Chapter 14: Q4DQ (page 654)
Distinguish between direct labor and indirect labor.
While work performed on specific commodities or services is considered direct labor, employee work that cannot be linked to or billed to creating goods or services is considered indirect labor.
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Define and describe two measures to assess raw materials inventory management.
Listed here are product costs for the production of soccer balls. Classify each cost (a) as either variable (V) or fixed (F) and (b) as either direct (D) or indirect (I). What patterns do you see regarding the relation between costs classified in these two ways?
Product cost | a. Variable or fixed | b. Direct or indirect |
1. Leather cover for soccer balls | ||
2. Annual flat fee paid for office security | ||
3. Coolants for machinery | ||
4. Wages of assembly workers | ||
5. Lace to hold leather together | ||
6. Taxes on factory | ||
7. Machinery depreciation (Straight-line) |
List several examples of factory overhead.
The following chart shows how costs flow through a business as a product is manufactured. Not all boxes in the chart show cost amounts. Compute the cost amounts for the boxes that contain question marks.
Raw materials purchases \(532,000 Beginning raw materials inventory \)145,500 Direct labor used in production \(350,000 Beginning work in process inventory \)84,500 Finished goods manufactured \(1,593,500 Factory overhead used in production \)750,000 Ending raw materials inventory \(175,000 Finished goods available for sale \)1,740,250 Ending finished goods inventory $139,950 Materials Activity Production Activity Sales Activity Raw materials available for use in production
Nazaro’s Boot Company makes specialty boots for the rodeo circuit. On December 31, 2016, the company had (a) 300 pairs of boots in finished goods inventory and (b) 1,200 heels at a cost of \(8 each in raw materials inventory. During 2017, the company purchased 35,000 additional heels at \)8 each and manufactured 16,600 pairs of boots.
Required
1. Determine the unit and dollar amounts of raw materials inventory in heels at December 31, 2017.
Analysis Component
2. Write a half-page memorandum to the production manager explaining why a just-in-time inventory system for heels should be considered. Include the amount of working capital that can be reduced at December 31, 2017, if the ending heel raw material inventory is cut by half.
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