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Question 1: Score 2/2

Exercise 2-1 Classifying Manufacturing Costs [LO1]

Your Boat, Inc., assembles custom sailboats from components supplied by various manufacturers. The company isvery small and its assembly shop and retail sales store are housed in a Gig Harbor, Washington, boathouse.Below are listed some of the costs that are incurred at the company.

Required:

For each cost, indicate whether it would most likely be classified as direct labor, direct materials, manufacturingoverhead, selling, or an administrative cost. (Select all that apply.)

1. The wages of employees who build the sailboats.

Choice Selected Points

Direct labor cost Yes +1

Direct materials cost No

Manufacturing overhead cost No

Selling cost No

Administrative cost No

Total correct answers: 1Partial Grading Explained

2. The cost of advertising in the local newspapers.


Direct labor cost No



Selling cost Yes +1



3. The cost of an aluminum mast installed in a sailboat.



Direct materials cost Yes +1


Selling cost No

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4. The wages of the assembly shop's supervisor.




Manufacturing overhead cost Yes +1

Selling cost No



5. Rent on the boathouse.





Selling cost Yes +1

Administrative cost Yes +1


6. The wages of the company's bookkeeper.





Selling cost No

Administrative cost Yes +1


7. Sales commissions paid to the company's salespeople.






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Selling cost Yes +1



8. Depreciation on power tools.





Selling cost No



Question 2: Score 2/2Your response Correct response

Exercise 2-2 Classification of Costs as Period or Product Costs [LO2]

Suppose that you have been given a summer job at Fairwings Avionics, a company that manufacturessophisticated radar sets for commercial aircraft. The company, which is privately owned, has approached a bankfor a loan to help finance its tremendous growth. The bank requires financial statements before approving such aloan.

Required:

Classify the below costs as either product (inventoriable) costs or period (noninventoriable) costs for purposes ofpreparing the financial statements for the bank.

Costs Product/Period

1. The cost of the memory chips used in a radar set. Product cost (7%)2. Factory heating costs. Product cost (7%)3. Factory equipment maintenance costs. Product cost (7%)4. Training costs for new administrative employees. Period cost (7%)5. The cost of the solder that is used in assembling the radar sets. Product cost (7%)6. The travel costs of the company's salespersons. Period cost (7%)7. Wages and salaries of factory security personnel. Product cost (7%)8. The cost of air-conditioning executive offices. Period cost (7%)9. Wages and salaries in the department that handles billing customers. Period cost (7%)

10. Depreciation on the equipment in the fitness room used by factoryworkers. Product cost (7%)

11. Telephone expenses incurred by factory management. Product cost (7%)12. The costs of shipping completed radar sets to customers. Period cost (7%)13. The wages of the workers who assemble the radar sets. Product cost (7%)14. The president's salary. Period cost (7%)15. Health insurance premiums for factory personnel. Product cost (7%)

Exercise 2-2 Classification of Costs as Period or Product Costs [LO2]

Suppose that you have been given a summer job at Fairwings Avionics, a company that manufacturessophisticated radar sets for commercial aircraft. The company, which is privately owned, has approached a bankfor a loan to help finance its tremendous growth. The bank requires financial statements before approving such aloan.

Required:

Classify the below costs as either product (inventoriable) costs or period (noninventoriable) costs for purposes ofpreparing the financial statements for the bank.

Costs Product/Period

1. The cost of the memory chips used in a radar set. Product cost2. Factory heating costs. Product cost3. Factory equipment maintenance costs. Product cost4. Training costs for new administrative employees. Period cost5. The cost of the solder that is used in assembling the radar sets. Product cost6. The travel costs of the company's salespersons. Period cost7. Wages and salaries of factory security personnel. Product cost8. The cost of air-conditioning executive offices. Period cost9. Wages and salaries in the department that handles billing customers. Period cost

10. Depreciation on the equipment in the fitness room used by factoryworkers.

Product cost

11. Telephone expenses incurred by factory management. Product cost12. The costs of shipping completed radar sets to customers. Period cost13. The wages of the workers who assemble the radar sets. Product cost14. The president's salary. Period cost15. Health insurance premiums for factory personnel. Product cost



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Your response Correct response

Exercise 2-5 Classification of Costs as Fixed or Variable [LO5]

Classify each cost as variable or fixed with respect to the indicated measure of activity.

