Exam 11: Product Costing in Service and Manufacturing Entities

The accounting records for Grant Manufacturing Company included the following cost information relating to its first year of operations: Direct materials \6 0,000 Direct labor \8 0,000 Fixed manufacturing overhead \1 00,000 Variable manufacturing overhead \2 0,000 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.)

Frost 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 $300 of direct raw materials. 3)Used $100 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 raw material inventory on the balance sheet at the end of the accounting period would be:

What characteristic or feature of a service company distinguishes such a business from a manufacturing company?

Oakland Company paid $200 cash for various manufacturing overhead costs,not before recorded.How does this transaction affect the financial statements?

Burke Company produced 8,000 units of inventory and sold 6,000 of them.The company incurred the following production costs: Variable manufacturing cost: $6.00 per unit Fixed manufacturing overhead cost: $24,000 Assuming the company sells its product at a price of $15 per unit,and incurred $10,000 in selling and administrative costs,what is the amount of net income under absorption costing?

Debits in the work in process account consist of actual direct material costs,actual direct labor costs,and estimated manufacturing overhead costs.

The Hamilton Company planned to produce 150,000 units during the current year.At that production volume,the company estimated that its overhead costs would amount to $637,500. Required: 1)Calculate the predetermined overhead rate per unit based on expected production. 2)Assume that actual output totaled only 145,000 units but the actual overhead cost incurred was $637,500,as expected.How much overhead cost was allocated to work in process? By how much was overhead overapplied or underapplied during the period? (Be sure to indicate whether over- or underapplied.) 3)Assume that actual output totaled 150,000 units,as expected,but actual overhead costs amounted to $600,000.How much overhead cost was allocated to work in process? By how much was overhead overapplied or underapplied during the period? (Be sure to indicate whether over- or underapplied.) 4)Summarize the conditions that lead to over- or underapplied overhead.

Ferguson Company sold goods that had cost $950 to manufacture.How does this transaction affect the financial statements? Assets = Liabilities + Equity Revenue - Expenses = Net Income

In calculating product costs,actual direct materials and actual direct labor are charged to the Work in Process account; however,an estimated amount of overhead is charged to the account.Why is overhead accounted for differently than the other costs of production?

On December 31,Year 1,Zeus Manufacturing reported the following balances in its inventory accounts: Account Balance Raw materials inventory \ 21,000 Work in process inventory 32,500 Finished goods inventory 36,500 The following events occurred during Year 2: a)purchased raw materials for cash,$375,000 b)raw materials used to make products,$359,500 c)direct labor costs of $204,000 were paid in cash d)estimated overhead applied to work in process,$183,600 e)paid cash for actual overhead costs,$180,500 f)completed products that cost $704,500 g)sold goods that had cost $696,000 for $985,000 cash h)paid cash for selling and administrative expenses,$206,000 Required: 1)Prepare Zeus's schedule of cost of goods manufactured and sold for Year 2. 2)Prepare the income statement for Year 2. 3)Calculate the balances in the Raw Materials,Work in Process,and Finished Goods Inventory accounts as of December 31,Year 2.

The cost of goods completed during a period is transferred from the Finished Goods Inventory account to Cost of Goods Sold.

Orlando Company paid $700 cash for production workers' wages.How does this transaction affect the financial statements?

All of the following are reasons to assign estimated overhead to inventory except:

What is a volume variance,and what is its cause? Under what circumstances is the volume variance unfavorable?

Indicate whether each of the following statements is true or false. The schedule of cost of goods manufactured and sold is included as part of a company's income statement.______ The schedule of cost of goods manufactured and sold indicates the amount of direct raw materials used during the period.______ Direct raw materials used + direct labor + applied manufacturing overhead = cost of goods manufactured.______ Cost of goods manufactured + ending finished goods - beginning finished goods = cost of goods sold.______ Cost of goods manufactured is calculated on the schedule of cost of goods manufactured and sold and is reported on the income statement.______

For a manufacturer,direct costs include direct materials,direct labor,and manufacturing overhead.

Haas Company paid $48,000 cash to purchase raw materials.The recognition of this event will:

Select the response that best illustrates the point that product cost flows are cyclical and occur in a specific sequence.

Why does a service company need cost information about the services it provides?

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