Question

Williams Electronics design and manufacturer specialized in switches for the telecomunication industry. The accounting records of the business reflect the following data at December 31, 2016

inventory 1/1/2016 31/12/2016

Raw material $260,000. $230,000.

Work in progress $332,300. $218,800

Finished goods $1,075,200. $615,000.

Other Information

Sales revenue $5,765,000

Factory supplies 45,000

Director factory labour 750,000

Raw materials purchased 540,000

Plant janitorial service 52,000

Depreciation: Plant & Equipment 165,000

Total ultiities 550,000

Plant supervisory's salary 480,000

R & D for graphic designs 70.500

Insurance on Plant & Equipment 120,000

Delivery truck driver's wages 175,000

Depreciation: Delivery truck 52,000

Property taxes 300,000

Administration wages & salaries 840.150

Advertising expenses 1% of sales revenue

!. of the total utilities, 70% relates to manufacturing and 30% relates to general and administrative costs

2. the property taxes should be shared: 60% manufacturing & 40% general & administrative costs

Required

a) Calculate the raw material used by Williams Electronics.

b) What is the total manufacturing overhead cost incurred by Williams Electronic during the period?

c) Determine the prime cost & conversion cost of the product manufactured

d) Prepare a schedue of cost of goods manufactured for the year ended December 31, 2016, clearing showing total manufacturing costs & total manufacturing costs to account for

e) Prepare an income statement for the year ended December 31, 2016 clearly showing the calculation of Costs of Goods sold. List the non-production overheads in order of size starting with the largest

f) Given that the company manufactured 1,500 switches in 2016, compute the company's unit product cost for the year

g) briefly explain the differences between a product cost and period cost

Answer 1

a. Raw materials used by William Electronics : $ 570,000.

Raw Materials

Beginning Inventory	260,000	Raw Materials Used	570,000
Purchase	540,000
		Ending Inventory	230,000
	800,000		800,000

b. Total Manufacturing Overhead cost incurred by Williams: $ 1,427,000

Manufacturing Overhead	$
Factory Supplies	45,000
Plant Janitorial Service	52,000
Depreciation : Plant and Equipment	165,000
Utilities	385,000
Plant Supervisor's Salary	480,000
Insurance on Plant and Equipment	120,000
Property Taxes	180,000
Total Manufacturing Overhead	1,427,000

c. Prime Cost = Raw Materials used in production + Direct Labor = $ 570,000 + $ 750,000 = $ 1,320,000.

Conversion Cost = Direct Labor + Manufacturing Overhead = $ 750,000 + $ 1,427,000 = $ 2,177,000.

d. Williams Electronics

Schedule of Cost of Goods Manufactured

For the year ended December 31, 2016

	$
Work in Process, January 1, 2016	332,300
Raw Materials used in production during the period	570,000
Direct Labor	750,000
Manufacturing Overhead	1,427,000
Total Work in Process	3,079,300
Less: Work in Process, December 31, 2016	218,800
Cost of Goods Manufactured	2,860,500

e. Williams Electronics

Income Statement

For the year ended December 31, 2016

	$	$
Sales Revenue		5,765,000
Cost of Goods Sold
Beginning Inventory, Finished Goods	1,075,200
Cost of Goods Manufactured	2,860,500
Less: Ending Inventory, Finished Goods	(615,000)	3,320,700
Gross Profit		2,444,300
Selling and Administrative Expenses:
Advertising Expense	57,650
Delivery Wages Expense	175,000
Depreciation : Delivery Truck	52,000
Administrative Salaries and Wages Expense	840,150
Utilities Expense	165,000
Property Taxes Expense	120,000
R& D Expense	70,500	1,480,300
Income from Operations		964,000

f. Unit Product Cost = Cost of Goods Manufactured / Number of Units Manufactured = $ 2,860,500 / 1,500 =

$ 1,907.

g. Product costs, also known as inventoriable costs, are costs which are incurred for manufacturing the product, and included in the ending inventory, and therefore capable of being deferred to the next accounting period by being included in the cost of ending inventories. Examples : Direct Materials, Direct Labor, Manufacturing Overhead.

Product costs are recognised in the period in which the inventories are sold as Cost of Goods Sold.

Period costs, on the other hand, are recognized and charged against the revenues in the period that they are incurred, e,g Selling and Administrative Expense. These recognition of these costs cannot be deferred.

Period expe