Cost Measure of Activity Cost Behavior

1. The cost of small glass plates used for labtests in a medical lab

Number of lab tests performed Variable (10%)

2. A boutique jewelry store's cost of leasing retailspace in a mall

Dollar sales Fixed (10%)

3. Top management salaries at FedEx Total sales Fixed (10%)4. Electrical costs of running production

equipment at a Toyota factoryNumber of vehicles produced Variable (10%)

5. The cost of insuring a dentist's office againstfire

Patient-visits Fixed (10%)

6. The cost of commissions paid to salespersons at a Honda dealer

Total sales Variable (10%)

7. The cost of heating the intensive care unit atSwedish Hospital

Patient-days Fixed (10%)

8. The cost of batteries installed in trucksproduced at a GM factory

Number of trucks produced Variable (10%)

9. The salary of a university professor Number of students taught by theprofessor

Fixed (10%)

10. The costs of cleaning supplies used at afast-food restaurant to clean the kitchen anddining areas at the end of the day

Number of customers served Fixed (10%)

Exercise 2-5 Classification of Costs as Fixed or Variable [LO5]

Classify each cost as variable or fixed with respect to the indicated measure of activity.

Cost Measure of ActivityCost

Behavior

1. The cost of small glass plates used for lab testsin a medical lab

Number of lab tests performed Variable

2. A boutique jewelry store's cost of leasing retailspace in a mall

Dollar sales Fixed

3. Top management salaries at FedEx Total sales Fixed4. Electrical costs of running production equipment

at a Toyota factoryNumber of vehicles produced Variable

5. The cost of insuring a dentist's office against fire Patient-visits Fixed6. The cost of commissions paid to sales persons

at a Honda dealerTotal sales Variable

7. The cost of heating the intensive care unit atSwedish Hospital

Patient-days Fixed

8. The cost of batteries installed in trucks producedat a GM factory

Number of trucks produced Variable

9. The salary of a university professor Number of students taught by theprofessor

Fixed

10. The costs of cleaning supplies used at afast-food restaurant to clean the kitchen anddining areas at the end of the day

Number of customers served Fixed


Exercise 2-7 Differential, Opportunity, and Sunk Costs [LO7]

The Sorrento Hotel is a four-star hotel located in downtown Seattle. The hotel's operations vice president wouldlike to replace the hotel's antiquated computer terminals at the registration desk with attractive state-of-the-artflat-panel displays. The new displays would take less space, would consume less power than the old computerterminals, and would provide additional security since they can only be viewed from a restrictive angle. The newcomputer displays would not require any new wiring. The hotel's chef believes the funds would be better spent ona new bulk freezer for the kitchen.

Required

Classify each items as differential cost, or an opportunity cost, or a sunk cost in the decision to replace the oldcomputer terminals with new flat-panel displays. If none of the categories apply for a particular item select none.

Item Cost

1. Cost of the new flat-panel displays Differential cost (13%)2. Cost of the old computer terminals Sunk cost (13%)3. Rent on the space occupied by the registration desk None (13%)4. Wages of registration desk personnel None (13%)5. Benefits from a new freezer Opportunity cost (13%)6. Costs of maintaining the old computer terminals Differential cost (13%)7. Cost of removing the old computer terminals Differential cost (13%)8. Cost of existing registration desk wiring Sunk cost (13%)

Exercise 2-7 Differential, Opportunity, and Sunk Costs [LO7]

The Sorrento Hotel is a four-star hotel located in downtown Seattle. The hotel's operations vice president wouldlike to replace the hotel's antiquated computer terminals at the registration desk with attractive state-of-the-artflat-panel displays. The new displays would take less space, would consume less power than the old computerterminals, and would provide additional security since they can only be viewed from a restrictive angle. The newcomputer displays would not require any new wiring. The hotel's chef believes the funds would be better spent ona new bulk freezer for the kitchen.

Required

Classify each items as differential cost, or an opportunity cost, or a sunk cost in the decision to replace the oldcomputer terminals with new flat-panel displays. If none of the categories apply for a particular item select none.

Item Cost

1. Cost of the new flat-panel displays Differential cost2. Cost of the old computer terminals Sunk cost3. Rent on the space occupied by the registration desk None4. Wages of registration desk personnel None5. Benefits from a new freezer Opportunity cost6. Costs of maintaining the old computer terminals Differential cost7. Cost of removing the old computer terminals Differential cost8. Cost of existing registration desk wiring Sunk cost

Feedback:

Note: The costs of the rent on the space occupied by the registration desk and the wages of registration deskpersonnel are neither differential costs, opportunity costs, nor sunk costs. These are costs that do not differbetween the alternatives and are therefore irrelevant in the decision, but they are not sunk costs since they occurin the future.


