Chapter 16: Q18RQ (page 885)
How does a manufacturing company calculate unit product cost?
The unit product cost is calculated using the formulae which is the cost of goods manufactured is divided by the total units produced
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Question:Applying ethical standards
Natalia Wallace is the new controller for Smart Software, Inc. which develops and sells education software. Shortly before the December 31 fiscal year-end, James Cauvet, the company president, asks Wallace how things look for the year-end numbers. He is not happy to learn that earnings growth may be below 13% for the first time in the company’s five-year history. Cauvet explains that financial analysts have again predicted a 13% earnings growth for the company and that he does not intend to disappoint them. He suggests that Wallace talk to the assistant controller, who can explain how the previous controller dealt with such situations. The assistant controller suggests the following strategies:
a. Persuade suppliers to postpone billing \(13,000 in invoices until January 1.
b. Record as sales \)115,000 in certain software awaiting sale that is held in a public warehouse.
c. Delay the year-end closing a few days into January of the next year so that some of the next year’s sales are included in this year’s sales.
d. Reduce the estimated Bad Debts Expense from 5% of Sales Revenue to 3%, given the company’s continued strong performance.
e. Postpone routine monthly maintenance expenditures from December to January.
Requirements
1. Which of these suggested strategies are inconsistent with IMA standards?
2. How might these inconsistencies affect the company’s creditors and stockholders?
3. What should Wallace do if Cauvet insists that she follow all of these suggestions?
Determining the flow of costs through a manufacturer’s inventory accounts
True Fit Shoe Company makes loafers. During the most recent year, True Fit incurred total manufacturing costs of \(21,900,000. Of this amount, \)2,600,000 was direct materials used and \(14,800,000 was direct labor. Beginning balances for the year were Direct Materials, \)700,000; Work-in-Process Inventory, \(1,500,000; and Finished Goods Inventory, \)1,100,000. At the end of the year, balances were Direct Materials, \(800,000; Work-in-Process Inventory, \)2,000,000; and Finished Goods Inventory, $1,080,000.
Requirements Analyze the inventory accounts to determine:
1. Cost of direct materials purchased during the year.
2. Cost of goods manufactured for the year.
3. Cost of goods sold for the year.
Comparing managerial accounting and financial accounting For each of the following, indicate whether the statement relates to managerial accounting (MA) or financial accounting (FA):
b. Provides detailed reports on parts of the company.
Preparing a schedule of cost of goods manufactured Wilson Corp., a lamp manufacturer, provided the following information for the year ended December 31, 2018:
Balances: Beginning Ending
Direct Materials \( 59,000 \) 23,000
Work-in-Process Inventory 109,000 62,000
Finished Goods Inventory 41,000 44,000
Other information:
Depreciation, plant building and equipment $ 16,000
Direct materials purchases 151,000
Insurance on plant 24,000
Sales salaries 47,000
Repairs and maintenance—plant 10,000
Indirect labor 39,000
Direct labor 121,000
Administrative expenses 60,000
Requirements 2. What is the unit product cost if Wilson manufactured 3,700 lamps for the year?
Preparing an income statement and calculating unit cost for a service company
The Glass Doctors repair chips in car windshields. The company incurred the following operating costs for the month of July 2018:
Salaries and wages \( 10,000
Windshield repair materials 4,100
Depreciation on truck 500
Depreciation on building and equipment 900
Supplies used 450
Utilities 4,550
The Glass Doctors earned \)25,000 in service revenues for the month of July by repairing 250 windshields. All costs shown are considered to be directly related to the repair service.
Requirements
1. Prepare an income statement for the month of July.
2. Compute the cost per unit of repairing one windshield, rounded to the nearest cent.
3. The manager of The Glass Doctors must keep unit operating cost below $80 per windshield in order to get his bonus. Did he meet the goal?
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