Exercise 3-6 Schedules of Cost of Goods Manufactured and Cost of Goods Sold; Income Statement [LO3-3]

The following data from the just completed year are taken from the accounting records of Mason Company:

Required:

1. Prepare a schedule of cost of goods manufactured. Assume all raw materials used in production were direct materials.

2. Prepare a schedule of cost of goods sold. Assume that the company's underapplied or overapplied overhead is closed to Cost of Goods Sold.

3. Prepare an income statement.

LAB #1

Chapter 1

Cost Classifications

OBJECTIVE: Apply appropriate cost classifications and use to determine average cost per unit.

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Heritage Company manufactures a beautiful bookcase that enjoys widespread popularity. The company has a backlog of orders that is large enough to keep production going indefinitely at the plant’s full capacity of 4,000 bookcases per year. Annual cost data at full capacity follow:

INSTRUCTIONS: (REMINDER - You should use Excel formulas to make the calculations in #2-#5)

Enter each cost item in the appropriate column on your spreadsheet. Each item should be classified in two ways: first, as either variable or fixed with respect to the number of units produced and sold; and second, as either a period cost or a product cost. (If the item is a product cost, it should also be classified as either direct or indirect.) This has been done already for the first two cost items as an example.

Total the dollar amounts in each of the columns on your spreadsheet.

Compute average cost to manufacture a bookcase at the given activity level.

What is total prime cost?

What is total conversion cost?

Use the following data of Makrel ​Sales, Inc.:

MakrelMakrel

​Sales' LIFO cost of ending inventory would be

A.$186.

B.$129.

C.$154.

D.$450.

Gable Company uses three activity cost pools. Each pool has a cost driver. Information for Gable Company follows:

Required:
1. Compute the activity rate for each activity. (Round your answers to 2 decimal places.)

2. Classify each activity as facility, product, batch, or unit level.

Factory Overhead Cost Variance Report

Tannin Products Inc. prepared the following factory overhead cost budget for the Trim Department for July of the current year, during which it expected to use 12,000 hours for production:

Tannin has available 16,000 hours of monthly productive capacity in the Trim Department under normal business conditions. During July, the Trim Department actually used 11,000 hours for production. The actual fixed costs were as budgeted. The actual variable overhead for July was as follows:

Construct a factory overhead cost variance report for the Trim Department for July. Enter all amounts as positive numbers. If an amount box does not require an entry, leave it blank. Round your interim computations to the nearest cent, if required.

**THIS IS ALL THE AVAILABLE INFORMATION I HAVE. I DON'T HAVE ANY OTHER INFORMATION**

Delta Corporation has the following capital structure: Cost (aftertax) Weights Weighted Cost Debt (Kd) 6.1 % 30 % 1.83 % Preferred stock (Kp) 7.6 20 1.52 Common equity (Ke) (retained earnings) 13.1 50 6.55 Weighted average cost of capital (Ka) 9.90 % a. If the firm has $23 million in retained earnings, at what size capital structure will the firm run out of retained earnings? (Enter your answer in millions of dollars (e.g., $10 million should be entered as "10").) b. The 6.1 percent cost of debt referred to earlier applies only to the first $6 million of debt. After that the cost of debt will go up. At what size capital structure will there be a change in the cost of debt? (Enter your answer in millions of dollars (e.g., $10 million should be entered as "10").)

1. Consider the cost function, C = 2q^2(wr)^1/2. Suppose the firm with this cost function is perfectly competitive in its output market and faces an output price, p. A. Find the marginal cost function for output. B. Find the average cost function. Show your work. C. Is this a long-run or short-run cost function? Explain. D. Derive the cost elasticity with respect to output. Show your formula and all calculations. What does this value of cost elasticity tell you about the degree of scale economies? Explain. E. Derive the supply function for output. Show all your logic and work. 2. Consider the cost function, C(q) = 0.5 q^2 − 10q + 200. A. Is it a short or long run cost function. Explain. B. Calculate the short-run average total cost function. C. Find the output level at which average total cost is minimized. Show your logic and work. D. Calculate the output supply function for a competitive firm whose market determined price of output is given by p. Show your logic and work. E. What is the shut-down condition? Explain its logic. 3. Consider the production function, q = L^1/4E^1/4K^1/4, where L is labor, E, energy, and K, capital. Their prices are respectively w, u, and r. The price of output is given by p. Output and input prices are competitively determined so that they are parametric (constants). Capital, K, is a fixed input. The short-run variable cost function is given by CV(q, w, u, K) = 2q2(wu/k)1/2. A. Use the short-run variable cost function to find the profit-maximizing output supply function. B. Find the maximum profit function. C. Compute the derivative of the maximum profit function with respect to output price, p. Does it look familiar? D. Compute the derivative of the maximum profit function with respect to input price, w, and multiply it by − 1: − ∂π/∂w where π denotes the maximum profit function. This derivative gives the profit-maximizing demand for labor. Together, the derivatives, − ∂π/∂w, − ∂π/∂u, and ∂π/∂p, constitute Hotelling’s lemma, the analog to Shephard’s lemma for the cost and expenditure functions.

ine Oak Furniture manufactures high-quality wooden desks and uses a standard cost system. A standard cost card for one model of desk, the “heritage”, developed for 2019, is shown below:

The company expected to produce and sell 300 units of the Heritage in March 2019.

Actual results for March 2019 are as follows:

• 310 units of the Heritage were produced.
• A total of 20,600 BF of wood was purchased and used at a cost of $9,942.
• Actual direct labour costs were $6,963 for 398 direct labour hours worked.
• Actual variable overhead incurred was $1,712 and actual fixed overhead incurred was $2,175.

Required:

Calculate the following variances and provide only numeric values without any formatting to the boxes given below. Be sure to indicate whether the variances are favourable or unfavourable as instructed. Round to the 4th decimal places for interim numbers, and round to the 2nd decimal places for final results.

i) What is fully distributed cost pricing? Derive fully distributed cost prices algebraically in linear market demand and costs system?

ii) Is there any better pricing scheme than fully distributed cost pricing? Explain.