Chapter 14: Q10DQ (page 655)
Explain why knowledge of cost behavior is useful in product performance evaluation.
Cost behavior enables the manager to predict if costs will go down or up as the business activity changes.
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Compute the total manufacturing cost for a manufacturer with the following information for the month.
Raw materials purchased . . . . . . . . . . . . . . . \(32,400
Direct materials used . . . . . . . . . . . . . . . . . . 53,750
Direct labor used . . . . . . . . . . . . . . . . . . . . . . 12,000
Factory supervisor salary . . . . . . . . . . . . . . . 8,000
Salesperson commissions . . . . . . . . . . . . . . . . . . . . . . . . \)6,200
Depreciation expense—Factory building . . . . . . . . . . . . 3,500
Depreciation expense—Delivery equipment . . . . . . . . . 2,200
Indirect materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,250
Question: Shown here are annual financial data at December 31, 2017, taken from two different companies.
TeeMart (Retail) | Aim Labs (Manufacturing) | |
Beginning inventory | ||
Merchandise | \(100,000 | |
Finished goods | \)300,000 | |
Cost of purchases | 250,000 | |
Cost of goods manufactured | 586,000 | |
Ending inventory | ||
Merchandise | 150,000 | |
Finished goods | 200,000 |
Required
1. Compute the cost of goods sold section of the income statement at December 31, 2017, for each company. Include the proper title and format in the solution.
2. Write a half-page memorandum to your instructor (a) identifying the inventory accounts and (b) identifying where each is reported on the income statement and balance sheet for both companies.
Question: Listed here are the total costs associated with the 2017 production of 15,000 Blu-ray Discs (BDs) manufactured by Maxwell. The BDs sell for \(18 each.
| Costs | Variable or fixed | Product or period | ||
| Variable | Fixed | Product | period | |
1. Plastic for BDs - \)1,500 | \(1,500 | \)1,500 | ||
2. Wages of assembly workers - \(30,000 | ||||
3. Cost of factory rent - \)6,750 | ||||
4. System staff salaries - \(15,000 | ||||
5. Labelling - \)0.25 Per BD | ||||
6. Cost of office equipment rent - \(1,050 | ||||
7. Upper management salaries - \)120,000 | ||||
8. Annual fixed fees for cleaning service - \(4,250 | ||||
9. Sales commission - \)0.50 per BD | ||||
10. Machinery depreciation, straight-line - $18,000 | ||||
Required
1. Classify each cost and its amount as (a) either variable or fixed and (b) either product or period. (The first cost is completed as an example.)
2. Compute the manufacturing cost per BD.
Analysis Component
3. Assume that 10,000 BDs are produced in the next year. What do you predict will be the total cost of plastic for the BDs and the per unit cost of the plastic for the BDs? Explain.
4. Assume that 10,000 BDs are produced in the next year. What do you predict will be the total cost of factory rent and the per unit cost of the factory rent? Explain.
Diez Company produces sporting equipment, including leather footballs. Identify each of the following costs as direct (D) or indirect (I). The cost object is a football produced by Diez.
Use the following information to compute the cost of direct materials used for the current year.
January 1 | December 31 | |
Inventories | ||
Raw materials inventory | \(6,000 | \)7,500 |
Work in process inventory | 12,000 | 9,000 |
Finished goods inventory | 8,500 | 5,500 |
Activity during current year | ||
Materials purchased | $123,500 | |
Direct labor | 94,000 | |
Factory overhead | 39,000 |
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