Module 1
Demonstration Problem 1
Gifford Company
The following information has been taken from the accounting records of Gifford Company:
Selling Expenses$ 57,000
Raw materials inventory, January1, 2001 66,000
Raw materials inventory, December 31, 2001 40,000
Utilities, factory 16,000 Direct labor 80,000
Depreciation, factory 28,000
Purchases of raw materials 324,000
Sales 870,000
Rent expense, factory 42,000
Supplies expense, factory 7,000
Administrative expenses 42,000
Indirect labor 36,000
Work in process inventory, January 1, 2001 80,000
Work in process inventory, December 31, 2001 60,000
Finished goods inventory, January 1, 2001 210,000
Finished goods inventory, December 31 130,000
Required
1. Prepare a schedule of cost of goods manufactured for the year 2001.
2. Calculate the cost of goods sold for the year 2001.
3. Prepare an income statement for the year 2001.
Gifford Company
Schedule of Cost of Goods Manufactured
For the Year Ended December 31, 2001
Direct materials :
Raw materials inventory, January 1$66,000
Add : Purchases of raw materials 324,000
Raw materials available for use 390,000
Deduct : Raw materials inventory, December 31 40,000
Raw materials used in production $350,000
Direct labor 80,000
Manufacturing overhead :
Utilities, factory16,000
Depreciation, factory 28,000
Rent expense, factory 42,000
Supplies expense, factory 7,000
Indirect labor 36,000
Total overhead costs 129,000
Total manufacturing costs 559,000
Add : Work in process inventory, January 1 80,000
639,000
Deduct : Work in process inventory, December 31 60,000
Cost of goods manufactured $ 579,000
======
2.Finished goods inventory, January 1$210,000
Add : Cost of goods manufactured 579,000
Goods available for sale 789,000
Deduct : Finished goods inventory, December 31 130,000
Cost of Goods Sold$659,000
======
3.
Gifford Company
Income Statement
For the year Ended December 31, 2001
Sales $870,000
Less : Cost of goods sold (above) 659,000
Gross margin 211,000
Less : Selling and administrative expenses:
Selling expenses$57,000
Administrative expenses 42,000
Total expenses 99,000
Net Income$112,000
Demonstration Problem 2
Elford Floor Surfacing
Elford Floor Surfacing specializes in sanding, staining and refinishing wood floors. The following information has been taken from the accounting records for the year 2001.
Direct labor$120,000
Selling expenses 12,000
Administrative expenses 28,000
Sales 424,000
Supplies Expense 11,000
Office Support, Salaries 20,000
Depreciation, Vans 14,000
Automobile Expense 7,000
Utilities 2,000
Work in process inventory, January 1 1,800
Work in process inventory, December 31 3,000
Required
1. Prepare a schedule of cost of services sold for the year 2001.
2. Prepare an income statement for the year 2001.
Elford Floor Surfacing
Statement of Cost of Services Sold
For the Year Ended December 31, 2001
Direct labor$120,000
Service overhead :
Supplies Expense11,000
Office Support, Salaries20,000
Depreciation, Vans14,000
Automobile Expense 7,000
Utilities 2,000
Total overhead costs 54,000
Total service costs 174,000 Add : Work in process inventory, January 1 1,800
175,800
Deduct : Work in process inventory, December 31 3,000
Cost of services sold $172,800
======
2.
Elford Floor Surfacing
Income Statement
For the year Ended December 31, 2001
Sales $424,000
Less : Cost of goods sold (above) 172,800
Gross margin 251,200
Less : Selling and administrative expenses:
Selling expenses$12,000
Administrative expenses 28,000
Total expenses 40,000
Net Income$211,200
Practice Problem 1
Tichon Corporation
The following information has been taken from the accounting records of Tichon Corporation