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Exercise 2-10 Product Cost Flows; Product versus Period Costs [LO2, LO3]

Ryser Company was organized on May 1. On that date the company purchased 35,000 plastic emblems, eachwith a peel-off adhesive backing. The front of the emblems contained the company's name, accompanied byan attractive logo. Each emblem cost Ryser Company $2.

During May, 31,000 emblems were drawn from the Raw Materials inventory account. Of these, 1,000 weretaken by the sales manager to an important sales meeting with prospective customers and handed out as anadvertising gimmick. The remaining emblems drawn from inventory were affixed to units of the company'sproduct that were being manufactured during May. Of the units of product having emblems affixed during May,90% were completed and transferred from Work in Process to Finished Goods. Of the units completed duringthe month, 75% were sold and shipped to customers.

Requirement 1:

Determine the cost of emblems that would be in each of the following accounts at May 31 (Omit the "$" signin your response):

(a) Raw Materials

Cost in Raw Materials $ 8000 (100%)

Exercise 2-10 Product Cost Flows; Product versus Period Costs [LO2, LO3]

Ryser Company was organized on May 1. On that date the company purchased 35,000 plastic emblems, eachwith a peel-off adhesive backing. The front of the emblems contained the company's name, accompanied byan attractive logo. Each emblem cost Ryser Company $2.

During May, 31,000 emblems were drawn from the Raw Materials inventory account. Of these, 1,000 weretaken by the sales manager to an important sales meeting with prospective customers and handed out as anadvertising gimmick. The remaining emblems drawn from inventory were affixed to units of the company'sproduct that were being manufactured during May. Of the units of product having emblems affixed during May,90% were completed and transferred from Work in Process to Finished Goods. Of the units completed duringthe month, 75% were sold and shipped to customers.

Requirement 1:

Determine the cost of emblems that would be in each of the following accounts at May 31 (Omit the "$" signin your response):

(a) Raw Materials

Cost in Raw Materials $ 8000

Feedback:

Emblems purchased 35,000

Emblems drawn from inventory 31,000

Emblems remaining in inventory 4,000

Cost per emblem $2

Cost in Raw Materials Inventory at May 31 $ 8,000


(b) Work in Process

Cost in Work in Process $ 6000 (100%)

(b) Work in Process

Cost in Work in Process $ 6000

Feedback:

Emblems used in production (31,000 1,000) 30,000

Units completed and transferred to Finished Goods

(90% 30,000) 27,000

Units still in Work in Process at May 31 3,000

Cost per emblem $2

Cost in Work in Process Inventory at May 31 $ 6000


(c) Finished Goods

Cost in Finished Goods $ 13500 (100%)

(c) Finished Goods

Cost in Finished Goods $ 13500

Feedback:


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Units completed and transferred to Finished Goods (above) 27,000

Units sold during the month (75% 27,000) 20,250

Units still in Finished Goods at May 31 6,750

Cost per emblem $2

Cost in Finished Goods Inventory at May 31 $ 13,500


(d) Cost of Goods Sold

Cost in cost of Goods Sold $ 40500 (100%)

(d) Cost of Goods Sold

Cost in cost of Goods Sold $ 40500

Feedback:

Units sold during the month (above) 20,250

Cost per emblem $2

Cost in Cost of Goods Sold at May 31 $ 40,500


(e) Advertising Expense

Cost in Advertising Expense $ 2000 (100%)

(e) Advertising Expense

Cost in Advertising Expense $ 2000

Feedback:

Emblems used in advertising 1,000

Cost per emblem $2

Cost in Advertising Expense at May 31 $ 2,000


Requirement 2:

Specify whether each of the above accounts would appear on the balance sheet or on the income statementat May 31.

Raw MaterialsBalanceSheet (20%)

Work in ProcessBalanceSheet (20%)

Finished GoodsBalanceSheet (20%)

Cost of Goods SoldIncomeStatement (20%)

Advertising ExpenseIncomeStatement (20%)

Requirement 2:

Specify whether each of the above accounts would appear on the balance sheet or on the income statementat May 31.

Raw Materials BalanceSheet

Work in Process BalanceSheet

Finished Goods BalanceSheet

Cost of Goods Sold IncomeStatement

Advertising Expense IncomeStatement



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Problem 2-17 Classification of Costs as Variable or Fixed and Direct or Indirect [LO5, LO6]

Classify each cost associated with manufacturing operations as being either variable or fixed with respect to thenumber of units produced and sold. Also indicate whether each cost would typically be treated as a direct cost oran indirect cost with respect to units of product.

