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Chapter 16: 112RQ (page 885)
Give five examples of manufacturing overhead.
Examples of manufacturing overhead are indirect labor, indirect materials, repair, and maintenance cost, property tax, and rent.
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Classifying period costs and product costs
Langley, Inc. is the manufacturer of lawn care equipment. The company incurs the following costs while manufacturing edgers:
• Handle and shaft of edger
• Motor of edger
• Factory labor for workers assembling edgers
• Lubricant used on bearings in the edger (not traced to the product)
• Glue to hold the housing together
• Plant janitorial wages
• Depreciation on factory equipment
• Rent on plant
• Sales commissions
• Administrative salaries
• Plant utilities
• Shipping costs to deliver finished edgers to customers
Requirements
1. Describe the difference between period costs and product costs.
2. Classify Langley’s costs as period costs or product costs. If the costs are product costs, further classify them as direct materials, direct labor, or manufacturing overhead.
How does a merchandising company calculate unit cost per item?
Determining the flow of costs through a manufacturer’s inventory accounts
True Fit Shoe Company makes loafers. During the most recent year, True Fit incurred total manufacturing costs of \(21,900,000. Of this amount, \)2,600,000 was direct materials used and \(14,800,000 was direct labor. Beginning balances for the year were Direct Materials, \)700,000; Work-in-Process Inventory, \(1,500,000; and Finished Goods Inventory, \)1,100,000. At the end of the year, balances were Direct Materials, \(800,000; Work-in-Process Inventory, \)2,000,000; and Finished Goods Inventory, $1,080,000.
Requirements Analyze the inventory accounts to determine:
1. Cost of direct materials purchased during the year.
2. Cost of goods manufactured for the year.
3. Cost of goods sold for the year.
Describe a service company, and give an example.
Question:Determining flow of costs through a manufacturer’s inventory accounts
Root Shoe Company makes loafers. During the most recent year, Root incurred total manufacturing costs of \(26,300,000. Of this amount, \)2,000,000 was direct materials used and \(19,800,000 was direct labor. Beginning balances for the year were Direct Materials, \)700,000; Work-in-Process Inventory, \(1,500,000; and Finished Goods Inventory, \)400,000. At the end of the year, balances were Direct Materials, \(800,000; Work-in-Process Inventory, \)1,200,000; and Finished Goods Inventory, $600,000.
Requirements Analyze the inventory accounts to determine:
1. Cost of direct materials purchased during the year.
2. Cost of goods manufactured for the year.
3. Cost of goods sold for the year.
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