Selling Expenses$247,000
Utilities, factory 20,000 Direct labor 155,000
Depreciation, factory 34,000
Purchases of raw materials 624,000
Sales 1,768,000
Rent expense, factory 54,000
Supplies expense, factory 5,700
Administrative expenses 182,000
Indirect labor 51,000
Raw materials inventory, January1, 2001 72,000
Raw materials inventory, December 31, 2001 58,000
Work in process inventory, January 1, 2001 90,000
Work in process inventory, December 31, 2001 55,000
Finished goods inventory, January 1, 2001 310,000
Finished goods inventory, December 31 430,000
Required
1. Prepare a schedule of cost of goods manufactured for the year 2001.
2. Calculate the cost of goods sold for the year 2001.
3. Prepare an income statement for the year 2001.
Tichon Corporation
Schedule of Cost of Goods Manufactured
For the Year Ended December 31, 2001
Direct materials :
Raw materials inventory, January 1$ 72,000
Add : Purchases of raw materials 624,000
Raw materials available for use 696,000
Deduct : Raw materials inventory, December 31 58,000
Raw materials used in production$638,000
Direct labor 155,000
Manufacturing overhead :
Utilities, factory20,000
Depreciation, factory34,000
Rent expense, factory54,000
Supplies expense, factory 5,700
Indirect labor 51,000
Total overhead costs 164,700
Total manufacturing costs 957,700
Add : Work in process inventory, January 1 90,000
1,047,700
Deduct : Work in process inventory, December 31 55,000 55,000
Cost of goods manufactured$ 992,700
======
2.Finished goods inventory, January 1$ 310,000
Add : Cost of goods manufactured 992,700
Goods available for sale 1,302,700
Deduct : Finished goods inventory, December 31 430,000
Cost of Goods Sold 872,700
======
3.
Tichon Corporation
Income Statement
For the year Ended December 31, 2001
Sales $1,768,000
Less : Cost of goods sold (above) 872,700
Gross margin 895,300
Less : Selling and administrative expenses:
Selling expenses247,000
Administrative expenses182,000
Total expenses 429,000
Net Income 466,300
Practice Problem 2
Webster Advertising and Design
The following information has been taken from the accounting records of Webster Advertising and Design
Direct labor 880,000
Direct materials inventory, January 1 3,500
Direct materials inventory, December 31 2,000
Selling expenses 77,000
Administrative expenses 58,000
Sales 1,670,000
Purchases of direct materials 9,000
Office Support, Salaries90,000
Supplies Expense 18,000
Depreciation, Office Equipment28,000
Rent Expense 13,200
Utilities Expense10,000
Work in process inventory, January 1 70,000
Work in process inventory, December 31 120,000
Required
1. Prepare a schedule of cost of services sold for the year 2001.
2. Prepare an income statement for the year 2001.
Webster Advertising and Design
Statement of Cost of Services Sold
For the Year Ended December 31, 2001
Direct materials :
Direct materials inventory, January 1$ 3,500
Add : Purchases of direct materials 9,000
Direct materials available for use 12,500
Deduct : Direct materials inventory, December 31 2,000
Direct materials used $ 10,500
Direct labor 880,000
Service overhead :
Office Support, Salaries90,000
Depreciation, Office Equipment28,000
Rent Expense13,200
Supplies Expense18,000
Utilities Expense10,000
Total overhead costs 159,200
Total service costs 1,049,700
Add : Work in process inventory, January 1 70,000
1,119,700
Deduct : Work in process inventory, December 31 120,000
Cost of services sold $ 999,700
======
2.