Cost Item Cost Behavior To Units ofProduct

1. Plastic washers used to assemble autos Variable (3%) Indirectcost (3%)

2. Production superintendent's salary. Fixed (3%) Indirectcost (3%)3. Wages of workers who assemble a product. Variable (3%) Directcost (3%)

4. Electricity to run production equipment. Variable (3%) Indirectcost (3%)

5. Janitorial salaries. Fixed (3%) Indirectcost (3%)

6. Clay used to make bricks. Variable (3%) Directcost (3%)

7. Rent on a factory building. Fixed (3%) Indirectcost (3%)

8. Wood used to make skis. Variable (3%) Directcost (3%)

9. Screws used to make furniture. Variable (3%) Indirectcost (3%)

10. A supervisor's salary. Fixed (3%) Indirectcost (3%)

11. Cloth used to make shirts. Variable (3%) Directcost (3%)

12. Depreciation of cafeteria equipment. Fixed (3%) Indirectcost (3%)

13. Glue used to make textbooks. Variable (3%) Indirectcost (3%)

14. Lubricants for production equipment. Variable (3%) Indirectcost (3%)

15. Paper used to make textbooks. Variable (3%) Directcost (3%)

Problem 2-17 Classification of Costs as Variable or Fixed and Direct or Indirect [LO5, LO6]

Classify each cost associated with manufacturing operations as being either variable or fixed with respect to thenumber of units produced and sold. Also indicate whether each cost would typically be treated as a direct cost oran indirect cost with respect to units of product.

Cost Item CostBehaviorTo Units of

Product

1. Plastic washers used to assemble autos Variable Indirectcost

2. Production superintendent's salary. Fixed Indirectcost3. Wages of workers who assemble a product. Variable Directcost

4. Electricity to run production equipment. Variable Indirectcost

5. Janitorial salaries. Fixed Indirectcost

6. Clay used to make bricks. Variable Directcost

7. Rent on a factory building. Fixed Indirectcost

8. Wood used to make skis. Variable Directcost

9. Screws used to make furniture. Variable Indirectcost

10. A supervisor's salary. Fixed Indirectcost

11. Cloth used to make shirts. Variable Directcost

12. Depreciation of cafeteria equipment. Fixed Indirectcost

13. Glue used to make textbooks. Variable Indirectcost

14. Lubricants for production equipment. Variable Indirectcost

15. Paper used to make textbooks. Variable Directcost

Feedback:

Plastic washers used to assemble autos, Screws used to make furniture, Glue used to make textbooks: Thesematerials would usually be considered indirect materials because their costs are relatively insignificant. Itwould not be worth the effort to trace their costs to individual units of product and therefore they would usuallybe classified as indirect materials.



Problem 2-23 Cost Classification and Cost Behavior [LO2, LO5, LO6]

Heritage Company manufactures a beautiful bookcase that enjoys widespread popularity. The company has abacklog of orders that is large enough to keep production going indefinitely at the plant's full capacity of 3,800bookcases per year. Annual cost data at full capacity follow:

Direct materials used (wood and glass) $ 431,000

General office salaries $ 112,000

Problem 2-23 Cost Classification and Cost Behavior [LO2, LO5, LO6]

Heritage Company manufactures a beautiful bookcase that enjoys widespread popularity. The company has abacklog of orders that is large enough to keep production going indefinitely at the plant's full capacity of 3,800bookcases per year. Annual cost data at full capacity follow:

Direct materials used (wood and glass) $ 431,000

General office salaries $ 112,000


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Factory supervision $ 68,000

Sales commissions $ 60,000

Depreciation, factory building $ 105,000

Depreciation, office equipment $ 2,000

Indirect materials, factory $ 21,000

Factory labor (cutting and assembly) $ 85,000

Advertising $ 98,000

Insurance, factory $ 6,000

General office supplies (billing) $ 4,000

Property taxes, factory $ 18,000

Utilities, factory $ 47,000

Requirement 1:

Enter each cost item by placing the dollar amount under the appropriate headings. Note that each cost item isclassified in two ways: first, as either variable or fixed with respect to the number of units produced and sold;and second, as either a selling and administrative cost or a product cost. (If the item is a product cost, it shouldalso be classified as either direct or indirect as shown.) (Leave no cells blank - be certain to enter "0"wherever required. Omit the "$" sign in your response.)

