Question

1. The financial statements of Michelle Company included these items.

                                Marketing costs                                                      P128, 000

                                Direct labor costs                                                    P320, 000

                                Administrative costs                                               P94, 000

                                Direct materials used                                             P385, 000

                                Fixed factory overhead costs                                 P285, 000

                                Variable factory overhead costs                             P175, 000

1. Prime cost
2. Conversion cost
3. Total product cost
4. Total period cost

2. The following data are available for Smith Corporation for the year ending December 31, 2009

                                                                                                January 1                                                 December 31

Inventories                                             

                Materials                                                                P100, 000                                                P150, 000

                Work in process                                                      P180, 000                                                P128, 000

                Finished Goods                                                       P90, 000                                                  P110, 000

Direct labor cost                                                                                                                                     P290, 000

Materials purchased                                                                                                                               P320, 000

Factory overhead – applied at 120% of direct labor cost

1. Direct materials used
2. Total manufacturing cost
3. Cost of good manufactured
4. Cost of goods sold

Answer 1

Solution: 1
	Prime Cost = Material Cost + Labor Cost
	Direct Material Used	385000
	Direct Labor Cost	320000
	Total Prime Cost	705000
	Conversion Cost = Labor Cost + Manufacturing Overhead Cost
	Direct Labor Cost	320000
	Fixed factory overhead costs	285000
	Variable factory overhead costs	175000
	Total Conversion Cost	780000
	Calculation of Total Product Cost:
	Direct Material Used	385000
	Direct Labor Cost	320000
	Fixed factory overhead costs	285000
	Variable factory overhead costs	175000
	Total Product Cost	1165000
	Calculation of Total Period Cost
	Marketing Cost	128000
	Administrative Cost	94000
	Period Cost	222000
Solution: 2
	Schedule of Cost of Goods Manufactured
		Amount	Amount	Amount
	Beginning Work in Process			$              180,000
	Direct Materials:
	Opening Raw materials	$             100,000
	Add: Purchases	$             320,000
	Total Raw Materials Available	$             420,000
	Closing Raw materials	$             150,000
	Raw Material Used in Production		$            270,000
	Direct Labor		$            290,000
	Overhead Costs (290,000 X 120%)		$            348,000
	Total Manufacturing Cost added to Production			$              908,000
	Total Manufacuring Cost			$          1,088,000
	Work-in-process , Ending			$              128,000
	Cost of goods manufactured			$              960,000
	Add: Beginning finished Goods			$                90,000
	Goods Available for Sale			$          1,050,000
	Less: Ending Balance of Finished Goods			$              110,000
	Cost of Goods Sold			$              940,000