Question

An analysis of the accounts of Sheridan Company reveals the following manufacturing cost data for the month ended September 30, 2020.

Inventories Beginning Ending

Raw materials $12,500 $11,000

Work in process 6,800 5,400

Finished goods 9,600 11,700

Costs incurred: raw materials purchases $63,700, direct labor $50,800, manufacturing overhead $27,400. The specific overhead costs were: indirect labor $6,900, factory insurance $4,700, machinery depreciation $6,200, machinery repairs $2,500, factory utilities $4,000, miscellaneous factory costs $1,890. Assume that all raw materials used were direct materials.

Question: Sheridan Company is considering the purchase of a new automated assembly line for its factory. The purchase would result in several changes in Sheridan’ cost structure. Both direct labor and indirect labor would decrease by 40%. Factory insurance would increase to $7,900, machinery depreciation would double, machinery repairs would decrease to $500, utilities would decrease to $2,200 and miscellaneous factory costs would increase to $2,000. Materials usage would remain at current levels.

Analyze the new purchase by preparing a cost of goods manufactured schedule for September 30, 2020 using the new data.

Answer 1

Solution:

PS: The total Overhead heads (original data) are not adding upto to $27400. Im considering the break up amounts for calculations. Kindly use the comment box for any further clarifications:

Direct Labor Decrease = 50800*40% = 20320

Indirect Labor Decrease = 6900*40% = 2760

Hope this helps! In case of any clarifications, kindly use the comment box below