Cost behavior Selling oradministrative

cost

Product cost

Cost item Variable Fixed Direct Indirect

Direct Materials used (wood, glass) $ 431,000 (1%) $ 0 (1%) $ 0 (1%) $ 431,000 (1%) $ 0 (1%)General office salaries 0 (1%) 112,000 (1%) 112,000 (1%) 0 (1%) 0 (1%)Factory supervision 0 (1%) 68,000 (1%) 0 (1%) 0 (1%) 68,000 (1%)Sales commissions 60,000 (1%) 0 (1%) 60,000 (1%) 0 (1%) 0 (1%)Depreciation, factory building 0 (1%) 105,000 (1%) 0 (1%) 0 (1%) 105,000 (1%)Depreciation, office equipment 0 (1%) 2,000 (1%) 2,000 (1%) 0 (1%) 0 (1%)Indirect materials, factory 21,000 (1%) 0 (1%) 0 (1%) 0 (1%) 21,000 (1%)Factory labor (cutting and assembly) 85,000 (1%) 0 (1%) 0 (1%) 85,000 (1%) 0 (1%)Advertising 0 (1%) 98,000 (1%) 98,000 (1%) 0 (1%) 0 (1%)Insurance, factory 0 (1%) 6,000 (1%) 0 (1%) 0 (1%) 6,000 (1%)General office supplies 4,000 (1%) 0 (1%) 4,000 (1%) 0 (1%) 0 (1%)Property taxes, factory 0 (1%) 18,000 (1%) 0 (1%) 0 (1%) 18,000 (1%)Utilities, factory 47,000 (1%) 0 (1%) 0 (1%) 0 (1%) 47,000 (1%)Total costs $ 648000 (1%) $ 409000 (1%) $ 276000 (1%) $ 516000 (1%) $ 265000 (1%)

Factory supervision $ 68,000

Sales commissions $ 60,000

Depreciation, factory building $ 105,000

Depreciation, office equipment $ 2,000

Indirect materials, factory $ 21,000

Factory labor (cutting and assembly) $ 85,000


Insurance, factory $ 6,000

General office supplies (billing) $ 4,000

Property taxes, factory $ 18,000


Requirement 1:

Enter each cost item by placing the dollar amount under the appropriate headings. Note that each cost item isclassified in two ways: first, as either variable or fixed with respect to the number of units produced and sold;and second, as either a selling and administrative cost or a product cost. (If the item is a product cost, it shouldalso be classified as either direct or indirect as shown.) (Leave no cells blank - be certain to enter "0"wherever required. Omit the "$" sign in your response.)

Cost behavior Selling oradministrative

cost

Product cost

Cost item Variable Fixed Direct Indirect

Direct Materials used (wood, glass) $ 431,000 $ 0 $ 0 $ 431,000 $ 0General office salaries 0 112,000 112,000 0 0Factory supervision 0 68,000 0 0 68,000Sales commissions 60,000 0 60,000 0 0Depreciation, factory building 0 105,000 0 0 105,000Depreciation, office equipment 0 2,000 2,000 0 0Indirect materials, factory 21,000 0 0 0 21,000Factory labor (cutting and assembly) 85,000 0 0 85,000 0Advertising 0 98,000 98,000 0 0Insurance, factory 0 6,000 0 0 6,000General office supplies 4,000 0 4,000 0 0Property taxes, factory 0 18,000 0 0 18,000Utilities, factory 47,000 0 0 0 47,000Total costs $ 648000 $ 409000 $ 276000 $ 516000 $ 265000


Requirement 2:

Compute the average product cost per bookcase. (Round your answer to the nearest dollar amount. Omitthe "$" sign in your response.)

Average product cost $206 (100%) per bookcase

Requirement 2:

Compute the average product cost per bookcase. (Round your answer to the nearest dollar amount. Omitthe "$" sign in your response.)

Average product cost $ 206per bookcase

Feedback:

Only the product costs will be included in the cost of a bookcase. The cost per bookcase will be:

Direct product costs $ 516,000


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Indirect product costs 265,000

Total product costs $ 781,000

$781,000 /3,800 bookcases = $206 per bookcase

Requirement 3:

Due to a recession, assume that production drops to only 2,000 bookcases per year. Would you expect theaverage product cost per bookcase to increase, decrease, or remain unchanged?

Your Answer:

Choice Selected

Remain unchanged

Increase

Decrease

Feedback: The cost per bookcase would increase. This is because the fixed costs would be spread over fewer units,causing the cost per unit to rise.

Requirement 4:

Refer to the original data. The president's next-door neighbor has considered making himself a bookcase andhas priced the necessary materials at a building supply store. He has asked the president whether he couldpurchase a bookcase from the Heritage Company "at cost," and the president has agreed to let him do so.

