🏷️ LIMITED TIME OFFER: GET 20% OFF GRADE+ YEARLY SUBSCRIPTION →
Log in
HomeClass Notes1,200,000US530,000

ACCT 2023 Lecture Notes - Lecture 1: Fixed Cost, Income Statement, Scatter Plot

116 views3 pages
maroongnat229
16 Sep 2016
School
University of Arkansas
Department
Accounting
Course
ACCT 2023
Professor
Mark Wagstaff

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Indirect cost (common cost): cannot be easily or conveniently traced. Direct materials: items that can be easily traced to the production. Direct labor: workers that work directly with the product. Selling costs: costs needed to sell and deliver the product, can be considered direct or indirect. Administrative costs: executive, organization and clerical costs, can be direct or indirect. Product costs: (inventorial), direct materials, direct labor, and manufacturing overhead goes from inventory to cogs. Period costs: selling and administrative costs, recorded as expenses in the period they occurred, goes under expenses (income statement. Variable cost: as the number of texts go up, the bill goes up. Variable cost per text will always be the same i. e. 5 cents per text. Fixed cost: the cost remains constant regardless of the level of activity i. e. your monthly contract fee. The average fixed cost per cell phone call made decreases.

Get access

Grade+20% off
$8 USD/m$10 USD/m
Billed $96 USD annually
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
40 Verified Answers
Class+
$8 USD/m
Billed $96 USD annually
Class+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
30 Verified Answers

Related Documents

ACC 222 Chapter Notes - Chapter 2: Radiography, Variable Cost, Fixed Cost
beigemoose333
AC 210 Lecture Notes - Lecture 5: Indirect Costs, Variable Cost, Income Statement
sangriaarmadillo709
ACCT20200 Chapter Notes - Chapter 13: Matching Principle, Opportunity Cost, Performance Appraisal
periwinklechimpanzee451

Related Questions

Hello,

When attempting to access the Study Guide/Workbook to AccompanyManagerial Accounting (1st edition), I need assistance. In thet-tables, h. is showing to be $46,700. However when I read h. atthe top for given data, it reads "completed all jobs but one; thejob cost sheet for this job shows $2100 for direct materials $2000for direct labor $4100 applied overhead". Can you please help me tounderstand where the $46700 is coming from? Is there a formula? Iam trying to complete the work in process inventory and finishedgoods inventory t-tables.

Thank you in advance for your assistance.

Question:

Study Guide/Workbook to accompany Managerial Accounting (1stEdition)

Chapter 2, Problem 5PSA

Problem

Recording Manufacturing Costs and AnalyzingManufacturing Overhead

Christopher’s Custom Cabinet Company uses a job order costingsystem with overhead applied as a percentage of direct labor costs.Inventory balances at the beginning of 2009 follow:

Raw materials inventory

$15,000

Work in process inventory

5,000

Finished goods inventory

20,000

The following transactions occurred during January:

(a) Purchased materials on account for $26,000.

(b) Issued materials to production totaling $22,000, 90percent of which was traced to specific jobs and the remaindertreated as indirect materials.

(c) Payroll costs totaling $15,500 were recorded asfollows:

$10,000 for assembly workers

3,000 for factory supervision

1,000 for administrative personnel

1,500 for sales commissions

(d) Recorded depreciation: $6,000 for machines, $1,000for office copier.

(e) Had $2,000 in insurance expire, allocated equallybetween manufacturing and administrative expenses.

(f) Paid $6,500 in other factory costs in cash.

(g) Applied manufacturing overhead at a rate of 200percent of direct labor cost.

(h) Completed all jobs but one; the job cost sheet forthis job shows $2,100 for direct materials, $2,000 for directlabor, and $4,000 for applied overhead.

(i) Sold jobs costing $50,000; the company usescost-plus pricing with a markup of 30 percent.

Required:

1.Set up T-accounts, record the beginningbalances, post the January transactions, and compute the finalbalance for the following accounts:

Raw Materials Inventory

Work in Process Inventory

Finished Goods Inventory

Cost of Goods Sold

Manufacturing Overhead

Selling and Administrative Expenses

Sales Revenue

Other accounts (Cash, Payables, etc.)

