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