Question

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

Selling and administrative salaries	$	121,000
Insurance, factory		8,200
Utilities, factory		47,500
Purchases of raw materials		?
Indirect labour		70,000
Direct labour		39,300
Advertising expense		66,000
Cleaning supplies, factory		9,000
Sales commissions		52,500
Rent, factory building		144,000
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	$	64,800		$	11,800
Work in process		?			43,300
Finished goods		48,000			92,000

   

The total manufacturing costs for the year were $684,000, and the cost of goods sold totalled $680,000.

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 60,000 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.

Cost of Goods Manufactured
Direct materials:
Beginning raw material inventory	$64,800
Add: Purchases of raw material
Raw material available
Less: Ending raw material inventory	11,800
Direct material used (684,000-39,300-308,700)		$336,000
Direct labor		39,300
Factory overhead:
Insurance, factory	8,200
Utilities, factory	47,500
Indirect labor	70,000
Cleaning supplies, factory	9,000
Rent, factory building	144,000
Maintenance, factory	30,000
Total factory overhead		308,700
Total manufacturing costs		684,000
Add: Beginning work in process (815,300-684,000)		131,300
Total cost of work in process (772,000+43,300)		815,300
Less: Ending work in process		43,300
Cost of goods manufactured		$772,000

2.

Cost of Goods Sold
Beginning finished goods	$48,000
Add: Cost of goods manufactured (772,000-48,000)	724,000
Cost of goods available for sale (680,000+92,000)	772,000
Less: Ending finished goods	92,000
Cost of goods sold	$680,000

3.

Average cost per unit:

Direct materials used = $336,000 / 60,000 = $5.6 per unit

Rent on factory building = $144,000 / 60,000 = $2.4 per unit

4.

Direct material used:

Average cost per unit = $5.6

Total cost = 50,000*$5.6 = $280,000

Rent on factory building:

Average cost per unit = $144,000 / 50,000 = $2.88

Total costs = $144,000