2. Determine how much gross profit the companywould report during the month of January beforeany adjustment is made for the overhead balance.

3. Determine the amount of over–or underappliedoverhead.

4. Compute adjusted gross profit assuming thatany over–or underapplied overhead balance is adjusted directly toCost of Goods Sold.

Step-by-step solution

Step 1 of 1

Req. 1

Raw Materials Inventory

Work in Process Inventory

Finished Goods Inventory

1/1 15,000

b. 22,000

1/1 5,000

h. 46,700

1/1 20,000

i. 50,000

a. 26,000

b. 19,800

h. 46,700

Bal. 19,000

c. 10,000

Bal. 16,700

g. 20,000

Bal. 8,100

Cost of Goods Sold

Manufacturing Overhead

Selling and Administrative Expenses

i. 50,000

b. 2,200

g. 20,000

c. 2,500

c. 3,000

d. 1,000

d. 6,000

e. 1,000

e. 1,000

Bal. 4,500

f. 6,500

Bal. 1,300 Overapplied

Sales Revenue

Other Accounts

(Cash, Payables, etc.)

i. 65,000

i. 65,000

a. 26,000

c. 15,500

d. 7,000

e. 2,000

f. 6,500

Bal. 8,000

Supporting Calculations:

b. Direct Materials $22,000 x 90% = $19,800;

Indirect Materials $22,000 x 10% =$2,200

c. Selling and administrative salaries = $1,000 + $1,500 =$2,500

g. Applied manufacturing overhead = $10,000 X 200% = $20,000

h. Ending Balance in WIP = $2,100 + $2,000 + $4,000 = $8,100

Cost of Goods Manufactured = $5,000 +$19,800 + $10,000 + $20,000 - $8,100 =

$46,700

i. Sales Revenue = $50,000 X 1.3 = $65,000

Req. 2

Unadjusted gross profit = $65,000 - $50,000 = $15,000

Req. 3

Manufacturing overhead is $1,300 overapplied.

Req. 4

Adjusted gross profit = $65,000 – ($50,000 - $1,300) =$16,300

Comment


TufStuff, Inc., sells a wide range of drums, bins, boxes, and other containers that are used in the chemical industry. One of the company’s products is a heavy-duty corrosion-resistant metal drum, called the WVD drum, used to store toxic wastes. Production is constrained by the capacity of an automated welding machine that is used to make precision welds. A total of 2,200 hours of welding time is available annually on the machine. Because each drum requires 0.8 hours of welding machine time, annual production is limited to 2,750 drums. At present, the welding machine is used exclusively to make the WVD drums. The accounting department has provided the following financial data concerning the WVD drums:
WVD Drums
Selling price per drum $ 176.00
Cost per drum:
Direct materials $46.40
Direct labor ($18 per hour) 4.50
Manufacturing overhead 5.05
Selling and administrative expense 17.30 73.25
Margin per drum $ 102.75
Management believes 3,250 WVD drums could be sold each year if the company had sufficient manufacturing capacity. As an alternative to adding another welding machine, management has considered buying additional drums from an outside supplier. Harcor Industries, Inc., a supplier of quality products, would be able to provide up to 1,900 WVD-type drums per year at a price of $150 per drum, which TufStuff would resell to its customers at its normal selling price after appropriate relabeling.
Megan Flores, TufStuff’s production manager, has suggested that the company could make better use of the welding machine by manufacturing bike frames, which would require only 0.2 hours of welding machine time per frame and yet sell for far more than the drums. Megan believes that TufStuff could sell up to 3,700 bike frames per year to bike manufacturers at a price of $77 each. The accounting department has provided the following data concerning the proposed new product:
Bike Frames
Selling price per frame $ 77.00
Cost per frame:
Direct materials $19.40
Direct labor ($18 per hour) 22.50
Manufacturing overhead 17.65
Selling and administrative expense 8.40 67.95
Margin per frame $ 9.05
The bike frames could be produced with existing equipment and personnel. Manufacturing overhead is allocated to products on the basis of direct labor-hours. Most of the manufacturing overhead consists of fixed common costs such as rent on the factory building, but some of it is variable. The variable manufacturing overhead has been estimated at $1.24 per WVD drum and $2.50 per bike frame. The variable manufacturing overhead cost would not be incurred on drums acquired from the outside supplier.
Selling and administrative expenses are allocated to products on the basis of revenues. Almost all of the selling and administrative expenses are fixed common costs, but it has been estimated that variable selling and administrative expenses amount to $1.04 per WVD drum whether made or purchased and would be $2.30 per bike frame.
All of the company’s employees—direct and indirect—are paid for full 40-hour workweeks and the company has a policy of laying off workers only in major recessions.


