Question

Selected account balances for the year ended December 31 are provided below for Superior Company:

Selling and administrative salaries	$	103,000
Insurance, factory		7,000
Utilities, factory		63,800
Purchases of raw materials		?
Indirect labour		60,000
Direct labour		97,000
Advertising expense		78,600
Cleaning supplies, factory		7,200
Sales commissions		38,000
Rent, factory building		108,000
Maintenance, factory		30,000

Inventory balances at the beginning and end of the year were as follows:

	Beginning of the Year			End of the Year
Raw materials	$	60,000		$	14,000
Work in process		?			30,700
Finished goods		48,000			80,000

   

The total manufacturing costs for the year were $693,000, and the cost of goods sold totalled $662,000.

Required:
1.a. Prepare a schedule of cost of goods manufactured.

1.b. Prepare the cost of goods sold section of the company's income statement for the year.

2. Assume that the dollar amounts given above are for the equivalent of 40,000 units produced during the year. Compute the average cost per unit for direct materials used and the average cost per unit for rent on the factory building. (Round your answers to 2 decimal places.)

3. Assume that in the following year the company expects to produce 50,000 units. What average cost per unit and total cost would you expect to be incurred for direct materials? For rent on the factory building? (Assume that direct materials are a variable cost and that rent is a fixed cost.) (Round your "Average Cost'' answers to 2 decimal places.)

Answer 1

1.a.   Schedule of cost of goods manufactured

Direct material used
Beginning raw material	60000
Add: Raw material purchase (334000-60000)	274000
Raw material available for use (320000+14000)	334000
less: Ending raw material	14000
Direct material used (693000-276000-97000)		320000
Direct labor		97000
Manufacturing overhead cost:
Insurance factory	7000
Utilities, factory	63800
Indirect labour	60000
Cleaning supplies, factory	7200
Rent factory building	108000
Maintenance, factory	30000
Total Manufacturing overhead cost		276000
Total manufacturing cost		693000 (given)
Add: Beginning work in process ( 694000+ 30700-693000 )		31700
Less: Ending work in process		30700
Cost of goods manufactured		694000*

*Cost of goods manufactured

Add: begining finished goods = 48000

Less: ending = 80000

Cost of goods sold = 662000 (given )

Cost of goods manufactured = 662000 + 80000 - 48000 = 694000

1.b. Prepare the cost of goods sold section of the company's income statement for the year

Partial income statement
Cost of goods sold:
Cost of goods manufactured	694000
Add: beginnig finished goods	48000
Less: ending finished goods	80000
Cost of goods sold		$662000

2. Units = 40000

Direct material cost used = 320000

Average Direct material cost per units = 320000 / 40000 = $ 8 per units

It is variable cost

Rent, factory building = 108000

Average Rent, factory building per units = 108000 / 40000 = $2.7 per units

It is fixed cost

3.   

Variable cost does not change per units, change total with change activity level.

Fixed cost does not change with total, but units cost will cahneg with chaneg in activity level.

Expected production units = 50000

Average Direct material cost per units = $8 per units

Total Direct material cost = 8 * 50000 = $400000

Total Rent, factory building = 1080000

Average Rent, factory building per units = 108000 / 50000 = $2.16 per units