Question

Craftsman Incorporated manufactures interior and exterior doors. The following costs relate to one
month's activity in Craftsman Incorporated:
Utilities on factory $250
Indirect materials $300
Selling expense $500
Maintenance of equipment $50
Administrative expense $300
Rent on factory building $500
Direct labour $1,500
Direct material used $1,200
Work in process inventory, beginning $600
Work in process inventory, ending $800
Finished goods inventory, beginning $500
Finished goods inventory, ending $250
Required
A. Prepare a Schedule of Cost of Goods Manufactured.
B. Determine the Cost of Goods Sold
C. Assume Craftsman Incorporated produced the equivalent of 500 units during this particular month.
What was the average cost per unit for Direct Materials? For rent on factory building?
D. Assume next month Craftsman Incorporated plans to produce 600 units of product. What average
cost per unit and total cost would you expect to be incurred for direct material? For rent on factory
building?

Answer 1

A. Schedule of cost of goods manufactured

Direct materials		$1,200
Direct labor		$1,500
Manufacturing overhead:
Indirect materials	$300
Maintainance on equipment	$50
Rent on factory building	$500
Utilities on factory	$250
Total manufacturing overhead		$1,100
Total manufacturing costs		$3,800
Add: Beginning Work-in-process		$600
Total cost of work in process		$4,400
Less: Ending Work-in-process		($800)
Cost of goods manufactured		$3,600

B. Schedule of cost of goods sold

Beginning finished goods	$500
Add: Cost of goods manufactured	$3,600
Cost of goods available for sale	$4,100
Less: Ending finished goods	($250)
Cost of goods sold	$3,850

C.

Average cost per unit for Direct materials =$1,200/500 =$2.40 per unit

Average cost per unit on rent on factory building =$500/$500

=$1

D. Direct materials is a variable cost and variable cost per unit remains same on each level

Direct materials =600×$2.40 =$1,440

Average cost per unit of rent on factory building=$500/600 =$0.83

Rent on factory building is a fixed cost & fixed cost always remains same in each activity.

So the total fixed cost will be $500