that FIFO (first-in, first-out) method of inventory costing is used.
Computation of cost of inventory of finished goods |
|
| Beginning inventory of finished goods on January 1 | $210,000 |
| Current year manufactured units | $1,350,000 |
| Less: Cost of goods sold | ($1,110,000) |
| Cost of inventory of finished goods on December 31 | $450,000 |
