Chapter 14: Q23DQ (page 655)
Define and describe two measures to assess raw materials inventory management.
Raw materials inventory turnover and days' sales in raw materials inventory is to be used to assess raw materials inventory management.
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Listed here are the total costs associated with the 2017 production of 1,000 drum sets manufactured by TrueBeat. The drum sets sell for \(500 each.
| COSTS | Variable or fixed | Product or period | ||
Variable | Variable | Fixed | Product | Period |
1. Plastic for casting - \)17,000 | ||||
2. Wages of assembly workers - \(82,000 | ||||
3. Property taxes on factory—\)5,000 | ||||
4. Accounting staff salaries—\(35,000 | ||||
5. Drum stands (1,000 stands purchased)—\)26,000 | ||||
6. Rent cost of equipment for sales staff—\(10,000 | ||||
7. Upper management salaries—\)125,000 | ||||
8. Annual flat fee for factory maintenance service—\(10,000 | ||||
9. Sales commissions—\)15 per unit | ||||
10. Machinery depreciation, straight-line—$40,000 | ||||
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 drum set.
Analysis Component
3. Assume that 1,200 drum sets are produced in the next year. What do you predict will be the total cost of plastic for the casings and the per unit cost of the plastic for the casings? Explain.
4. Assume that 1,200 drum sets are produced in the next year. What do you predict will be the total cost of property taxes and the per unit cost of the property taxes? Explain.
What product cost is both a prime cost and a conversion cost?
Question: Racer’s Edge makes specialty skates for the ice skating circuit. On December 31, 2016, the company had (a) 1,500 skates in finished goods inventory and (b) 2,500 blades at a cost of \(20 each in raw material inventory, During 2017, Racer’s Edge purchased 45,000 additional blades at \)20 each and manufactured 20,750 pairs of skates.
Required
Analysis component
Write a half-page memorandum to the production manager explaining why a just-in-time inventory system for blades should be considered. Include the amount of working capital that can be reduced at December 31, 2017, if the ending blade raw material is cut in half.
Beck Manufacturing reports the account information below for 2017. Using this information:
1. Prepare the schedule of cost of goods manufactured for the year.
2. Compute cost of goods sold for the year.
Raw Materials Inventory
Begin. inv. 10,000
Purchases 45,000
Avail. for use 55,000
End. inv. 8,500 DM used 46,500
Work in Process Inventory
Begin. inv. 14,000
DM used 46,500
Direct labor 27,500
Overhead 55,000 Avail. for mfg. 143,000
End. inv. 12,000 Cost of goods mfg. 131,000
Finished Goods Inventory
Begin. inv. 16,000
Cost of goods mfg. 131,000
Avail. for sale 147,000 Cost of goods sold 129,000
End. inv. 18,000
Distinguish between direct labor and indirect labor.
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