In: Accounting
Question: Cost Terms & Classification
The following selected account balances for the year ended
December 31 are provided for Nemo Company:
Advertising expense $300,000
Insurance, sales equipment 2,500
Depreciation, sales equipment 350,000
Rent, factory building 70,000
Utilities, factory 80,000
Sales commissions 100,000
Insurance, factory 8,000
Cleaning supplies, factory 7,000
Deprecation, factory equipment 120,000
Selling and Administrative Salaries 100,000
Maintenance, factory 80,000
Direct Labor 90,000
Purchase of raw materials
295,000
Inventory balances at the beginning and end of the year were as
follows:
January 1 December 31
(beginning of year) (end of year)
Raw Materials $55,000 $30,000
Work in Process 50,000 35,000
Finished Goods 30,000 ?
The cost of goods sold totaled $691,000 for the current
year.
Required: (hint: could use T-accounts)
a. Prepare a schedule of cost of goods manufactured in good form and the cost of goods sold section of the company's income statement for the year.
b. Assume that the dollar amounts given above are for the equivalent of 20,000 units produced during the year, Compute the unit cost for direct materials used, and compute the unit cost for rent on the factory building.
C. Assumed that in the following year the company expects to produce 40,000 units. What per unit and total cost would you expect to be incurred for direct materials? For rent on the factory building? (In preparing your answer, you may assume that direct materials is a variable cost and that rent is a fixed cost.)
d. As the manager in charge of production costs, explain to the president the reason for any difference in unit costs between (b) and (c) above.
Part-a : Nemo Company | ||
Schedule of Cost of Goods Manaufactured | ||
Direct materials: | ||
Raw materials invenry, beginning | $55,000.00 | |
Add: Purchases of raw materials | $295,000.00 | |
total raw materials available | $350,000.00 | |
Less: Raw materials invenry, ending | $30,000.00 | |
Raw materials used in production | $320,000.00 | |
$320,000.00 | ||
Direct labor | $90,000.00 | |
Manufacturing Overhead | ||
Rent Factory Building | $70,000.00 | |
Utilities Factory building | $80,000.00 | |
Insurance factory | $8,000.00 | |
Cleaning Supplies Factory | $7,000.00 | |
Depreciation Factory Equipment | $120,000.00 | |
Maintainance, Factory | $80,000.00 | |
Total Manufacturign Overhead | $365,000.00 | |
Total manufacturing costs | $775,000.00 | |
Add: Beginning work in process invenry | $50,000.00 | |
$825,000.00 | ||
Less: Ending work in process invenry | $35,000.00 | |
Cost of goods manufactured | $790,000.00 | |
Schedule of Cost of Goods Sold | ||
Finished goods invenry, beginning | $30,000.00 | |
Add: Cost of goods manufactured | $790,000.00 | |
Goods available for sale | $820,000.00 | |
Less: Cost of Goods Sold | $691,000.00 | |
Ending Finished Gooda Inventory | $129,000.00 | |
Part-b | |
Computaton of Unit cost for Direct Material Used | |
Total Direct material Used | 320000 |
No. of Unit Produced | 20000 |
Unit Cost for Direct Material Used ( 320000/20000) | 16 |
Computaton of Unit cost for Rent on Factory Building | |
Total Direct material Used | 70000 |
No. of Unit Produced | 20000 |
Unit Cost for Direct Material Used ( 70000/20000) | 3.5 |
Part-c | |
Unit cost for Direct Material Used will be $16 | |
Computaton of Unit cost for Rent on Factory Building | |
Total Direct material Used | 70000 |
No. of Unit Produced | 40000 |
Unit Cost for Direct Material Used ( 70000/40000) | 1.75 |
PArt-d
Part-d |
There will not be any difference in Unit cost for direct material Used because it's a variable cost and unit cost always remain same |
Difference in Unit cost for Rent Factory Building due to increase in unit Produced , this is fixed manufacturign overhead and unit cost will be reduced as production unit will be increased . |