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Exam 2: Cost Concepts and Behavior

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Question 71

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During April, the Meade Enterprises had the following operating results: $\begin{array} { l r r } \text { Sales revernue } & \$ 1,500,000 \\\text { Gross margin } & \$ 600,000 \\\text { Ending work-in-process inventory } & \$ 50,000 \\\text { Beginning work-in-process inventory } & \$ 80,000 \\\text { Ending finished goods inventory } & \$ 100,000 \\\text { Beginnirng finished goods inventory } & \$ 125,000 \\\text { Marketing costs } & \$ 250,000 \\\text { Administrative costs } & \$ 150,000\end{array}$ What is the cost of goods manufactured for April?

A) $900,000
B) $875,000
C) $925,000
D) $905,000

E) All of the above
F) A) and D)

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Question 72

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An example of a period cost is:

A) fire insurance on a factory building.
B) salary of a factory supervisor.
C) direct materials.
D) rent on a headquarters building.

E) A) and B)
F) A) and C)

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Question 73

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An expense is a cost charged against revenue in an accounting period.

The Foxboro Manufacturing Company provided you with the following information for the fiscal year ended December 31. $\begin{array} { l r } \text { Work-in-process irventory, 12/31 } & 57,900 \\\text { Finished goods irventory, } 1 / 1 & 307,400 \\\text { Direct labor costs incurred } & 1,004,300 \\\text { Marnfacturing overhead costs } & 2,693,400 \\\text { Direct materials irventory, } 1 / 1 & 250,800 \\\text { Finished goods irventory, } 12 / 31 & 511,000 \\\text { Direct materials purchased } & 1,750,200 \\\text { Work-in-process irventory, } 1 / 1 & 101,000 \\\text { Direct materials irventory, } 12 / 31 & 169,400\end{array}$ Required: (a) Compute the total manufacturing costs incurred during the year. (b) Compute the total work-in-process during the year. (c) Compute the cost of goods manufactured during the year. (d) Compute the cost of goods sold during the year. (e) Compute the total prime costs for the year. (f) Compute the total conversion costs for the year.

Which of the following statements is (are) true? (1) The term full cost refers to the cost of manufacturing and selling a unit of product and includes both fixed and variable costs. (2) The fixed cost per unit is considered constant despite changes in volume of activity within the relevant range.

Under full absorption costing, which of the following are included in product costs?

The beginning Finished Goods Inventory plus the cost of goods manufactured equals

Manufacturing overhead:

Consider the following cost and production information for Darrell Building Components, Inc. Additional information: ∙ Sales revenue: $5,200,000. ∙ Beginning inventory: $275,000. ∙ The only spending increase was for materials cost due to increased production. All other spending as shown above was unchanged. ∙ Sales of all parts are the same as the number of units produced. Darrell Building Components, Inc. uses the absorption costing method. Required: (a) Compute the (1) gross margin, (2) operating income, and (3) ending inventory for Darrell Building Components, Inc. (b) Assume that production of part D-1251 increases by 25 units during the given period (sales remain constant). Re-compute the above amounts. (c) Thane Smith, the cost manager of Darrell Building Components, argues with the controller that variable costing is a better method for product costing. Using the information in part (b) above, re-compute the operating income for Darrell Building Components using variable costing. Explain any differences in the operating incomes obtained under the two different methods.

Fowler Retail has collected the following information for August: $\begin{array}{lr}\text { Sales revenue } & \$ 1,155,000 \\\text { Storerent } & 58,800 \\\text { Utilities } & 40,400 \\\text { Sales commissions } & 173,300\\\text { Merchandise inventory, } 8 / 1 & 87,220 \\\text { Merchandise inventory, } 8 / 31 & 82,740 \\\text { Freight-in } & 30,300 \\\text { Administrative costs } & 80,600 \\\text { Merchandise purchases } & 763,700\end{array}$ Required: Prepare a gross margin income statement for the month of August.

A cost allocation rule is the method or process used to assign the costs in the ________ to the ________.

The Younce Equipment Company provided you with the following information for the fiscal year ended December 31. $\begin{array}{lr}\text { Work-in-process inventory, 12/31 } & \$ 28,950 \\\text { Finished goods inventory, 1/1 } & 153,700 \\\text { Direct labor costs incurred } & 502,150 \\\text { Manufacturing overhead costs } & 1,364,700 \\\text { Direct materials inventory, 1/1 } & 125,400\\\text { Finished goods inventory, 12 / 31 }&255,500\\\text { Direct materials purchased}&875,100\\\text { Work-in-process inventory, \( 1 / 1 \)}&50,500\\\text { Direct materials inventory, \( 12 / 31 \)}&84,700\end{array}$ Required: (a) Compute the total manufacturing costs incurred during the year. (b) Compute the total work-in-process during the year. (c) Compute the cost of goods manufactured during the year. (d) Compute the cost of goods sold during the year.

A number of costs and measures of activity are listed below. Required: For each item above, indicate whether the cost is MAINLY fixed or variable with respect to the possible measure of activity listed next to it.

The information below has been taken from the cost records of Toro Corp. for the past year: $\begin{array}{llr} \text { Raw materials used in production } &\$572\\ \text {Total manufacturing costs charged to production during the year (includes } &\\ \text { \$ 255 of factory overhead) } &1,095\\ \text {Cost of goods available for sale } &1,415\\ \text { Selling \( \mathcal{\&} \) administrative expenses} &255\\\end{array}$ $\begin{array} { | l | c | c | } \hline \text { Inventories: } & \text { Beginning } & \text { Ending } \\\hline \text { Direct materials } & 175 & 155 \\\hline \text { Work in process } & 220 & 190 \\\hline \text { Finished goods } & 290 & 310 \\\hline\end{array}$ Required: (a) Calculate the cost of direct materials purchased during the year. (b) Calculate the direct labor costs charged to production during the year. (c) Calculate the cost of goods manufactured during the year. (d) Calculate the cost of goods sold for the year.

Cost of goods sold includes the actual costs of the goods sold and the costs required to sell them to the customer.

Which of the following should be considered part of a manufacturing company's direct labor cost?

The three categories of product costs are direct materials, direct labor, and manufacturing overhead.

Explain the difference between a cost, a cost object, and a cost pool.

During the year, a manufacturing company had the following operating results: $\begin{array}{lcr}\text { Beginning work-in-process inventory } & \$ 45,000 \\\text { Beginning finished goods inventory } & \$ 190,000 \\\text { Direct materials used in production } & \$ 308,000 \\\text { Direct labor } & \$ 475,000\\\text { Manufacturing overhead incurred}&\$ 250,000\\\text { Ending work-in-process inventory}& \$ 67,000 \\\text { Ending finished goods inventory}& \$ 89,000 \end{array}$ What is the cost of goods manufactured for the year?

The following information is available for the Crossover Company: Sales: 25,000 units per year at $45 per unit Production: 30,000 units in 2019 and 20,000 units in 2020 At the beginning of 2019 there was no inventory Variable manufacturing costs are $30.00 per unit Fixed manufacturing costs are $150,000 per year Marketing costs are all fixed at $75,000 per year Required: (a) Prepare a gross margin income statement under absorption costing for 2019 and 2020. Include a column for each year and a total column. (b) Prepare a contribution margin income statement under variable costing for 2019 and 2020. Include a column for each year and a total column. (c) Comment on the results and reconcile any differences in income.