Webster Advertising and Design
Income Statement
For the year Ended December 31, 2001
Sales $1,670,000
Less : Cost of goods sold (above) 999,700
Gross margin 670,300
Less : Selling and administrative expenses:
Selling expenses$77,000
Administrative expenses 58,000
Total expenses 135,000
Net Income$ 535,300
Exercises
Multiple Choice
1. The cost of the wood used to manufacture furniture is an example of
A. Overhead
B. Fixed Costs
C. Direct Materials
D. Period Costs
2. Salaries of corporate executives are considered
D. Production Costs
E. Direct Costs
F. Selling Costs
G. Administrative Costs
3. Salaries of plant supervisors are considered
A. Direct Labor
B. Overhead
C. Administrative Costs
D. Selling Costs
4. The work in process for Johnson Company on January 1, 2000 was $18,000. The following costs were incurred in the year 2000: Direct Materials $80,000, Direct labor - $50,000, and Overhead - $110,000. The work in process on December 31, 2000 was $12,000. The manufacturing costs incurred in the year 2000 are
A. $110,000
B. $240,000
C. $246,000
D. $234,000
5. The work in process for Johnson Company on January 1, 2000 was $18,000. The following costs were incurred in the year 2000: Direct Materials $80,000, Direct labor - $50,000, and Overhead - $110,000. The work in process on December 31, 2000 was $12,000. The conversion costs for the year 2000 are
A. $160,000
B. $240,000
C. $130,000
D. $110,000
6. The work in process for Johnson Company on January 1, 2000 was $18,000. The following costs were incurred in the year 2000: Direct Materials $80,000, Direct labor - $50,000, and Overhead - $110,000. The work in process on December 31, 2000 was $12,000. The cost of goods manufactured for the year 2000 are
A. $110,000
B. $240,000
C. $246,000
D. $234,000
7. Which of the following costs is not included in manufacturing overhead
A. Glue used to produce furniture
B. Salaries of plant supervisors
C. Depreciation on factory equipment
D. Cost of flour used in making pizza dough
8. Which of the following is an example of an administrative cost?
A. Research & development costs
B. Depreciation on factory equipment
C. Cost of processing orders
D. Salespersons’ salaries
9. Which of the following is not included in production costs?
A. Selling Costs
B. Direct Materials
C. Direct Labor
D. Overhead
10. Which of the following is an example of a period cost?
A. Depreciation on factory buildings
B. Cost of utilities for the factory
C. Shipping Costs
D. Raw materials used in manufacturing a product
Matching Problem
G / Raw materials that become an integral part of a company's finished product / A. Indirect CostsD / Sum of direct materials and direct labor. / B. Selling Costs
F / Costs associated with the production of goods or services / C. Period Costs
A / Costs that cannot be accurately traced to the particular cost object under consideration without undue cost or inconvenience / D. Prime Costs
C / Costs that are expensed in the time period in which they are incurred / E. Variable Costs
H / Costs of partially completed units in production at a given time / F. Production Costs
E / Costs that vary in total in direct proportion to changes in activity / G. Direct Materials
B / Costs of processing customer orders are / H. Work in Process
Homework Problem 1
Cost Classification - Lyons Company
Lyons Company makes different types of humidifiers and air purifiers. Identify whether each of the following costs typically incurred by Lyons Company is a product cost or a period cost. Classify each cost into the following categories: (1) direct materials (2) direct labor (3) overhead (4) selling costs, and (5) administrative costs
Description / ClassificationCost of plastic used to make humidifiers / direct materials
Depreciation on production equipment / overhead
Cost of utilities for the corporate office / administrative costs
Salaries of Plant supervisors / overhead
Commissions paid to salespersons / selling costs
Salaries of accounting department personnel / administrative costs
Salaries paid to janitorial staff in production plant / overhead
Maintenance costs for production equipment / overhead
Wages of production line employees / direct labor
Costs of shipping products / selling costs
Homework Problem 2
Cost Classification -Ross software
Ross software produces educational software for children. Identify whether each of the following costs typically incurred by Ross Software is a product cost or a period cost. Classify each cost into the following categories: (1) direct materials (2) direct labor (3) overhead (4) selling costs, and (5) administrative costs
Description / ClassificationCost of CD-ROMs on which software is distributed / direct materials
Factory heating costs / overhead
Cost of assembly workers in production department / direct labor
The president’s salary / administrative costs
Cost of paper used for producing the user manual sent with the product / direct materials
Salary paid to marketing manager / selling costs
Salaries paid to graphics designers involved in developing new products / administrative costs
Salaries paid to production supervisor / overhead
Wages of warehouse employees / selling costs
Advertising costs / selling costs
Cost of supplies used in production department / overhead
Homework Problem 3
Rutledge Furniture Company
The following information has been taken from the accounting records of Rutledge Furniture Company:
