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Manegerial Accounting Essays

Consider the following costs that were incurred during the current year: (Answers are written in BLUE letter for easier access).

1. Tire costs incurred by Ford Motor Company.

Product cost, Variable, Direct Material

2. Sales commissions paid to the sales force of Dell Inc.

Period Cost, Variable

3. Wood glue consumed in the manufacture of Thomasville furniture.

Product cost, Variable, Direct Material

4. Hourly wages of refinery security guards employed by ExxonMobil Corporation. Product cost, Variable, Manufacturing Overhead

5. The salary of a financial vice president of Hewlett Packard.

Period Cost, Fixed

6. Advertising costs of Coca-Cola.

Period Cost, Fixed

7. Straight-line depreciation on factory machinery of Boeing Corporation. Prodcut Cost, Fixed, Manufacturing Overhead

8. Wages of assembly-line personnel of Whirlpool Corporation.

Product Cost, Variable, Direct Labor

9. Delivery costs on customer shipments of Ben & Jerry’s ice cream.

Period Cost, Variable

10. Newsprint consumed in printing The New York Times.

Product cost, Variable, Direct Material

11. Plant insurance costs of Texas Instruments.

Product Cost, Fixed, Manufacturing Overhead

12. Glass costs incurred in light-bulb manufacturing of General Electric.

Product cost, Variable, Direct Material

Required: Evaluate each of the preceding and determine whether the cost is ( a ) a product cost or a period cost, ( b ) variable or fixed in terms of behavior, and ( c ) for the product costs only, whether the cost is properly classified as direct material, direct labor, or manufacturing overhead. Item 1 is done as an example: Tire costs: Product cost, variable, direct material

3-46

Finlon Upholstery, Inc. uses a job-order costing system to accumulate manufacturing costs. The company’s work-in-process on December 31, 20x1, consisted of one job (no. 2077), which was carried on the year-end balance sheet at $156,800. There was no finished-goods inventory on this date. Finlon applies manufacturing overhead to production on the basis of direct-labor cost. (The budgeted direct-labor cost is the company’s practical capacity, in terms of direct-labor hours, multiplied by the budgeted direct-labor rate.) Budgeted totals for 20x2 for direct labor and manufacturing overhead are $4,200,000 and $5,460,000, respectively. Actual results for the year follow.

Direct material used ........................................................................................ 5,600,000 Direct labor ...................................................................................................... 4,350,000 Indirect material used ........................................................................................... 65,000 Indirect labor .................................................................................................... 2,860,000 Factory depreciation ........................................................................................ 1,740,000 Factory insurance ................................................................................................. 59,000 Factory utilities .................................................................................................... 830,000 Selling and administrative expenses ................................................................ 2,160,000 Total .............................................................................................................. $17,664,000

Job no. 2077 was completed in January 20x2; there was no work in process at year-end. All jobs produced during 20x2 were sold with the exception of job no. 2143, which contained direct-material costs of $156,000 and direct-labor charges of $85,000. The company charges any under- or overapplied overhead to Cost of Goods Sold.

Required:

1. Determine the company’s predetermined overhead application rate.

Pre-determined Overhead = Budgeted Overhad/Budgeted Direct Labor Costs 5,460,000/4,200,000 = 130%

2. Determine the additions to the Work-in-Process Inventory account for direct material used, direct labor, and manufacturing overhead. Additions = DM+DL+(DL*130%) = $15,605,000.00

3. Compute the amount that the company would disclose as finished-goods inventory on the December 31, 20x2, balance sheet. Job No. 2193 Additions = DM+DL+(DL*130%) $351,500.00

4. Prepare the journal entry needed to record the year’s completed production.

Finished Goods

$15,761.80

Work In Process

$15,761.80

5. Compute the amount of under- or overapplied overhead at year-end, and prepare the necessary journal entry to record its disposition.

Applied Overhead $5,655,000

Indirect Material

$65,000

Indirect Labor

$2,860,000

Factory Depreciation

$1,740,000

Factory Insurance

$59,000

Factory Utilities

$830,000

Manufacturing Overhead

$101,000

COGS

$101,000

6. Determine the company’s 20x2 cost of goods sold.

Finished Goods Inventory J1

Add: COGM $15,761,800

COGaS $15,761,800

Less: Finished Goods D31 $351,500

Unajusted COGS $15,410,300

Less: Ovr Apled Ovrhead

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