ACTG 2020 Chapter Notes - Chapter 2: Financial Statement, Executive Compensation, Matching Principle

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chocolatewolf465

16 Mar 2014

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Direct materials are those materials that become an integral part of a finished product and can be conveniently traced to it. Raw materials (= any materials used in the final product, and the finished product of one company can be the raw materials of another; includes direct and indirect materials) Indirect materials are small items of material such as glue and nails that may become an integral part of a finished product but the costs of tracing them exceed the benefits. Direct labour is that factory labour costs that can be traced easily to individual units of product- also called touch labor. Indirect labour is the labor costs of janitors, supervisors, materials for handlers, and other factory workers that can"t be conveniently traced directly to particular products. Conversion cost = direct labour + manufacturing overhead. Prime cost = direct materials + direct labour.

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Watsonâs revised pro forma cost of goods sold is closest to

A.	$16,565,000
B.	$16,942,000
C.	$17,377,000
D.	$17,760,000

The following information was adapted from a question on Part 4 of the December 1990 CMA examination that concerned preparation of a pro forma statement of cost of goods sold. The following is Watson Corporationâs pro forma statement of cost of goods sold for the year ended August 31, Year 2.

Watson Corporation

Pro Forma Statement of Cost of Goods Sold

For the Year Ending August 31, Year 2

($000 omitted)

Direct materials:

Materials inventory, 9/1/Yr 1

$ 1,200

Materials purchased

11,400

Materials available for use

12,600

Materials inventory, 8/31/Yr 2

1,480

Direct materials consumed

$11,120

Direct labor

980

Factory overhead:

Indirect materials

1,112

General factory overhead

2,800

3,912

Cost of goods manufactured

16,012

Add: finished goods inventory

9/1/Yr 1

930

Cost of goods available for sale

16,942

Less: finished goods inventory,

8/31/Yr 2

(377)

Cost of goods sold

$16,565

The results for the first quarter required the following changes in the budget assumptions:

The estimated production in units for the fiscal year should be revised from 140,000 to 145,000 units with the balance of production being scheduled in equal segments over the last 9 months of the year. The actual first quarterâs production was 25,000 units.

The planned inventory for finished goods of 3,300 units at the end of the fiscal year remains unchanged and will be valued at the average manufacturing cost for the year. The finished goods inventory of 9,300 units on September 1, Year 1, had dropped to 9,000 units by November 30, Year 1.

Due to a new labor agreement, the labor rate will increase 8% effective June 1, Year 2, the beginning of the fourth quarter, instead of the previously anticipated effective date of September 1, Year 2, the beginning of the next fiscal year.

The assumptions remain unchanged for direct materials inventory at 16,000 units for the beginning inventory and 18,500 units for the ending inventory. Direct materials inventory is valued on a FIFO basis. During the first quarter, direct materials for 27,500 units of output were purchased for $2,200,000. Although direct materials will be purchased evenly for the last 9 months, the cost of the direct materials will increase by 5% on March 1, Year 2, the beginning of the third quarter. One unit of raw material is used in each unit of product.

Indirect materials costs will continue to be projected at 10% of the cost of direct materials consumed.

One-half of general factory overhead is considered fixed.

maroonpanda423

1. Sydney's Barbecue reported the following information:

Sydney's Barbecue
Period Ending December 31, 20XX

Manufacturing costs	$5,400,000
Units manufactured	$54,000
Beginning inventory in Units	$ 0

Note: 45,600 units sold during year at $300 per unit

What is the amount of ending finished goods inventory for theperiod ending December 31, 20XX?

	$860,000
	$830,000
	$840,000
	$850,000
	$820,000

2.Net income reported under absorption costing will exceed netincome reported under variable costing for a given period if

production equals sales for thatperiod.

variable overhead exceeds fixedoverhead for that period.

production exceeds sales for thatperiod.

sales exceed production for that period.

A company manufactures wallets. Last month's costs were aslisted below:

Direct materials	$246,000
Direct labor	$175,000
Manufacturing Overhead	$73,000

What were the conversion costs for the month?

$248,000

$494,000

$421,000

$246,000

4. Which of the following are classified as manufacturingoverhead?

Indirect labor and indirectmaterials

Direct materials and directlabor

Factory rent and direct labor

All materials

5.Baxter Company produces Frisbees using a three-step sequentialprocess that includes molding, coloring, and finishing. At whatstage would the sets be allocated Manufacturing Overhead?

When the Frisbees are in WIPInventory-Coloring

When the Frisbees are in WIPInventory-Finishing

When the Frisbees are in WIPInventory-Molding

All of the above

6.Which method are managers using when they use their judgmentto classify costs as variable, fixed, or mixed?

