Accounting Chapter 2 Homework This Period Cost Jjamie Working Company Headquarters And Her Salary Part Of administrative

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CHAPTER 2 Basic Managerial Accounting Concepts

E 2-48

1. Sales Revenue = Number of Units Sold × Selling Price

= 280,000 units × $12

= $3,360,000

Sales revenue……………………………………………………………

…

Cost of goods sold*………………………………………………………

Gross profit………………………………………………………………

…

Less:

Selling expense………………………………………………………

…

E 2-49

Sales &

Expenses

Less:

Selling expense…………………………………

…

437,000 13.0

Administrative expense………………………

…

854,000 25.4

Operating income…………………………………

…

$1,274,000 37.9

See solution to Exercise 2-48, Requirement 2.

Sales revenue: $3,360,000/$3,360,000 = 1.00, or 100%

Cost of goods sold: $795,000/$3,360,000 = 0.237, or 23.7%

$2,565,000

of Sales

Percent

Jasper Company

Income Statement

For the Last Yea

437,000

Jasper Company

Income Statement

For the Last Yea

$3,360,000

795,000

CHAPTER 2 Basic Managerial Accounting Concepts

E 2-49 (Concluded)

2. The income statement showing each account as a percentage of sales helps focus

managerial attention on those expenses that are relatively high. For Jasper, it

appears as though administrative expense is twice as large as selling expense.

E 2-50

a (Direct Materials Used in Production) = Beginning Inventory Direct Materials +

Purchases – Ending Inventory Direct Materials

a = $10,000 + $45,000 – $15,000

= $40,000

To find b, one can rearrange the Cost of Goods Manufactured equation to solve for

Direct Labor Used in Production (i.e., the unknown, or b):

Thus, in order to find b, we first need to calculate Cost of Goods Manufactured as

follows:

Cost of Goods Manufactured = Cost of Goods Sold – Beginning Finished Goods

Inventory + Ending Finished Goods Inventory

COGM = $169,000 – $8,000 + $7,000

= $168,000

Finally, inserting Cost of Goods Manufactured into the earlier equation:

b = $168,000 – $40,000 – $80,000 – $17,000 + $14,000

= $45,000

c (Direct Materials Beginning Inventory for Year 2) = Direct Materials Ending

Inventory for Year 1 = $15,000

CHAPTER 2 Basic Managerial Accounting Concepts

E 2-50 (Concluded)

So, COGM = Direct Materials Used in Production + Direct Labor Used in Production +

MOH Costs Used in Production + Beginning WIP Inventory – Ending WIP Inventory

CHAPTER 2 Basic Managerial Accounting Concepts

P 2-51

1. Direct Direct Manufact.

Materials Labo

Overhead

Hamburger meat…………………………

…

$4,500

Buns, lettuce, pickles, and onions……

…

800

Frozen potato strips……………………

…

1,250

Utilities……………………………………

…

$1,500

Rent………………………………………… 1,800

Depreciation, cooking equipment

and fixtures……………………………

…

600

Advertising………………………………

…

500

Janitor’s wages…………………………

…

520

Janitorial supplies………………………

…

150

…

Explanation of Classification

Direct materials include all the food items that go into a burger bag, as well as the

condiment packages and the wrappers and bags themselves. These materials go

“out the door” in the final product. “Other ingredients” might include the oil to fry

the potato strips and grease the frying surface for the hamburgers and the salt for

the fries. They are direct materials but could also be classified as overhead because

of cost and convenience.

Selling and

Administrative Cost

PROBLEMS

…

CHAPTER 2 Basic Managerial Accounting Concepts

P 2-51 (Concluded)

Sales ($3.50 × 10,000)………………………………………………… $35,000

Less cost of goods sold:

Direct materials…………………………………………………

…

$7,810

3. Elena’s simplifying assumptions were:

(1) all part-time employees are production workers,

These make it easy to classify 100% of each expense as product cost or selling

and administrative cost. The result is that she does not have to perform studies

of the time spent by each employee on producing versus selling burger bags. In

addition, it is likely that John Peterson pitches in to help fry burgers or assemble

burger bags when things get hectic. Of course, during those times, he is engaged

in production—not selling or administration. The cost of determining just exactly

how many minutes of each employee’s day is spent in production versus selling

is probably not worth it. (Remember, accountants charge by the number of hours

spent—the more time Elena spends separating costs into categories, the higher

Pop’s Drive-Thru Burger Heaven

Income Statement

For the Month of Decembe

…

CHAPTER 2 Basic Managerial Accounting Concepts

P 2-52

1. Cost per Page for Black Ink = $25.50 = $0.03

850 pages

Total Owed to Harry by Mary = $0.03 × 500 pages = $15

Total Owed to Harry by Natalie = $0.03 × 1,000 pages = $30

3. Cost per Page for Color Ink = $31 = $0.10

310 pages

Number of Black Ink Pages for Natalie = 1,000 × 0.80 = 800

Number of Color Ink Pages for Natalie = 1,000 × 0.20 = 200

Total Owed to Harry by Natalie = ($0.03 × 800 pages) + ($0.10 × 200) = $44

Total Cost to Natalie = [($0.03 + $0.005) × 800 pages] + [($0.10 + $0.005)