(a) The cost as calculated by the president and his neighbor for the bookcase will be the same.

Your Answer:

Choice Selected

True

False

Feedback: Yes, there probably would be a disagreement. The president is likely to want a price of at least $196, which isthe average cost per unit to manufacture 4,000 bookcases. He may expect an even higher price than this tocover a portion of the administrative costs as well. The neighbor will probably be thinking of cost as includingonly materials used, or perhaps materials and direct labor.

(b) Since the company is operating at full capacity, what cost term used in the chapter might be justification forthe president to charge the full, regular price to the neighbor and still be selling "at cost"?

Your Answer:

Choice Selected

Opportunity cost

Differential cost

Sunk cost

Feedback: The term is opportunity cost. Since the company is operating at full capacity, the president must give up thefull, regular price of a set to sell a bookcase to the neighbor. Therefore, the president's cost is really the full,regular price of a set.



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Problem 2-24 Variable and Fixed Costs; Subtleties of Direct and Indirect Costs [LO5, LO6]

The Central Area Well-Baby Clinic provides a variety of health services to newborn babies and their parents. Theclinic is organized into a number of departments, one of which is the Immunization Center.

Problem 2-24 Variable and Fixed Costs; Subtleties of Direct and Indirect Costs [LO5, LO6]

The Central Area Well-Baby Clinic provides a variety of health services to newborn babies and their parents. Theclinic is organized into a number of departments, one of which is the Immunization Center.

Feedback:

The wages of the nurses could be variable and a direct cost of serving particular patients.


Problem 2-28 Working with Incomplete Data from the Income Statement and Schedule of Cost of GoodsManufactured [LO3, LO4]

Supply the missing data in the four cases below. Each case is independent of the others. (Input all amounts aspositive values. Omit the "$" sign in your response.)

Case

1 2 3 4

Schedule of Cost of Goods Manufactured

Direct materials $ 6,700 $ 9,100 $ 6,300 $ 8,100

Direct labor 2,000 4,300 4500 (4%) 2,900Manufacturing overhead. 10,300 11500 (4%) 7,200 20,800Total manufacturing costs 19000 (4%) 24,900 18,000 31800 (4%)Beginning work in process inventory 2900 (4%) 1,100 1,900 2200 (4%)Ending work in process inventory 4,200 3,200 3800 (4%) 2,300Cost of goods manufactured $ 17,700 $ 22800 (4%) $ 16,100 $ 31,700Income Statement

Sales $ 25,000 $ 39,700 $ 29,900 $ 49,900

Beginning finished goods inventory 5,900 8000 (4%) 6,800 9,000Cost of goods manufactured 17,700 22800 (4%) 16,100 31,700Goods available for sale 23600 (4%) 30800 (4%) 22900 (4%) 40700 (4%)Ending finished goods inventory 9,000 4,200 4800 (4%) 7,200Cost of goods sold 14600 (4%) 26,600 18,100 33500 (4%)Gross margin 10400 (4%) 13100 (4%) 11800 (4%) 16400 (4%)Selling and administrative expenses 5,700 7800 (4%) 9100 (4%) 9,800Net operating income $ 4700 (4%) $ 5,300 $ 2,700 $ 6600 (4%)

Problem 2-28 Working with Incomplete Data from the Income Statement and Schedule of Cost of GoodsManufactured [LO3, LO4]

Supply the missing data in the four cases below. Each case is independent of the others. (Input all amounts aspositive values. Omit the "$" sign in your response.)

Case

1 2 3 4

Schedule of Cost of Goods Manufactured

Direct materials $ 6,700 $ 9,100 $ 6,300 $ 8,100

Direct labor 2,000 4,300 4500 2,900Manufacturing overhead. 10,300 11500 7,200 20,800Total manufacturing costs 19000 24,900 18,000 31800Beginning work in process inventory 2900 1,100 1,900 2200Ending work in process inventory 4,200 3,200 3800 2,300Cost of goods manufactured $ 17,700 $ 22800 $ 16,100 $ 31,700Income Statement

Sales $ 25,000 $ 39,700 $ 29,900 $ 49,900

Beginning finished goods inventory 5,900 8000 6,800 9,000Cost of goods manufactured 17,700 22800 16,100 31,700Goods available for sale 23600 30800 22900 40700Ending finished goods inventory 9,000 4,200 4800 7,200Cost of goods sold 14600 26,600 18,100 33500Gross margin 10400 13100 11800 16400Selling and administrative expenses 5,700 7800 9100 9,800Net operating income $ 4700 $ 5,300 $ 2,700 $ 6600

Question 10: Score 3.97/4


Problem 2-29 Income Statement; Schedule of Cost of Goods Manufactured [LO1, LO2, LO3, LO4]

Hickey Corporation is a manufacturer that produces a single product. The following information has beentaken from the company's production, sales, and cost records for the just completed year:

Production in units 30,700

Sales in units ?

