Exam 11: Product Costing in Service and Manufacturing Entities

The accounting records for Moss Manufacturing Company included the following cost information relating to its first year of operations: Direct materials \ 60,000 Direct labor \ 80,000 Fixed manufacturing overhead \ 100,000 Variable manufacturing overhead \ 20,000 Assume the company produced 10,000 units of inventory and sold 6,000 of these units for $196,000.What amount of finished goods will be reported on the balance sheet at the end of the year under variable costing?

Warren Company applies overhead based on direct labor cost.Warren Company estimated that it would incur $180,000 in manufacturing overhead costs and $120,000 of direct labor costs during the current year.Actual manufacturing overhead cost totaled $150,000 and actual direct labor costs totaled $110,000 during the current year.If total manufacturing costs were $320,000,what amount of direct materials was used during the year?

Guest Corporation estimated that total overhead cost would be $23,000 for the current year,but actual overhead costs were $25,500;as a result,Guest spent $2,500 more than expected for overhead cost.This type of variance is known as a(n):

At the end of the period,the balance remaining in work in process is reported on the balance sheet.

Which of the following correctly computes cost of goods manufactured?

Product cost information for manufacturing companies affects the income statement but does not affect the balance sheet.

The Juarez Corporation incurred the following transactions during its first year of operations.(Assume all transactions involve cash). 1)Acquired $1,000 of capital from the owners. 2)Purchased $400 of direct raw materials. 3)Used $300 of these direct raw materials in the production process. 4)Paid production workers $400 cash. 5)Paid $200 for manufacturing overhead (applied and actual overhead are the same). 6)Started and completed 200 units of inventory. 7)Sold 50 units at a price of $6 each. 8)Paid $40 for selling and administrative expenses. The amount of cost of goods manufactured would be:

Michie Company's management accountant prepared the following income statement relating to its second year of operations using the absorption costing format: Michie Company Income Statement (Absorption Costing) Year Ended December 31, 2014 Sales (50,000\times\ 20.00) \ 100,000 Cost of goods sold Beginning inventory 10,000\times\ 10.0 \ 100,000 Variable and fixed manufacturing costs 45,000\times\ 10.0 450,000 Cost of goods available for sale (55,000\times\ 10.00) 550,000 Less ending irventory (5,000\times\ 10.00) 50,000 Gross margin at standard \ 500,000 Adjustment for volume variance (5,000\times\ 2.0) Gross margin at actual \ 490,000 Less operating costs: Variable selling and administrative costs (50,000\times\ 2.00) \ 100,000 Fixed selling and administrative costs Net income Breakeven point under absorption costing 20,000 units. * Variable manufacturing costs of $8.00 plus fixed manufacturing costs of $2.00. ** The $2.00 fixed manufacturing cost per unit is based on budgeted production of 50,000 units. Since actual production was only 45,000,an unfavorable volume variance of $10,000 occurred. The company uses a standard costing system.The only variance that occurred during the period was the $10,000 unfavorable volume variance. Required: 1)Prepare an income statement for Michie Company under variable costing. 2)Compute the breakeven point in units (total fixed costs ÷ unit contribution margin)under variable costing. CHANGE NEEDS TO BE MADE TO TABLE Change the "2014" to: Year 2

Describe the schedule of cost of goods manufactured and sold.What information does it include,and how is it used?

The cost of indirect labor will initially be charged to:

Virginia Company paid $7,500 cash for various manufacturing overhead costs.As a result of this transaction:

Lake Manufacturing estimated its product costs and production volume for the upcoming year by quarter as follows: 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Direct raw materials \ 390,000 \ 235,000 \ 350,000 \ 792,000 Direct labor 312,000 188,000 280,000 633,600 Manufacturing overhead Total production costs \ 936,000 \ 846,000 \ 1,050,000 \ 1,742,400 Estimated production in units 39,000 23,500 35,000 79,200 The company expects a significant increase in volume in the fourth quarter due to holiday sales.The company does not expect overhead costs,which are predominately fixed,to vary with production volume or to vary significantly from previous years.Selling prices are established using a cost plus pricing strategy where cost is the product's estimated quarterly cost.However,the company finds the wide variations in short-term unit cost difficult to use.Specifically,unit cost fluctuations complicate pricing decisions and many other decisions where cost is a consideration. Required: 1)Compute the company's expected cost per unit for each quarter of the year. 2)How would you suggest that overhead costs be estimated to solve the company's unit cost problem? Calculate the unit cost per quarter based on your recommendation.

The accounting records for Grant Manufacturing Company included the following cost information relating to its first year of operations: Direct materials \ 60,000 Direct labor \ 80,000 Fixed manufacturing overhead \ 100,000 Variable manufacturing overhead \ 20,000 Assume the company produced 10,000 units of inventory and sold 6,000 of these units during the year for $192,000.Under variable costing,what is the contribution margin for the year? (Ignore selling and administrative expenses. )

Manufacturing companies use a predetermined overhead rate;such rates are not used by service companies.

In a manufacturing business,the cost of direct materials being used is recorded in the:

Information about all three manufacturing inventory accounts is required to prepare the cost of goods manufactured and sold schedule.

Orlando Company paid $620 cash to purchase raw materials.How would this transaction affect Orlando's financial statements? Assets = Liab. + Equity Rev. - Exp. = Net Inc. Cash + Raw Matls. Inv.

Purchasing raw materials on account is a(n):

Product costs are reported on the income statement above gross margin.

The work in process account is debited when production workers are paid.