Question

In: Accounting

Question: Cost Terms & Classification The following selected account balances for the year ended December 31...

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.

Solutions

Expert Solution

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 .

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