Chapter 16: 13RQ (page 885)
What are prime costs? Conversion costs?
Prime cost is the combination of direct cost and conversion cost is the combination of direct labor and manufacturing overhead.
Over 30 million students worldwide already upgrade their learning with Vaia!
All the tools & learning materials you need for study success - in one app.
Get started for free
Question:Preparing an income statement and calculating unit cost for a service company
The Windshield Doctors repair chips in car windshields. The company incurred the following operating costs for the month of March 2018:
Salaries and wages \( 12,000
Windshield repair materials 4,600
Depreciation on truck 300
Depreciation on building and equipment 1,200
Supplies used 300
Utilities 460
The Windshield Doctors earned \)23,000 in service revenues for the month of March by repairing 500 windshields. All costs shown are considered to be directly related to the repair service.
Requirements
1. Prepare an income statement for the month of March.
2. Compute the cost per unit of repairing one windshield.
3. The manager of Windshield Doctors must keep unit operating cost below $50 per windshield in order to get his bonus. Did he meet the goal?
Identifying product costs and period costs Classify each cost of a paper manufacturer as either a product cost or a period cost:
a. Salaries of scientists studying ways to speed forest growth.
Identify each cost as a period cost or a product cost. If it is a product cost, further indicate if the cost is direct materials, direct labor, or manufacturing overhead. Then determine if the product cost is a prime cost and/or a conversion cost.
10.Salary of the factory maintenance supervisor
Power Switch, Inc. designs and manufactures switches used in telecommunications. Serious flooding throughout North Carolina affected Power Switch’s facilities. Inventory was completely ruined, and the company’s computer system, including all accounting records, was destroyed.
Before the disaster recovery specialists clean the buildings, Stephen Plum, the company controller, is anxious to salvage whatever records he can to support an insurance claim for the destroyed inventory. He is standing in what is left of the accounting department with Paul Lopez, the cost accountant.
“I didn’t know mud could smell so bad,” Paul says. “What should I be looking for?”
“Don’t worry about beginning inventory numbers,” responds Stephen, “we’ll get them from last year’s annual report. We need first-quarter cost data.”
“I was working on the first-quarter results just before the storm hit,” Paul says. “Look, my report is still in my desk drawer. All I can make out is that for the first quarter, direct material purchases were \(476,000 and direct labor, manufacturing overhead, and total manufacturing costs to account for were \)505,000, \(245,000, and \)1,425,000, respectively. Wait! Cost of goods available for sale was \(1,340,000.”
“Great,” says Stephen. “I remember that sales for the period were approximately \)1,700,000. Given our gross profit of 30%, that’s all you should need.”
Paul is not sure about that but decides to see what he can do with this information. The beginning inventory numbers were:
• Direct Materials, \(113,000
• Work-in-Process, \)229,000
• Finished Goods, $154,000
Requirements
1. Prepare a schedule showing each inventory account and the increases and decreases to each account. Use it to determine the ending inventories of Direct Materials, Work-in-Process, and Finished Goods.
2. Itemize a list of the cost of inventory lost.
Give five examples of manufacturing overhead.
What do you think about this solution?
We value your feedback to improve our textbook solutions.
