Question

PROBLEM 2–24 Schedule of Cost of Goods Manufactured; Income Statement; Cost Behaviour [LO1, LO2, LO3, LO4, LO5]
Carlton Manufacturing Company provided the following details about operations in February

Purchases of raw materials. . . . . . . ........................................... 130 000

Maintenance, factory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . 37,000

Direct labour. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . 32,500

Depreciation, factory equipment . ........................................... 55,000

Indirect materials, factory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 3,000

Selling and administrative salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,500

Utilities, factory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26,000

Sales commissions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17,500

Insurance, factory equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000

Depreciation, sales equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000

Advertising expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .107

Rent, factory building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .???

The company also provided details regarding the balances in the inventory accounts at the beginning and end of the month as follows:

Raw materials used in production cost $135,000, total overhead costs for the year were $170,000, the goods available for sale totalled $360,000, and the cost of goods sold totalled $317,500.

Required:

Prepare a schedule of cost of goods manufactured and the cost of goods sold section of the company’s income statement for the year.

Assume that the dollar amounts given above are for the equivalent of 15,000 units pro- duced during the year. Compute the average cost per unit for direct materials used, and compute the average cost per unit for rent on the factory building.

Assume that in the following year the company expects to produce 20,000 units. What av- erage cost per unit and total cost would you expect to be incurred for direct materials, and for rent on the factory building? Direct materials are a variable cost and rent is a fixed cost.

As the manager in charge of production costs, explain to the president the reason for any difference in the average costs per unit between (2) and (3) above.

Answer 1

Carlton Manufacturing Company
Shedule of Cost oof Goods Manufactured
For the of February…201X                          15,000 Units
		Amount- $	Amount- $
Raw Material used			1,35,000
Direct Labour			32,500
Factory Overheads:
Maintenance- Factory		37,000
Depreciation-factory equipment		55,000
Indirect Materials- factory		3,000
Utilities-factory		26,000
Insurance- factory equipment		4,000
Rent-factory building *		45,000
Total Factory Overheads (given)		1,70,000	1,70,000
Total Manufacturing Costs			3,37,500
Add: Beginning Work in Process			Nil
			3,37,500
Less: Ending Work in Process			(Nil)
Cost of Godds Manufactued			3,37,500
Add: Beginning Finished Goods **			22,500
Cost of Goods Available for Sale (given)			3,60,000
Less: Ending Finished Goods Inventory			42,500
Cost of Goods Sold (given)			3,17,500
Notes:
*Factory Building Rent= Total Factory Overhead − other factory overhead
170,000 − (37,000+55,000+3,000+26,000+4,000) = 45,000
**Beginning Finished Goods= COG Availabe for sale − COG Manufactured
= 360,000 − 337,500 = 22,500
Now, Material cost and Rent per Unit is computed as follows
Average Material cost per unit = Material Cost used ÷ Units Produced
= 135,000 ÷ 15,000 = $ 9 per unit
Average Rent cost per unit         = $45,000 ÷ 15,000 = $3 per unit In following year, when 20,000 units expected to produced, Material cost per unit will $9 and Total materiaal cost being vairiable will be $ 360,000, other thing being not changed. The total Building rent will not change because it is fixed cost that is $45,000. Rent per unit will be $2.25. The rent per unit is changing(decreasing from $3 to $2.25 because of production is increasing and rent being fixed/constant. Due to increase in volume of production and no increase in Fixed Factory rent, building rennt is goin down.