2. Compute the contribution margin per unit for [assume direct labor is a fixed cost]: (Do not round intermediate calculations. Round your answers to 2 decimal places.)

3. As soon as your analysis was shown to the top management team at TufStuff, several managers got into an argument concerning how direct labor costs should be treated when making this decision. One manager argued that direct labor is always treated as a variable cost in textbooks and in practice and has always been considered a variable cost at TufStuff. After all, “direct” means you can directly trace the cost to products. “If direct labor is not a variable cost, what is?” Another manager argued just as strenuously that direct labor should be considered a fixed cost at TufStuff. No one had been laid off in over a decade, and for all practical purposes, everyone at the plant is on a monthly salary. Everyone classified as direct labor works a regular 40-hour workweek and overtime has not been necessary since the company adopted Lean Production techniques. Whether the welding machine is used to make drums or frames, the total payroll would be exactly the same. There is enough slack, in the form of idle time, to accommodate any increase in total direct labor time that the bike frames would require.
a. Compute the contribution margin per welding hour for [assume direct labor is a fixed cost]: (Round your final answers to 2 decimal places.)

b. Determine the number of WVD drums (if any) that should be purchased and the number of WVD drums and/or bike frames (if any) that should be manufactured. [Assume direct labor is a fixed cost]

c. What is the increase in net operating income that would result from this plan over current operations? (Do not round intermediate calculations.)

4. Redo requirements (2) and (3) making the opposite assumption about direct labor from the one you originally made. In other words, if you treated direct labor as a variable cost, redo the analysis treating it as a fixed cost. If you treated direct labor as a fixed cost, redo the analysis treating it as a variable cost.
a. Compute the contribution margin per unit for [assume direct labor is a variable cost]: (Do not round intermediate calculations. Round your answers to 2 decimal places.)

b. Compute the contribution margin per welding hour for [assume direct labor is a variable cost]: (Round your final answers to 2 decimal places.)

c. Determine the number of WVD drums (if any) that should be purchased and the number of WVD drums and/or bike frames (if any) that should be manufactured. [Assume direct labor is a variable cost]

d. What is the increase in net operating income that would result from this plan over current operations? (Do not round intermediate calculations.)