Selling Expenses$ 85,000
Utilities, factory 21,000 Direct labor 255,000
Depreciation, factory 28,000
Purchases of raw materials 154,000
Sales 1,022,000
Rent expense, factory 58,000
Supplies expense, factory 15,000
Administrative expenses 73,000
Indirect labor 66,000
Raw materials inventory, January1, 2001 22,000
Raw materials inventory, December 31, 2001 38,000
Work in process inventory, January 1, 2001 40,000
Work in process inventory, December 31, 2001 35,000
Finished goods inventory, January 1, 2001 80,000
Finished goods inventory, December 31 66,000
Required
1. Prepare a schedule of cost of goods manufactured for the year 2001.
2. Calculate the cost of goods sold for the year 2001.
3. Prepare an income statement for the year 2001.
1.
Rutledge Furniture Company
Schedule of Cost of Goods Manufactured
For the Year Ended December 31, 2001
Direct materials :
Raw materials inventory, January 1$ 22,000
Add : Purchases of raw materials 154,000
Raw materials available for use 176,000
Deduct : Raw materials inventory, December 31 38,000
Raw materials used in production $ 138,000
Direct labor 255,000
Manufacturing overhead :
Utilities, factory21,000
Depreciation, factory28,000
Rent expense, factory58,000
Supplies expense, factory15,000
Indirect labor66,000
Total overhead costs 188,000 Total manufacturing costs 581,000
Add : Work in process inventory, January 1 40,000
621,000
Deduct : Work in process inventory, December 31 35,000
Cost of goods manufactured $586,000
======
2.Finished goods inventory, January 1 $ 80,000
Add : Cost of goods manufactured 586,000
Goods available for sale 666,000
Deduct : Finished goods inventory, December 31 _ 66,000
Cost of Goods Sold 600,000
======
3.
RutledgeFurniture Company
Income Statement
For the year Ended December 31, 2001
Sales $1,022,000
Less : Cost of goods sold (above) 600,000
Gross margin 422,000
Less : Selling and administrative expenses:
Selling expenses 85,000
Administrative expenses 73,000
Total expenses 158,000
Net Income 264,000
Homework Problem 4
Execu-Clean Services
The following information has been taken from the accounting records of Execu-Clean Services. Execu-Clean Services provide both residential and commercial cleaning services. While most of the residential jobs are completed in a day, often commercial jobs take several days for completion.
Direct labor$718,000
Selling expenses 107,000
Administrative expenses 61,000
Automobile Expense 24,000
Office Support, Salaries 60,000
Depreciation, Vans and Equipment 56,000
Cleaning Supplies 31,000
Utilities 6,000
Work in process inventory, January 1 10,000
Work in process inventory, December 31 1,000
Required
1. Prepare a schedule of cost of services sold for the year 2001.
2. Prepare an income statement for the year 2001.
Execu-Clean Services
Statement of Cost of Services Sold
For the Year Ended December 31, 2001
Direct labor 718,000
Service overhead :
Cleaning Supplies31,000
Office Support, Salaries60,000
Depreciation, Vans & Equipment56,000
Automobile Expense24,000
Utilities 6,000
Total overhead costs 177,000
Total service costs 895,000
Add : Work in process inventory, January 1 10,000
905,000
Deduct : Work in process inventory, December 31 1,000
Cost of services sold$904,000
======
2.
Execu-Clean Income Statement
For the year Ended December 31, 2001
Sales $1,670,000
Less : Cost of services sold (above) 904,000
Gross margin 766,000
Less : Selling and administrative expenses:
Selling expenses$107,000
Administrative expenses 61,000
Total expenses 168,000
Net Income$ 598,000
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