chp 2 (Assignment Question ).doc

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Assignment 1: Chapter 2: Cost Concepts

Question 1: Classify the cost as either Product cost or Period cost.

Product

Cost

Period Cost

1. Deprecation on sales person’s cars.

2. Rent on equipment used in the factory.

3. Lubricants used for machine maintenance.

4. Salaries for the personal who work in the finished goodwarehouse.

5. Soap and Paper towels used by factory workers at the endof a shift.

6. Factory supervisors salary

7. Heat water and power consumed in the factory.

8. Materials used for boxing products for shipment overseas

9. Advertising cost

10. Worker compensation insurance for factory employees.

11. Deprecation on chairs and tables in the factory lunchroom.

12. The wages of the receptionist in the administrative offices.

13. Cost of leasing the corporate jet used by the company’sexecutive.

14. The cost of renting rooms at Florida resort for the annual salesconference

15. The cost of packaging the company’s product.

Question 2: Classify each cost as a variable or fixed with respected to the indicatedmeasure of activity.

Cost Behavior

CostMeasure of

activityVariable Fixed

1.The cost of X-ray film used in the radiology lab inhospital

No of X-raytaken

2.The cost of advertising a rock concert in newyork city No of ticket sold

3.The cost of renting retail space for McDonald’s

restaurant

Total Sales at

the restaurant4.The electrical cost of running roller coaster at magicmountain

Number of times the roller coaster is run

5.Property taxes paid by your local cinema theater No of ticketssold

6.The cost of sales commissions paid to sales persons at astore

Total sales at thestore

7.Property insurance on a Coca Cola bottling plant No of cases of bottles produced

Compiled by: MOZAM MUSHTAQ 1 Lecturer of

Commerce Hi-Aims CLG SGD



8.The costs of shipping Panasonic television to retail storeThe number of television sold.

Question 3: The following cost and inventory data are taken from the accounting

records of Mason Company for the year completed

Cost incurredDirect labor cost 70,000Purchases of raw materials 118,000Manufacturing overhead 80,000Advertising expense 90,000Sales Salaries 50,000Deprecation, office equipment. 3,000

Beginning of the year End of the year

Inventories

Raw materials 7,000 15,000Work in process 10,000 5,000Finished goods 20,000 35,000

Required:

1. Prepare a schedule of cost of goods manufactured.

2. Prepare the cost of goods sold section of Mason Company’s statement for the year.

Question 4: Various cost and sales data for Meriwell Company are given below.

Finished goods inventory, beginning 20,000Finished goods inventory, ending 40,000Administrative expenses 110000Manufacturing expense 105,000Purchase of raw material 125,000Raw materials inventory, beginning 9,000Raw materials inventory, ending 6,000Direct labor 70,000Work in process inventory , beginning 17,000Work in process inventory, ending 30,000

Sales 5,00,000Selling expense 80,000

Of the $105000 of manufacturing overhead, $15,000 is variable and $ 90,000 is fixed

Required:

1. Prepare a schedule of cost of goods Manufactured.

2. Prepare an income statement.

3. Assume that the company produced the equivalent of 10, 000 units of product during the year just completed. What was the average cost per unit for direct materials? What was the averagecost per unit for fixed manufacturing overhead.

4. Assume that the company expect to produce15, 000 units of product during the coming year.What average cost per unit and what total cost would you expect the company to incur for direct materials at this level of activity? For fixed manufacturing overhead? Assume thatdirect material us variable cost.





Question 5:

Selected balance from the year ended December 31st are provided below for Superior Company

Selling and administrative salaries 110,000Purchases of raw materials 290,000Direct labor ?Advertising expense 80,000Manufacturing overhead 270,000Sales commissions 50,000

Inventory balances at the beginning and end of the year were as follow.

Beginning of the year End of the year

InventoriesRaw materials 40,000 10,000Work in process ? 35,000Finished goods 50,000 ?

The total manufacturing cost for the year were $ 683,000: the goods available for sale totaled $740,000: and the cost of good sold totaled $ 660.000

Required:

1. Prepare a schedule of cost of goods manufactured and the cost of goods sold section of thecompany’s income statement of the year.

2. Assume that the dollar amounts given above are for the equivalent of 40,000 units producedduring the year. Compute the average cost per unit for direct materials used and the averagecost per unit for manufacturing overhead.

3. Assume that in the following year the company expects to produce 50,000 units andmanufacturing overhead is fixed. What average cost per unit and total cost would you expectto be incurred for direct materials? For manufacturing overhead? (Assume that direct materialis a variable cost)

Question 6: The Devon motor company produces Motorcycles. During April, the company

purchased 8000 batteries at a cost of $ 10 per battery. Devon withdrew 7600 batteries from the store

room during the month. Of these, 100 were used to replace batteries in motor cycle used by the

company’s travelling sales staff. The remaining 7500 batteries withdrawn from the store room were

placed in motor cycles being produced by the company. Of the motorcycles in production during the

April, 90 % were completed and transferred from work in process to finished goods. Of the motor

cycles, completed during the month, 30 % were unsold at April 30.

There were no inventories of any type on April 1.

Required:

1) Determine the cost of batteries that would appear in each of following accounts at april 30.

a) Raw materials

b) Work in process

c) Finished goods

d) Cost of goods sold





e) Selling expense.

2) To specify whether each of the above accounts would appear on the balance sheet or on the

Income Statement at April 30.

Question 7: Visic Corporation, a manufacturing company produces a single product the

following information from company records

Production in units 29,000Sales in units ?Ending finished goods inventory in ?Sales in dollars 13,00,000Costs;

Direct labor 90,000Raw material purchased 480,000Manufacturing overhead 300,000Selling and administrative expense 380,000

Beginning of the year End of the

year

InventoriesRaw materials 20,000 30,000Work in process 50,000 40,000Finished goods 0 ?

The finished goods inventory is being carried at the average unit production cost for the year . theselling price of the product is $ 50 per unit.

Required:

1-Prepare a schedule of cost of goods manufactured for the year

2- Compute the following

a. The number of units in the finished goods inventory at the end of the year

b. The cost of the units in the finished goods inventory at the end of the year

3- Prepare an income statement for the year

Question 8:

Supply the missing data in the following cases. Each case is independent of the other.

Case 1 Case 2 Case 3 Case 4

Schedule of Cost of goods Manufactured

Direct Materials 4,500 6,000 5,000 3,000

Direct Labor ? 3,000 7,000 4,000

Manufacturing overhead 5,000 4,000 ? 9,000

Total manufacturing cost 18,500 ? 20,000 ?

Beginning work in process inventory 2,500 ? 3,000 ?Ending work in process inventory ? 1,000 4,000 3,000

Cost of goods Manufactured 18,000 14,000 ? ?

Income Statement

Sales 30,000 21,000 36,000 40,000

Beginning finished goods inventory 1,000 2,500 ? 2,000

Costs of goods manufactured 18,000 14,000 ? 17,500

Goods available for sale ? ? ? ?

Ending finished goods inventory ? 1,500 4,000 3,500





Cost of goods sold 17,000 ? 18,500 ?

Gross margin 13,000 ? 17,500 ?

Selling and administrative expenses ? 3500 ? ?

Net Operating Income 4,000 ? 5,000 9,000



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