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Question 1 – The Manager and Management Accounting Pfizer, a pharmaceutical company, incurs the following costs:...

Question 1 – The Manager and Management Accounting

Pfizer, a pharmaceutical company, incurs the following costs:

  1. Payment of booth registration fee at a medical conference to promote new products to physicians
  2. Cost of redesigning an insulin syringe to make it less painful
  3. Cost of a toll-free telephone line used for customer inquiries about drug usage, side effects of drugs, and so on
  4. Equipment purchased to conduct experiments on drugs yet to be approved by the government
  5. Sponsorship of a professional golfer
  6. Labor costs of workers in the packaging area of a production facility
  7. Bonus paid to a salesperson for exceeding a monthly sales quota
  8. Cost of FedEx courier service to deliver drugs to hospitals

Required:

Classify each of the cost items (a–h) into one of the business functions of the value chain.

Question 2 – An Introduction to Cost Terms and Purposes

The following account balances pertain to Peterson Company for the year 2017:

Account balances

01/01/2017

31/12/2017

Direct materials inventory

$21,000

$23,000

Work-in-process inventory

$26,000

$25,000

Finished-goods inventory

$13,000

$20,000

Purchases of direct materials

$74,000

Direct manufacturing labor

$22,000

Indirect manufacturing labor

$17,000

Plant insurance

$7,000

Depreciation—plant, building, and equipment

$11,000

Repairs and maintenance—plant

$3,000

Marketing, distribution, and customer-service costs

$91,000

General and administrative costs

$24,000

Required:

1.   Prepare a schedule for the cost of goods manufactured for 2017.

2.   Revenues for 2017 were $310,000. Prepare the income statement for 2017.

Question 3 – Flexible Budgets, Direct-Cost Variances, and Management Control

Milan Statuary manufactures bust statues of famous historical figures. All statues are the same size. Each unit requires the same amount of resources. The following information is from the static budget for 2017:

Expected production and sales

6,100 units

Expected selling price per unit

$700

Total fixed costs

$1,350,000

Standard quantities, standard prices, and standard unit costs follow for direct materials and direct manufacturing labor:

Standard Quantity

Standard Price

Standard Unit Cost

Direct materials

16 pounds

$14 per pound

$224

Direct manufacturing labor

3.8 hours

$30 per hour

$114

During 2017, actual number of units produced and sold was 5,100, at an average selling price of $730. Actual cost of direct materials used was $1,149,400, based on 70,000 pounds purchased at $16.42 per pound. Direct manufacturing labor-hours actually used were 17,000, at the rate of $33.70 per hour. As a result, actual direct manufacturing labor costs were $572,900. Actual fixed costs were $1,200,000. There were no beginning or ending inventories.

Required:

1.   Calculate the sales-volume variance and flexible-budget variance for operating income.

2.   Compute price and efficiency variances for direct materials and direct manufacturing labor.

Solutions

Expert Solution

Business Function of Value Chain:
1 Research and development
2 Design of product and process
3 Production
4 Marketing
5 Distribution
6 Customer Service
a Payment of booth registration fee at a medical conference to promote new products to physicians Marketing
b Cost of redesigning an insulin syringe to make it less painful Design of product and process
c Cost of a toll-free telephone line used for customer inquiries about drug usage, side effects of drugs, and so on Customer Service
d Equipment purchased to conduct experiments on drugs yet to be approved by the government Research and development
e Sponsorship of a professional golfer Marketing
f Labor costs of workers in the packaging area of a production facility Production
g Bonus paid to a salesperson for exceeding a monthly sales quota Marketing
h Cost of FedEx courier service to deliver drugs to hospitals Distribution
2 COST OF GOODS MANUFACTURED
A Work in process inventory in the beginning $26,000
COSTS ADDED:
B Direct Materials $72,000 (21000+74000-23000)
C Direct manufacturing labor $22,000
Manufacturing Overheads:
D Indirect labor $17,000
E Plant insurance $7,000
F Depreciation -plant, building & equipment $11,000
G Repair & maintenance $3,000
H=D+E+F+G Total Manufacturing Overhead $38,000
I=B+C+H Total Cost added to Work in process $132,000
J Ending Work in process $25,000
K=A+I-J Cost of goods manufactured $133,000
Cost of Goods manufactured $133,000
L Beginning Finished goods inventory $13,000
M Cost of goods manufactured $133,000
N Ending finished goods inventory $20,000
P=L+M-N Cost of goods sold $126,000
INCOME STATEMENT
Sales Revenue $310,000
Cost of goods sold $126,000
Gross Profit $184,000
Less:Marketing ,distribution, customer service $91,000
Less:General & administrative cost $24,000
Income $69,000

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