TufStuff, Inc., sells a wide range of drums, bins, boxes, and other containers that are used in the chemical industry. One of the company’s products is a heavy-duty corrosion-resistant metal drum, called the WVD drum, used to store toxic wastes. Production is constrained by the capacity of an automated welding machine that is used to make precision welds. A total of 2,200 hours of welding time is available annually on the machine. Because each drum requires 0.8 hours of welding machine time, annual production is limited to 2,750 drums. At present, the welding machine is used exclusively to make the WVD drums. The accounting department has provided the following financial data concerning the WVD drums:
WVD Drums
Selling price per drum $ 176.00
Cost per drum:
Direct materials $46.40
Direct labor ($18 per hour) 4.50
Manufacturing overhead 5.05
Selling and administrative expense 17.30 73.25
Margin per drum $ 102.75
Management believes 3,250 WVD drums could be sold each year if the company had sufficient manufacturing capacity. As an alternative to adding another welding machine, management has considered buying additional drums from an outside supplier. Harcor Industries, Inc., a supplier of quality products, would be able to provide up to 1,900 WVD-type drums per year at a price of $150 per drum, which TufStuff would resell to its customers at its normal selling price after appropriate relabeling.
Megan Flores, TufStuff’s production manager, has suggested that the company could make better use of the welding machine by manufacturing bike frames, which would require only 0.2 hours of welding machine time per frame and yet sell for far more than the drums. Megan believes that TufStuff could sell up to 3,700 bike frames per year to bike manufacturers at a price of $77 each. The accounting department has provided the following data concerning the proposed new product:
Bike Frames
Selling price per frame $ 77.00
Cost per frame:
Direct materials $19.40
Direct labor ($18 per hour) 22.50
Manufacturing overhead 17.65
Selling and administrative expense 8.40 67.95
Margin per frame $ 9.05
The bike frames could be produced with existing equipment and personnel. Manufacturing overhead is allocated to products on the basis of direct labor-hours. Most of the manufacturing overhead consists of fixed common costs such as rent on the factory building, but some of it is variable. The variable manufacturing overhead has been estimated at $1.24 per WVD drum and $2.50 per bike frame. The variable manufacturing overhead cost would not be incurred on drums acquired from the outside supplier.
Selling and administrative expenses are allocated to products on the basis of revenues. Almost all of the selling and administrative expenses are fixed common costs, but it has been estimated that variable selling and administrative expenses amount to $1.04 per WVD drum whether made or purchased and would be $2.30 per bike frame.
All of the company’s employees—direct and indirect—are paid for full 40-hour workweeks and the company has a policy of laying off workers only in major recessions.
Required:
1. Would you be comfortable relying on the financial data provided by the accounting department for making decisions related to the WVD drums and bike frames?
Yes
No
2. Compute the contribution margin per unit for [assume direct labor is a fixed cost]: (Do not round intermediate calculations. Round your answers to 2 decimal places.)

3. As soon as your analysis was shown to the top management team at TufStuff, several managers got into an argument concerning how direct labor costs should be treated when making this decision. One manager argued that direct labor is always treated as a variable cost in textbooks and in practice and has always been considered a variable cost at TufStuff. After all, “direct” means you can directly trace the cost to products. “If direct labor is not a variable cost, what is?” Another manager argued just as strenuously that direct labor should be considered a fixed cost at TufStuff. No one had been laid off in over a decade, and for all practical purposes, everyone at the plant is on a monthly salary. Everyone classified as direct labor works a regular 40-hour workweek and overtime has not been necessary since the company adopted Lean Production techniques. Whether the welding machine is used to make drums or frames, the total payroll would be exactly the same. There is enough slack, in the form of idle time, to accommodate any increase in total direct labor time that the bike frames would require.
a. Compute the contribution margin per welding hour for [assume direct labor is a fixed cost]: (Round your final answers to 2 decimal places.)

b. Determine the number of WVD drums (if any) that should be purchased and the number of WVD drums and/or bike frames (if any) that should be manufactured. [Assume direct labor is a fixed cost]

c. What is the increase in net operating income that would result from this plan over current operations? (Do not round intermediate calculations.)

4. Redo requirements (2) and (3) making the opposite assumption about direct labor from the one you originally made. In other words, if you treated direct labor as a variable cost, redo the analysis treating it as a fixed cost. If you treated direct labor as a fixed cost, redo the analysis treating it as a variable cost.
a. Compute the contribution margin per unit for [assume direct labor is a variable cost]: (Do not round intermediate calculations. Round your answers to 2 decimal places.)

b. Compute the contribution margin per welding hour for [assume direct labor is a variable cost]: (Round your final answers to 2 decimal places.)

c. Determine the number of WVD drums (if any) that should be purchased and the number of WVD drums and/or bike frames (if any) that should be manufactured. [Assume direct labor is a variable cost]

d. What is the increase in net operating income that would result from this plan over current operations? (Do not round intermediate calculations.)