82. Williams Company is an East Coast producer of electronic furnace air filters. A significant
jump in new housing starts in the region has triggered a 25 percent increase in orders for the
filter units, especially the quality model that Williams sells for $270. Six weeks after increasing
production to supply the increased orders, the assistant controller notices some unusual unit cost
data in the monthly report she is preparing. Prior and current month unit values are given below:
Filter This Month Last Month Change
Average total cost $167.20 $171.14 -$3.96
Cost of last unit produced 104.90 101.22 +3.68
Required:
(1) Suggest some possible causes for the decline in average total cost.
(2) Assume now the opposite change has occurred, namely, average total cost has risen $3.96
per unit, while unit variable cost has fallen by $3.68 per unit. Suggest a possible situation to
explain these changes.
83. Roadmaster Equipment is an up-scale, higher-priced, specialty road construction
equipment maker based in Irvine, California. The management accountant for Roadmaster
compiled information for various levels of output in units:
Output
3,000 6,000 9,000
Variable production costs $162,000,000
Fixed production costs 235,000,000
Variable selling costs 36,000,000
Fixed selling costs 15,000,000
Total costs
Selling price per unit 155,000 155,000 155,000
Unit cost
Profit per unit
Required:
Rounding all calculations to the nearest dollar, fill in the blanks with the correct figures.
84. Choco Chocolata is a cookie company in Juarez, Mexico that produces and sells
American-style chocolate chip cookies with extremely high quality and service. The owner would
like to identify the various costs incurred during each year in order to plan and control the costs
in the business. Chocolata’s costs are the following (in thousands of pesos):
Utilities for the bakery $2,100
Paper used in packaging product 180
Salaries and wages in the bakery 23,500
Cookie ingredients 43,500
Bakery labor fringe benefits 1,300
Administrative costs 2,300
Bakery equipment maintenance 800
Depreciation of bakery plant and equipment 2,200
Uniforms for bakers 750
Insurance for the bakery 900
Rent for administration offices 18,500
Advertising 3,500
Boxes, bags, and cups used in the bakery 1,100
Office Manager’s salary 13,000
Overtime premiums 2,600
Idle Time 500
Required:
(1) What is the total amount of product costs?
(2) What is the total amount of period costs?
85. Young Fashions Company produces children’s clothing. During the current year, the
company incurred the following costs:
Factory rent $144,000
Direct labor used 525,000
Factory utilities 120,000
Direct materials purchases 850,000
Indirect materials 106,000
Indirect labor 96,000
Inventories for the year were:
January 1 December 31
Direct materials $220,000 $155,000
Work in process 160,000 128,000
Finished goods 320,000 310,000
Required:
Prepare a statement of cost of goods manufactured and cost of goods sold.
86. The following costs are incurred by the Oakland Company, a manufacturer of furniture.
1) wood and fabric used in furniture
2) depreciation on machinery
3) property taxes on the factory
4) labor costs to manufacture the furniture
5) electricity cost to operate the machinery
6) factory rent
7) production supervisor’s salary
8) sandpaper and other supplies
9) fire insurance on factory
10) commissions paid to salespersons
Required:
Classify each cost as either variable or fixed.
87. A portion of the costs incurred by business organizations is designated as direct labor
cost. As used in practice, the term direct labor cost has a wide variety of meanings. Unless the
meaning intended in a given context is clear, misunderstanding and confusion are likely to ensue.
If a user does not understand the elements included in direct labor cost, erroneous
interpretations of the numbers might occur and could result in poor management decisions.
Measurement of direct labor costs has two aspects: (1) the quantity of labor effort that is to be
included, that is, the types of hours or other units of time that are to be counted; and (2) the unit
price by which each of these quantities is multiplied to arrive at a monetary cost.
Required:
1) Distinguish between direct labor and indirect labor.
2) Presented below are labor cost elements that a company has been classified as direct labor,
factory overhead, or either direct labor or factory overhead depending upon the situation.
• Direct labor-Included in the company’s direct labor are cost production efficiency bonuses and
certain benefits for direct labor workers such as FICA (employer’s portion), group life insurance,
vacation pay, and workers’ compensation insurance.
• Factory overhead–The company’s calculation of manufacturing overhead includes the cost of
the following: wage continuation plans, the company sponsored cafeteria, the personnel
department, and recreational facilities.
• Direct labor or factory overhead-The costs that the company includes in this category are
maintenance expense, overtime premiums, and shift premiums.
• Explain the reasoning used by the company in classifying the cost elements in each of the three
categories.
88. Lester-Sung, Inc. is a large general construction firm in the commercial building industry.
The following is a list of costs incurred by this company:
1) The cost of an employee for 8 hours at $6.00 an hour.
2) The cost of insurance for the employees.
3) The cost of 1,000 board feet of 2×4 lumber.
4) The CEO’s salary.
Required:
Classify each cost above using the following categories:
89. Advanced Technical Services Ltd., has many products and services in the medical field.
The Clinical Division of the company does research and testing of consumer products on human
participants in controlled clinical studies.
Required:
Determine for each cost below whether it is best classified as a fixed, variable, or step-fixed
cost.
90. The following data relates to the Solar Products Company for the fiscal year ended
December 31:
Direct Materials Inventory, Beginning $60
Direct Materials Inventory, Ending 40
Direct Materials Purchases 290
Direct Labor 33
Finished Goods Inventory, Beginning 90
Finished Goods Inventory, Ending 100
Factory Overhead 155
Work-in-Process Inventory, Beginning 80
Work-in-Process Inventory, Ending 60
Required:
Prepare a statement of cost of goods manufactured and a statement of cost of goods sold.
91. The following information applies to the Johnson Tools Company for the year.
Factory Rent $330,000
Direct Materials Inventory, Beginning 96,000
Direct Materials Inventory, Ending 87,000
Direct Materials Purchases 654,000
Direct Labor-Wages 425,000
Indirect Labor-Wages 28,000
Finished Goods Inventory, Beginning 25,000
Finished Goods Inventory, Ending 44,000
Indirect Materials 66,000
Plant Utilities 40,000
General and Administrative 101,350
Work-in-Process Inventory, Beginning 27,000
Work-in-Process Inventory, Ending 33,000
Marketing Expenses 225,000
Sales Revenue 2,550.000
Required:
Prepare a statement of cost of goods manufactured and an income statement for the year.