Question

ALABAMA CORPORATION

Goals and Objectives

• Review of basic terminology
• Review basic accounting and journal entries to reflect the flow of costs
• Review preparation of income statement and supporting schedules for manufacturer given end-of-year information

The company manufactures a single product, cleverly named Product X. The following information is available for the calendar year 2018 just completed, during which they produced and sold 200,000 units. Sales for the year was $2,400,000. During the year, the company paid a sales commission of 5 percent of sales. The corporate income tax rate was 20%.

Direct materials purchases		$300,000
Direct labor		140,000
Depreciation - factory equipment		45,000
Depreciation - factory building		30,000
Depreciation - headquarters building		50,000
Factory insurance		15,000
Property taxes:
Factory		20,000
Headquarters		18,000
Utilities - factory		34,000
Utilities - sales		1,800
Administrative salaries		150,000
Indirect labor salaries		156,000
Sales office salaries		90,000

Inventory Information	12/31/2017	12/31/2018
Raw materials	$124,000	$152,000
Work in process	124,000	130,000
Finished Goods	109,000	118,904

REQUIRED:

1. Post all of the above a summary entries in T accounts.
2. Compute the direct materials used in production.
3. Compute the prime cost.
4. Compute the conversion cost.
5. Prepare the Schedule of Direct Materials Used
6. Prepare the Schedule of Cost of Goods Manufactured
7. Prepare the Schedule of Cost of Goods Sold
8. Prepare an income statement for 2018, acceptable for GAAP in good form.
9. How many finished units of Product X do you thing were in the ending FG inventory?
10. As part of the annual audit you notice that “Indirect labor salaries” included the $20,000 salary paid to Ken, who actually works in the advertising department of the company.

1. Does this seem reasonable? Why or why not?
2. Does this make a difference in terms of the net operating income? Why or why not?
3. What incentive would management have to include the advertising costs as “indirect labor”? (That is, what would their motivation be to do this?)

- I need numbers 9 and number 10, I already did the other questions, please can you help me with numbers 9 and 10, thanks, this below to Cost Terminology and Cost behavior, this course is Cost Accounting 307 please let me know

Thanks,

Answer 1

Compute the Direct Materials Used
		$
Direct material		300,000.00
D.M. used in production		300,000.00
2.Prime Cost
Material		300,000.00
Labour		140,000.00
Prime Cost		440,000.00
3.Conversion Cost
Prime Cost		440,000.00
Add : Factory Costs
Depreciation-factory equipments	45000
factory building	30000	75,000.00
Factory Insurance		15,000.00
Property taxes-factory		20,000.00
Utilities-factory		34,000.00
Indirect Labour		136,000.00	(Being 20,000 salary of advertisements will be a Sales Cost)
		720,000.00
4. Schdule of Direct Materials
Opening material		124,000.00
Add: purchase of material		300,000.00
Less: closing stock		152,000.00
Cost of Materials purchases		272,000.00
5. Schedule of Cost of Goods manufactured
Op. Stock of Cost of goods		124,000.00
Add: no.of units manufactured	200,000.00
Less: cost of closing goods		130,000.00
		194,000.00
6. Cost of Goods Sold
Op. Stock of Cost of goods sold	109,000.00
Add: No. of Units produced & sold	200,000.00
Less: cost of closing goods sold	118,904.00
		190,096.00