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Chapter 16: Q16-5SE-g (page 886)
Identifying product costs and period costs Classify each cost of a paper manufacturer as either a product cost or a period cost:
g. Depreciation on the manufacturing plant.
The depreciation of the manufacturing plant comes under the product cost.
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Power Switch, Inc. designs and manufactures switches used in telecommunications. Serious flooding throughout North Carolina affected Power Switch’s facilities. Inventory was completely ruined, and the company’s computer system, including all accounting records, was destroyed.
Before the disaster recovery specialists clean the buildings, Stephen Plum, the company controller, is anxious to salvage whatever records he can to support an insurance claim for the destroyed inventory. He is standing in what is left of the accounting department with Paul Lopez, the cost accountant.
“I didn’t know mud could smell so bad,” Paul says. “What should I be looking for?”
“Don’t worry about beginning inventory numbers,” responds Stephen, “we’ll get them from last year’s annual report. We need first-quarter cost data.”
“I was working on the first-quarter results just before the storm hit,” Paul says. “Look, my report is still in my desk drawer. All I can make out is that for the first quarter, direct material purchases were \(476,000 and direct labor, manufacturing overhead, and total manufacturing costs to account for were \)505,000, \(245,000, and \)1,425,000, respectively. Wait! Cost of goods available for sale was \(1,340,000.”
“Great,” says Stephen. “I remember that sales for the period were approximately \)1,700,000. Given our gross profit of 30%, that’s all you should need.”
Paul is not sure about that but decides to see what he can do with this information. The beginning inventory numbers were:
• Direct Materials, \(113,000
• Work-in-Process, \)229,000
• Finished Goods, $154,000
Requirements
1. Prepare a schedule showing each inventory account and the increases and decreases to each account. Use it to determine the ending inventories of Direct Materials, Work-in-Process, and Finished Goods.
2. Itemize a list of the cost of inventory lost.
Computing cost of goods sold and operating income, merchandising company
Consider the following partially completed income statements for merchandising companies and compute the missing amounts:
Smith, Inc. Allen, Inc.
Net Sales Revenue \( 101,000 \) (d )
Cost of Goods Sold:
Beginning Merchandise Inventory (a) 29,000
Purchases and Freight In 50,000 (e)
Cost of Goods Available for Sale (b) 89,000
Ending Merchandise Inventory (2,200) (2,200)
Cost of Goods Sold 61,000 (f)
Gross Profit 40,000 114,000
Selling and Administrative Expenses (c ) 84,000
Operating Income \( 12,000 \) (g)
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.
Identifying product costs and period costs Classify each cost of a paper manufacturer as either a product cost or a period cost:
f. Cost of TV ads.
This is the first problem in a sequence of problems for Piedmont Computer Company, a manufacturer of personal computers and tablets. During its first month of manufacturing, Piedmont Computer Company incurred the following manufacturing costs:
Balances: Beginning Ending
Direct Materials \( 10,500 \) 9,700
Work-in-Process Inventory 0 17,000
Finished Goods Inventory 0 31,000
Other information:
Direct materials purchases $ 16,000
Plant janitorial services 500
Sales salaries expense 10,000
Delivery expense 1,600
Sales revenue 1,100,000
Utilities for plant 16,000
Rent on plant 9,000
Customer service hotline costs 19,000
Direct labor 210,000
Prepare a schedule of cost of goods manufactured for Piedmont Computer Company for the month ended January 31, 2020.
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