Question

The following data is available for Crater Corporation’s North American division for the years 2018 and 2019. During these years there were no inventories in the system.

	2019				2018
Production quantity		53,000				57,000
Number of customers		13,200				12,300
Revenues	$	24,500,000			$	25,940,000
Expenses
Direct materials & components	$	3,219,500			$	3,552,700
Direct production wages (1)		1,463,600				1,606,200
Production supervisory salaries		267,900				244,600
Salaries paid to sales representatives (2)		587,500				609,100
Advertising		685,700				578,800
Insurance (3)		120,870				115,800
Building rent (4)		265,140				263,300
Other salaries (5)		1,173,000				1,245,000
Honorarium to the members of the board		436,700				436,700
Production quality control (6)		132,600				137,820
Market research		347,760				304,720
Depreciation (7)		1,329,300				1,171,500
Facilities management (8)		885,530				747,500
Legal		689,500				622,100
Personnel department		197,800				195,500
Utilities—production (9)		859,100				769,200
Utilities—other (10)		366,840				308,000
Customer service (11)		920,000				927,200
	$	13,948,340			$	13,835,740

Note:

1. Paid on the basis of production quantity
2. Ten representatives @ $22,000 per person + 1.5% of sales revenue
3. Manufacturing - 60%; remaining - general liability
4. Manufacturing - 70%; Marketing - 10%; remaining for Administration
5. Manufacturing - 40%; Marketing - 25%; remaining for Administration
6. Fixed - 30%
7. Manufacturing - 70%; Sales & Marketing - 10%; remaining for Administration (all straight line)
8. Factory maintenance - 40%; General maintenance - 60%
9. Variable - 30%
10. Equally divided between Sales & Marketing and Administration; variable - 35%
11. Fixed - 10%

Required:
1. Classify the expense items by behaviour (based on the number of units produced/sold) and by function (manufacturing, sales/marketing, and administration). Write the amount for each item using 2019 data.

2-a. What were the total amounts for product costs and period costs during 2019?

2-b. Classify the product costs as direct or indirect.

3-a. Prepare an income statement in good form for the year 2019.

3-b. Compute the gross margin per unit for the year. (Round your answer to 2 decimal places.)

Answer 1

1.

	Behaviour	function
	Variable	fixed	MFG	sales/MKT	Admin
Direct material and components	3219500		3219500
Direct production wages	1463600		1463600
Production supervisory salaries		267900	267900
Salaries paid to sales representatives	367500	220000		587500
Advertising		685700		685700
Insurance		120870	72522		48348
Building rent		265140	185598	26514	53028
Other salaries		1173000	469200	293250	410550
Honorarium to the members of the board		436700
Production quality control	39780	92820	132600
Market research		347760		347760
Depreciation		1329300	930510	132930	265860
Facilities management		885530	354212		531318
Legal		689500			689500
Personnel department		197800			197800
Utilities-production	257730	601370	859100
Utilities-other	128394	238446		183420	183420
Customer service	92000	828000		920000
Total	5568504	8379836	7953742	3177074	2379824
	13948340	13948340

22000*10 = 220000

120870*60%= 72522

120870*40%= 48348

265140*70%=185598

265140*10%=26514

1173000*40%=469200

1173000*25%=293250

132600*30%=39780

1329300*70%=930510

1329300*10%=132930

885530*40%=354212

885530*60%=531318

859100*30%=257730

366840*35%=128394

920000*10%=92000

920000*90%=828000

2a).

Product cost. $ 7953742

Period cost $5556898

Product cost= manufacturing cost

Period cost = marketing cost + administration cost

2b).

Product costs	direct	indirect
Direct material and components	Y
Direct production wages	Y
Production supervision salary		Y
Insurance		Y
Building rent		Y
Other salary		Y
Production quality control		Y
Depreciation		Y
Facilities management		Y
Utilities production		Y

PART-3

Income statement

For the year 2019

Sales revenue	24500000
less:cost of goods sold:
Direct materials and components	3219500
Direct production wages	1463600
Production salaries	267900
Insurance	72522
Building rent	185598
Other salaries	469200
Production quality control	132600
Depreciation	930510
Facilities management	354212
Utilities-production	859100
Gross margin	16545248
Less:selling and administration expenses
Salaries to represrntatives	587500
Advertisement	685700
Insurance	48348
Building rent	79562
Other salaries	293250
Honorarium to members	436700
Market research	347760
Depreciation	398790
Facilities management	531318
Legal	689500
Personnel development	197800
Utilities-other	366840
Customer service	920000
Net income	10962190