Ending finished goods inventory in units ?

Problem 2-29 Income Statement; Schedule of Cost of Goods Manufactured [LO1, LO2, LO3, LO4]

Hickey Corporation is a manufacturer that produces a single product. The following information has beentaken from the company's production, sales, and cost records for the just completed year:

Production in units 30,700

Sales in units ?

Ending finished goods inventory in units ?


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Sales in dollars $ 650,000

Costs:


Direct labor $ 79,800

Indirect labor $ 61,000

Raw materials purchased $ 159,900

Building rent (production uses 80% of the space; administrative and salesoffices use the rest) $ 50,000


Royalty paid for use of production patent, $1 per unit produced ?

Maintenance, factory $ 24,500

Rent for special production equipment, $6,000 per year plus $0.10 per unitproduced. ?

Selling and administrative salaries $ 139,700

Other factory overhead costs $ 11,000

Other selling and administrative expenses $ 19,000

Beginningof YearEnd ofYear

Inventories:

Raw materials $ 19,000 $ 11,000

Work in process $ 29,000 $ 39,000

Finished goods $ 0 ?

The finished goods inventory is being carried at the average unit production cost for the year. The sellingprice of the product is $25 per unit.

Requirement 1:

Prepare a schedule of cost of goods manufactured for the year. (Input all amounts as positive values.Omit the "$" sign in your response.)

Hickey CorporationSchedule of Cost of Goods Manufactured

Direct materials:

Raw materials inventory, beginning (3%) $ 19000 (3%) Add (3%):Purchases of raw materials (3%) 159900 (3%) Raw materials available for use (3%) 178900 (3%) Deduct (3%):Raw materials inventory, ending (3%) 11000 (3%) Raw materials used in production (3%) $ 167900 (3%)Direct labor (3%) 79800 (3%)

Manufacturing overhead:

Indirect labor (3%) 61000 (3%) Building rent (3%) 40000 (3%) Utilities, factory (3%) 35400 (3%) Royalty on patent (3%) 30700 (3%) Maintenance, factory (3%) 24500 (3%) Rent on equipment (3%) 9070 (3%) Other factory overhead costs (3%) 11000 (3%)

Sales in dollars $ 650,000

Costs:


Direct labor $ 79,800

Indirect labor $ 61,000

Raw materials purchased $ 159,900

Building rent (production uses 80% of the space; administrative and salesoffices use the rest) $ 50,000


Royalty paid for use of production patent, $1 per unit produced ?

Maintenance, factory $ 24,500

Rent for special production equipment, $6,000 per year plus $0.10 per unitproduced. ?

Selling and administrative salaries $ 139,700

Other factory overhead costs $ 11,000

Other selling and administrative expenses $ 19,000

Beginningof YearEnd ofYear

Inventories:

Raw materials $ 19,000 $ 11,000

Work in process $ 29,000 $ 39,000

Finished goods $ 0 ?

The finished goods inventory is being carried at the average unit production cost for the year. The sellingprice of the product is $25 per unit.

Requirement 1:

Prepare a schedule of cost of goods manufactured for the year. (Input all amounts as positive values.Omit the "$" sign in your response.)

Hickey CorporationSchedule of Cost of Goods Manufactured

Direct materials:

Raw materials inventory, beginning $ 19000 Add:Purchases of raw materials 159900 Raw materials available for use 178900 Deduct:Raw materials inventory, ending 11000 Raw materials used in production $ 167900Direct labor 79800

Manufacturing overhead:

Indirect labor 61000 Building rent 40000 Utilities, factory 35400 Royalty on patent 30700 Maintenance, factory 24500 Rent on equipment 9070 Other factory overhead costs 11000


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Total overhead costs 2116700 (0%)Total manufacturing costs 459370 (3%)Add (3%):Work in process inventory,beginning (3%) 29000 (3%)

488370 (3%)Deduct (3%):Work in process inventory,ending (3%) 39000 (3%)

Cost of goods manufactured $ 449370 (3%)