× 200 pages] = $49

P 2-53

1. Direct Materials = $40,000 + $64,000 – $19,800 = $84,200

…

3. Cost of goods manufactured………………………………………………

…

$224,950

Finished goods inventory, July 1…………………………………………

…

23,200

Finished good inventory, July 31…………………………………………

…

(22,100)

Cost of goods sold………………………………………………………

…

$226,050

CHAPTER 2 Basic Managerial Accounting Concepts

P 2-54

1. Direct materials……………………………

…

$18

Direct labor…………………………………

…

Manufacturing overhead…………………

…

Unit product cost………………………

…

$46

Total Product Cost = $46 × 200,000 units = $9,200,000

Sales revenue ($60 × 200,000)…………………………………………

…

$12,000,000

Cost of goods sold………………………………………………………

…

9,200,000

Gross margin……………………………………………………………

…

$ 2,800,000

Less:

3. The 10,000 tents in beginning finished goods inventory have a cost of $40, and

that is lower than the year’s unit product cost of $46. The FIFO assumption says

that beginning inventory is sold before current year production. Therefore, the

cost of goods sold will be lower than it would be if there were no beginning

inventory. This can be seen in the following statement of cost of goods sold.

Laworld Inc.

Income Statement

For Last Year

…

CHAPTER 2 Basic Managerial Accounting Concepts

P 2-54 (Concluded)

Sales revenue ($60 × 200,000)…………………………………………

…

$12,000,000

Cost of goods sold………………………………………………………

…

9,140,000

Gross margin………………………………………………………………

…

$ 2,860,000

P 2-55

1. Direct Materials = $3,475 + $15,000 – $9,500 = $8,975

Direct materials used…………………………………… $ 8,975

Direct labor………………………………………………

…

10,500

Manufacturing overhead:

Factory supplies……………………………………

…

$ 675

Factory insurance……………………………………

…

350

…

Cost of goods manufactured……………………………………………

…

$24,725

…

For the Month of May

Hayward Company

Statement of Cost of Goods Manufactured

For the Month of May

Hayward Company

Revised Income Statement

For Last Year

Laworld Inc.

Statement of Cost of Goods Sold

…

CHAPTER 2 Basic Managerial Accounting Concepts

P 2-56

1. c. These costs include direct materials, direct labor, and manufacturing

overhead. The total of these three types of costs equals product cost.

2. a. If Linda returns to school, she will need to quit her job. The lost salary is the

opportunity cost of returning to school.

5. i. All factory costs other than direct materials and direct labor are, by definition,

overhead.

6. d. The design engineer is estimating the total number of labor hours required to

complete the manufacturing of a product. This total will be used to compute

direct labor cost.

7. h. This is direct materials cost.

8. g. The sum of direct materials and direct labor is, by definition, prime cost.

CHAPTER 2 Basic Managerial Accounting Concepts

P 2-57

1. Before COGM can be calculated, Direct Materials Used in Production must first be

calculated as:

Direct Materials Used in Production = Beginning Direct Materials Inventory +

Direct Materials Purchases – Ending Direct Materials Inventory

= $20,000 + $40,000 – $10,000

= $50,000

Now,

CHAPTER 2 Basic Managerial Accounting Concepts

P 2-57 (Concluded)

Sales ($2,100 × 700)…………………………………………………………

…

$1,470,000

Cost of goods sold…………………………………………………………

…

930,000

Gross margin……………………………………………………………

…

$ 540,000

4. The dominant cost is direct labor cost of $800,000. Direct labor is the dominant

cost because Berry’s core business is creating building plans, which is a labor-

P 2-58

Direct materials*…………………………………………

…

$300,000

Direct labor…………………………………………………

…

200,000

Manufacturing overhead:

Indirect labor…………………………………………… $40,000

Rent, factory building………………………………… 42,000

Depreciation, factory equipment…………………… 60,000

Utilities, factory………………………………………

…

11,900 153,900

Income Statement

Berry Company

Statement of Cost of Goods Manufactured

For Last Yea

W. W. Phillips Company

…

CHAPTER 2 Basic Managerial Accounting Concepts

P 2-58 (Concluded)

2. Average Cost of One Unit of Product = $652,000 = $163

4,000

Sales ($400 × 3,800*)……………………………….…………

…

$1,520,000

Cost of goods sold**…………………………………………

…

617,900

Gross margin…………………………………………………

…

$ 902,100

Less:

Selling expense:

*Units Sold = 4,000 + 500 – 700 = 3,800

** Cost of Goods Sold = $652,000 + $80,000 – $114,100 = $617,900

P 2-59

1. The Internet payment of $40 is an expense that would appear on the income

statement. This is because the Internet services are used up each month

—

Luisa

cannot “save” any unused Internet time for the next month.

