Chapter 2- Costs Concepts; Information Systems

EXERCISE
1. Manufacturing costs. The estimated unit costs for a company operating at a
production and sales level of 1,200 units are as follow;

Estimated
Cost item Unit cost

Direct materials……………………. $32

Direct labor………………………........20

Variable factory overhead………15

Fixed factory overhead…………….6

Variable marketing……………………3

Fixed marketing……………………...4

Required:
1) Identify the estimated conversion cost per unit.
2) Identify the estimated prime cost per unit.
3) Determine the estimated total variable cost per unit.
4) Compute the total cost that would be incurred during a month with a
production level of 12,000 units and a sales level of 8,000 units.

2. Fixed and variable costs. In 19A, the Mercaldo Company had sales of
19,950,000 with $11,571,000 variable and 7,623,000 fixed costs. 19B sales are
expected to decrease 15% and cost relationship is expected to remain constant (the
fixed costs will not change).

Required: Determine Mercaldo Company’s expected operating income or loss for

19B.

3. Manufacturing costs; cost of goods manufactured; costs of goods sold. The

December 31, 19B trial balance of Crockett Company Showed:

Sales…………………. $ 14,500,500 Sales returns and

allowances………............... $ 25,200
Purchases (net)………….......2,400.000 Factory overhead…………..1,885.600
Transportation in…………….32,000 Advertising expense………. 155,000
Direct labor………………….3,204,000 Delivery expense…………...65,000
Sales salaries…………………200,000

Inventories: December31, 19B December 31, 19A

Finished goods $567,400 $620,000
Work in progress 136,800 129,000
Materials 196,000 176,000

Required: Determine (1) the total manufacturing cost, (2) the cost of goods manufactured,
and (3) the cost of goods sold.

8. Cost of goods sold statement. The following data are provided by the controller of
Pensacola Corporation:

Cash……………………………………………………………………. $ 240,000

Account receivable……………………………………………… 348,000

Inventories:

January 1 December 31

Finished goods…………………………….. $ 54,200 $66,000

Work in progress…………………………... 29,800 38,800

Materials…………………………………… 88,000 64,000

Material purchased……………………………………………………… 366,000

Sales discounts…………………………………………………….. 8,000

Factory overhead (excluding depreciation)………………… 488, 400

Marketing and administrative expenses (excluding depreciation) …… 344,200

Depreciation (90% manufacturing, 10% marketing and administrative

expenses) ……………………………………………………………... 116,000

Sales…………………………………………………………………. 1,844,000

Direct labor…………………………………………………………… 523,600

Freight on materials purchased…………………………… . 6,600

Rental income ………………………………………………………… 64,000

Interest on bonds payable…………………………………………16,000

Required: Prepare a cost of goods sold statement.

PROBLEMS
2-1. Cost of goods manufactured; prime and conversion costs. Mat Company’s purchases
of materials during March totaled $110,000 and the cost of goods sold for March was
$345,000. Factory overhead was 50% of direct labor cost. Other information pertaining to
Mat Company’s inventories and production for March is as follows:

Inventories: Beginning Ending

Finished goods ………$102,000 $105,000

Work in process……… 40,000 36,000

Materials…………….. 20,000 26,000

Required:

1) Prepare a schedule of cost of goods manufactured for March.

2) Compute the prime cost charged to work in process during March.
3) Compute the conversion cost charged to work in process during March.

2-2. Income statement relationships. The following information is available for three
companies at the end of their fiscal years:

Company A: Finished goods, January 1……………………… $ 600,000

Cost of goods manufactured…………………… 38, 00,000

Sales…………………………………………….......... 4, 000,000

Gross profit on sales……………………………. 20%

Finished goods inventory, December ………….. ?

Company B: Freight in……………………………………….. $ 20,000

Purchases returns and allowances……… 80,000

Marketing expense……………………………… 200,000

Finished goods, December 31……………… 190,000

Cost of goods sold……………………………….1,300,000

 Cost of goods available for sale……………… ?

Company C: Gross profit …………………………………….. $ 96,000

Cost of goods manufactured ……………… 340,000

Finished goods, January 1 …………………… 45,000

Finished goods, December 31 ……………… 52,000

Work in process, January 1 …………………… 28,000

Work in process, December 31……………… 38,000

Sales……………………………………………......... ?

Required: Determine the amounts indicated by the question marks for each company.

2-6. Cost of goods sold statement; Income statement. The following data are available for
Mandmeyer Company for the year ended November 30, 19B:

Sales…………………………………….. $ 56,000

Finished goods inventory:

November 30, 19B……………………… 5,100

December 1, 19A……………………….. 3,500

Work in process inventory:

November 30, 19B……………………… 7,500

December 1 19A………………………… 4,000

Materials inventory:

November 30, 19B……………………… 4,250

December 1, 19A……………………… 4,000

Materials purchased…………………… 18,000

Direct labor……………………………….......7,500

Factory overhead charged to production, $5,000.

Marketing expenses, 5% of sales.

Administrative expenses, 2% of sales.

Other expenses, 1% of sales.

Required:

1) Prepare a cost of goods sold statement.

2) Prepare an income statement.