Total overhead costs 211,670Total manufacturing costs 459370Add:Work in process inventory, beginning 29000

488370Deduct:Work in process inventory, ending 39000

Cost of goods manufactured $ 449370

Total grade: 1.01/38 + 1.01/38 + 1.01/38 + 1.01/38 + 1.01/38 + 1.01/38 + 1.01/38 + 1.01/38 + 1.01/38 + 1.01/38 + 1.01/38 + 1.01/38 + 1.01/38 + 1.01/38 + 1.01/38 + 1.01/38 + 1.01/38 + 1.01/38 + 1.01/38 + 1.01/38 + 1.01/38 + 1.01/38 + 1.01/38 + 1.01/38 + 1.01/38 +1.01/38 + 1.01/38 + 1.01/38 + 0.01/38 + 1.01/38 + 1.01/38 + 1.01/38 + 1.01/38 + 1.01/38 + 1.01/38 + 1.01/38 + 1.01/38 + 1.01/38 = 3% + 3% + 3% + 3% + 3% + 3% + 3% + 3% + 3% + 3% + 3% + 3% + 3% + 3% + 3% + 3% + 3% + 3% + 3% + 3% + 3% + 3% + 3% + 3% + 3% + 3% + 3%+ 3% + 0% + 3% + 3% + 3% + 3% + 3% + 3% + 3% + 3% + 3%

Feedback:

Building rent (80% 50,000) $ 40,000

Royalty on patent ($1 per unit 30,700 units) $ 30,700

Rent on equipment: $6,000 + ($0.10 per unit 30,700 units) $ 9,070


Requirement 2:

Compute the following:

(a) The number of units in the finished goods inventory at the end of the year.

Finished goods inventory 4700 (100%) units

Requirement 2:

Compute the following:

(a) The number of units in the finished goods inventory at the end of the year.

Finished goods inventory 4700 units

Feedback:

To compute the number of units in the finished goods inventory at the end of the year, we must first computethe number of units sold during the year.

Units in the finished goods inventory, beginning 0

Units produced during the year 30,700

Units available for sale 30,700

Units sold during the year (above) 26,000

Units in the finished goods inventory, ending 4,700


(b) The cost of the units in the finished goods inventory at the end of the year. (Do not round Averageproduction cost per unit and round final answer to the nearest whole dollar amount. Omit the "$"sign in your response.)

Finished goods inventory $ 68796 (100%)

(b) The cost of the units in the finished goods inventory at the end of the year. (Do not round Averageproduction cost per unit and round final answer to the nearest whole dollar amount. Omit the "$"sign in your response.)

Finished goods inventory $ 68796

Feedback:

The average production cost per unit during the year would be:


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Thus, the cost of the units in the finished goods inventory at the end of the year would be: 4,700 units $14.64 per unit = $68,808.


Requirement 3:

Prepare an income statement for the year. (Leave no cells blank - be certain to enter "0" whereverrequired. Do not round Average production cost per unit and round final answers to the nearestwhole dollar amount. Input all amounts as positive values. Omit the "$" sign in your response.)

Hickey CorporationIncome Statement

Sales (4%) $ 650000 (4%)Cost of goods sold:

Finished goods inventory beginning (4%) $ 0 (4%) Add (4%):Cost of goods manufactured (4%) 449370 (4%) Goods available for sale (4%) 449370 (4%) Deduct (4%):Finished goods inventory, ending (4%) 68796 (4%) 380574 (4%)Gross profit (4%) 269426 (4%)Selling and administrative expenses:

Advertising (4%) 49200 (4%) Building rent (4%) 10000 (4%) Selling and administrative salaries (4%) 139700 (4%) Other selling and administrative expense (4%) 19000 (4%) 217900 (4%)Net operating income (4%) $ 51526 (4%)

Requirement 3:

Prepare an income statement for the year. (Leave no cells blank - be certain to enter "0" whereverrequired. Do not round Average production cost per unit and round final answers to the nearestwhole dollar amount. Input all amounts as positive values. Omit the "$" sign in your response.)

Hickey CorporationIncome Statement

Sales $ 650000Cost of goods sold:

Finished goods inventory beginning $ 0 Add:Cost of goods manufactured 449370 Goods available for sale 449370 Deduct:Finished goods inventory, ending 68796 380574Gross profit 269426Selling and administrative expenses:

Advertising 49200 Building rent 10000 Selling and administrative salaries 139700 Other selling and administrative expense 19000 217900Net operating income $ 51526

Feedback:

Building rent (20% $50,000) = $10,000


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Chapter2 Homework Answers

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