W. W. Phillips Company

Income Statement

For Last Year

CHAPTER 2 Basic Managerial Accounting Concepts

P 2-60

1. Direct materials:

Magazine (5,000 × $0.40)…………………………………

…

$2,000

Brochure (10,000 × $0.08)…………………………………

…

800 $2,800

Direct labor:

Magazine (5,000/20 × $10)…………………………………

…

$2,500

Brochure (10,000/100 × $10)………………………………

…

1,000 3,500

*Production is 20 units per printing hour for magazines and 100 units per printing hour for

brochures, yielding monthly machine hours of 350 [(5,000/20) + (10,000/100)]. This is also

monthly labor hours as machine labor only operates the presses.

2. Direct materials…………………………………………………

…

$2,800

Direct labor………………………………………………………

…

3,500

Total prime costs……………………………………………

…

$6,300

Magazine:

Direct materials……………………………………………… $2,000

Direct labor…………………………………………………

…

2,500

Total prime costs………………………………………

…

$4,500

…

3. Total monthly conversion cost:

Direct labor…………………………………………………

…

$3,500

Manufacturing overhead…………………………………

…

3,190

Total………………………………………………………

…

$6,690

Magazine:

Direct labor…………………………………………………… $2,500

…

CHAPTER 2 Basic Managerial Accounting Concepts

P 2-60 (Concluded)

Brochures:

Direct labor………………………………………………

…

$1,000

Manufacturing overhead:

Power ($1 × 100)……………………………………… $100

Depreciation ($2 × 100)……………………………

…

200

Setups (1/3 × $600)…………………………………

…

200

Rent and insurance ($4.40 × 100 DLH)*…………

…

440 940

Total ………………………………………………

…

$1,940

4. Sales [(5,000 × $1.80) + (10,000 × $0.45)]………………

…

$13,500

Less cost of goods sold……………………………………

…

9,490

Gross margin…………………………………………………

…

$ 4,010

Less operating expenses:

Selling ……………………………………………………

…

$ 500 **

Administrative …………………………………………… 1,500 *** 2,000

…

CHAPTER 2 Basic Managerial Accounting Concepts

P 2-61

1. The costs of the tent sales are accounted for as selling expense. The tent

sales are designed to sell outdated or remanufactured products. They are

2. Revenue…………………………………………………………………

…

$ 20,000

Cost of goods sold……………………………………………………

…

(7,000)

Tent sale expense……………………………………………………

…

(14,300)

Tent sale loss………………………………………………………

…

$ (1,300)

A couple of actions could be taken. First, it could look for a more

CHAPTER 2 Basic Managerial Accounting Concepts

Case 2-62

(DL) Machine operators Sales salaries

(DL) Other direct labor

dvertising

(OH) Supervisory salaries

(DM) Pipe

2. Traceable costs using equipment hours:

Machine operators…………………………

…

$ 218,000

Other direct labor…………………………… 265,700

Pipe……………………………………………

…

1,401,340

Machine operators, tires and fuel, and depreciation are all directly caused by

equipment usage, which is measured by equipment hours. One can also argue that

the amount of mechanic time required is also a function of equipment hours and so

the salaries of mechanics can be assigned using equipment hours. Pipe and other

direct labor can be assigned using equipment hours because their usage should

be highly correlated with equipment hours. That is, equipment hours increase

CASES

Production Selling

Administrativ

Utilities

Rent

CPA fees

Adm. salaries

CHAPTER 2 Basic Managerial Accounting Concepts

Case 2-63

1. Leroy should politely and firmly decline the offer. The offer includes an implicit

request to use confidential information to help Jean win the bid. Use of such

information for personal advantage is wrong. Leroy has a professional and

personal obligation to his current employer. This obligation must take

precedence over the opportunity for personal financial gain.

2. If Leroy agrees to review the bid, he will likely use his knowledge of his current

employer’s position to help Jean win the bid. In fact, agreement to help probably

would reflect a desire for the bonus and new job with the associated salary

increase. Helping would likely ensure that Jean would win the bid. Leroy was

concerned about the political fallout and subsequent investigation revealing

his involvement—especially if he sent up a red flag by switching to his friend’s

firm. An investigation may reveal the up-front bonus and increase the