ACC 100 Lecture Notes - Lecture 2: Gross Margin, Income Statement, Customer Service

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8 Aug 2016

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: amount of cash sacrificed for goods and services to produce future benefits" revenue. As costs are used up they are said to expire. For a company to remain viable revenues must be greater than expenses. Revenue expenses = profit income statement. Price: the amount we charge customers for products or services. Total product cost = direct materials + direct labour + overhead. Unit product cost = total product cost / # of units produced. Product costs of direct materials, direct labour, and manufacturing overhead are sometimes grouped into prime cost and conversion cost. Prime cost = direct materials cost + direct labour cost. Conversion cost direct labour cost + overhead cost. For a manufacturing firm, conversion cost can be interpreted as the cost of converting raw materials into a final product. Costs of running a company that are not carried in inventory are referred to as period costs.

Related Questions

1. ABC generally causes the least amount of cost distortionamong products because indirect costs are allocated to the productsbased on

types of activities used by theproduct.

the extent to which the activitiesare used.

both A and B.

none of the above.

Chicago Steel's operating activities for the year are listedbelow:

Beginning inventory	$1,000,800
Ending inventory	$350,500
Purchases	$750,300
Sales revenue	$1,500,400
Operating expenses	$700,200

What is the cost of goods sold for the year?

$1,751,100

$1,400,600

$750,100

$50,100

The following is selected financial data from Turtle BayManufacturing for the most recent year:

Ending raw materials inventory	$21,200
Ending work in process inventory	$44,900
Ending finished goods inventory	$53,200
Amount of underallocated manufacturing overhead	$5,100
Cost of goods sold for year	$85,500
Cost of raw materials purchased during year	$45,700
Cost of direct materials requisitioned during year	$44,300
Cost of indirect materials requisitioned during year	$7,200
Cost of goods completed during year	$120,200
Manufacturing overhead allocated	$60,400
Manufacturing overhead % of direct labor cost	135%

What is the beginning raw materials inventory?

$27,000

$51,500

$19,800

$5,800

4. Which of the following is not an activity inan ABC system that determines the cost of a manufacturedproduct?

Materials handling

Inspecting

Machining

Accounting

5. Which type of company utilizes managerialaccounting?

Manufacturers

Service

Retailers

All of the above

6. On a traditional income statement, all manufacturing-relatedcosts, whether fixed or variable, are listed

above the gross profit line.

below the operating incomeline.

above the sales line.

above the contribution margin line.

7. In a process costing system, direct labor and manufacturingoverhead are normally

incurred evenly throughout theprocess.

incurred at the end of theprocess.

incurred in full at the beginningof the process.

not recorded.

8. Manufacturing overhead costs for a productinclude

operating expenses.

indirect manufacturing costs.

direct material.

prime costs.

Here are selected basic data for Wilson Company:

Estimated manufacturing overhead	$243,750	Factory utilities	$30,900
Estimated labor hours	35,000	Indirect labor	$22,600
Actual direct labor hours	36,000	Sales commissions	$54,600
Estimated direct labor cost	$325,000	Factory rent	$47,800
Actual direct labor cost	$320,000	Factory property taxes	$28,700
Factory depreciation	$65,600	Indirect materials	$33,300

If the company allocates overhead based on direct labor cost,what are the total actual manufacturing overhead costs?

$173,000

$283,500

$228,900

$260,900

10. ERP stands for

	Enterprise Resource Planning.
	Enclosed Resource Placement.
	Edwin R. Perry, the man thatcreated the first system.
	Entity Replacement Product.

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Yu Technology Co. manufactures CDs and DVDs for computer software and entertainment companies. Yu uses job order costing and has a perpetual inventory system. The business has a highly labour intensive production process, so it applies manufacturing overhead to jobs based on direct labour cost. Yu expects to incur $1,080,000 0f manufacturing overhead costs and estimated direct labour costs of $900,000 during 2015. At the end of March 2015,

Yu Technology reported work in process inventory of $15,000

During April 2015, Yu Technology recorded the following transactions.

1) Materials requisitioned for use in production:

Direct materials: $120,000

Indirect materials: $20,000

2) Advertising costs were incurred, $15,000.

3) Salaries and wages incurred as follows:

Direct labour $121,875

Indirect labour $40,625

Selling and administrative salaries $ 25,000

4) Insurance expired during the year, $30,000 (90% relates to the factory, the remainder is on selling and administrative items).

5) Depreciation recorded for the year, $80,000 (75% relates to factory assets and the remainder relates to selling and administrative assets).

6) Utilities expense incurred, $53,750 (80% of this amount relates to the factory, the remainder relates to the administrative offices).

7) Applied manufacturing overhead costs to jobs

8) Two jobs were completed with total costs of $120,000 & $85,000 respectively. They were sold on account at a mark-up of 75% on cost.

All purchases and services were acquired on account.

(d) Record a journal entry to close manufacturing overhead to cost of goods sold.
(e) Prepare an income statement for the year
(f) Determine the balance in work in process inventory on April 30.

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Problem 8-35A (Part Level Submission)

The Daniels Tool & Die Corporation has been in existence for a little over three years. The companyâs sales have been increasing each year as it builds a reputation. The company manufactures dies to its customersâ specifications and therefore uses a job-order cost system. Factory overhead is applied to the jobs based on direct labour hoursâthe absorption-costing (full) method. Overapplied or underapplied overhead is treated as an adjustment to Cost of Goods Sold. The companyâs income statements and other data for the last two years are as follows:

DANIELS TOOL & DIE CORPORATION 2015â2016 Comparative Income Statements
		2015	2016
Sales		$839,800	$1,015,100
Cost of goods sold
	Finished goods, January 1	24,400	17,100
	Cost of goods manufactured	543,000	657,800
	Total available	567,400	674,900
	Finished goods, December 31	17,100	13,400
	Cost of goods sold before overhead adjustment	550,300	661,500
	Underapplied factory overhead	35,000	14,200
Cost of goods sold		585,300	675,700
Gross profit		254,500	339,400
Selling expenses		81,100	94,800
Administrative expenses		69,500	74,800
	Total operating expenses	150,600	169,600
Operating income		$103,900	$169,800

Daniels Tool & Die Corporation Inventory Balances
	January 1, 2015	December 31, 2015	December 31, 2016
Raw material	$21,000	$29,100	$10,300
Work in process	$40,200	$47,000	$63,000
Direct labour hours (used in WIP)	1,320	1,620	2,440
Finished goods	$24,400	$17,100	$13,400
Direct labour hours (used in FG)	1,520	1,060	850

Daniels used the same predetermined overhead rate in applying overhead to its production orders in both 2015 and 2016. The rate was based on the following estimates:

Fixed factory overhead		$24,750
Variable factory overhead		$153,450
Direct labour hours (used in WIP)		24,750
Direct labour costs (used in FG)		$148,500

In 2015 and 2016, the actual direct labour hours used were 20,700 and 23,700, respectively. Raw materials put into production were $291,900 in 2015 and $370,600 in 2016. The actual fixed overhead was $42,700 for 2015 and $28,260 for 2016, and the planned direct labour rate was the direct labour achieved.

For both years, all of the administrative costs were fixed. The variable portion of the selling expenses results from a 5% commission that is paid as a percentage of the sales revenue.

(a)

For the year ended December 31, 2016, prepare a revised income statement for Daniels Tool & Die Corporation using the variable-costing method. (Round answers to 0 decimal places, e.g. 5,275.)

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ACC 100 Lecture Notes - Lecture 2: Gross Margin, Income Statement, Customer Service

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Related Questions

Problem 8-35A (Part Level Submission)

(a)