Low-high method

Regression analysis

Account analysis

High-low method

7.Which of the following is not a way in which management canuse job cost information?

Determining the balance in rawmaterials inventory

Preparing the financialstatements

Assessing and comparing theprofitability of each product type

Using the cost information in determining the bid price forcustom orders

8.A factory janitor's wages would be classified as _________when determining the cost of a manufactured product.

an indirect cost

a period cost

a direct cost

none of the above

Tall Timbers reports the following data for its first year ofoperation:

Work in process inventory, beginning	$ 0
Work in process inventory, ending	$50,200
Manufacturing overhead	$25,400
Direct materials used	$7,700
Direct Labor	$60,000
Finished goods inventory, beginning	$ 0
Finished goods inventory, ending	$20,000
Cost of goods manufactured	$42,900

What is the cost of goods sold?

$22,900

$76,000

$73,100

$42,900

10.

A deodorant manufacturer offers the following information:

WIP Inventory, January 1	0 units
Units started	33,600 units
Units completed and transferred out	11,200 units
WIP Inventory, December 31	22,400 units
Direct materials	$276,480
Direct labor	$585,000
Manufacturing Overhead	$328,920

The units in ending WIP Inventory were 60% complete formaterials and 40% complete for conversion costs.

On December 31, what are the total equivalent units for directmaterials?

47,040

33,600

20,160

24,640

11. How is the cost of indirect materials used in the factoryrecorded?

Credit to Raw Materials Inventoryaccount

Credit to Manufacturing Overheadaccount

Credit to Direct Materials Expenseaccount

Credit to Work-in-Process Inventory account

12. XYZ uses job costing. Actual manufacturing overhead for theperiod is $20,300 while allocated manufacturing overhead is$18,200. What entry will close the manufacturing overheadbalance?

	Debit the Cost of Goods Soldaccount and credit the Finished Goods Inventory account for$2,100.
	Debit the Manufacturing Overheadaccount and credit the Work-in-Process account for $2,100.
	Debit the Cost of Goods Soldaccount and credit the Manufacturing Overhead account for$2,100.
	Debit the Manufacturing Overhead account and credit the Cost ofGoods Sold account for $2,100.

Nixon Company uses a job order cost system and applies overheadto production on the basis of direct laborcost. On January 1, 2014, Job No. 50 was the only jobin process. The costs incurred prior to January 1 on this job wereas follows: direct materials $25,000; direct labor $15,000; andmanufacturing overhead $20,000. Job No. 49 had been completed at acost of $85,000 and was part of finished goods inventory. There wasa $22,000 balance in the Raw Materials inventory account.

During themonth of January, the company began production on Jobs 51 and 52,and completed Jobs 50 and 51. Jobs 49 and 50 were sold on accountduring the month for $118,000 and $125,000, respectively. Thefollowing additional events occurred during the month.

1. Purchased additional raw materials of $200,000 onaccount.

2. Incurred factory labor costs of $41,000. Of this amount$11,000 is related to employer payroll taxes.

3. Incurred manufacturing overheadcosts as follows: indirect materials $3,000; indirect labor $12000;depreciation expense $19,000.

4. Assigned direct materials anddirect labor to jobs as follows.

JobNo. DirectMaterials Direct Labor

50 $8,000 $ 6,000

51 23,000 14,000

52 20,000 11,000

5. The company usesdirect labor cost as the activity base toassign overhead.

Instructions

(a) Calculate thepredetermined overhead rate for the year 2014, assuming Proctor& Gamble Company Manufacturing estimates total manufacturingoverhead costs of $750,000, direct labor costs of $200,000, anddirect labor hours of 25,000 for the year.

(b) Open job cost sheets for Jobs 50,51, and 52. Enter the January 1 balances on the job cost sheet forJob No. 50. (This can be done also when you get to parts d. ande.)

(c) Prepare the journal entries torecord the purchase of raw materials, the factory labor costsincurred, and the manufacturing overhead costs incurred during themonth of January.

(d) Prepare the journal entries torecord the assignment of direct materials, direct labor, andmanufacturing overhead costs to production. In assigningmanufacturing overhead costs, use the overhead rate calculated in(a). Post all costs to the job cost sheets as necessary.

(e) Total the job cost sheets for Job50 and Job 51 that were completed during the month. Prepare thejournal entry to record the completion of these jobs during themonth.

(f) Prepare the journal entries torecord the sale of Job 49 and Job 50 during the month.

(g) What is the balance in theWork in Process Inventory account at the end of the month?What does this balance consist of? (For example which Job and whatspecific costs.)

(h) What is the amount of over- orunderapplied overhead for the month?

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ACTG 2020 Chapter Notes - Chapter 2: Financial Statement, Executive Compensation, Matching Principle

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