Question

he following data is available for Crater Corporation’s North American division for the years 2014 and 2015. During these years there were no inventories in the system.

		2015		2014
Production quantity		55,000		59,000
Number of customers		13,400		12,500
Revenues	$	24,700,000	$	26,140,000
Expenses
Direct materials & components	$	3,222,500	$	3,555,700
Direct production wages (1)	$	1,466,000	$	1,608,600
Production supervisory salaries	$	268,900	$	245,600
Salaries paid to sales representatives (2)	$	610,500	$	632,100
Advertising	$	687,300	$	580,400
Insurance (3)	$	121,670	$	116,600
Building rent (4)	$	266,140	$	264,300
Other salaries (5)	$	1,175,000	$	1,247,000
Honorarium to the members of the board	$	437,700	$	437,700
Production quality control (6)	$	132,900	$	138,120
Market research	$	348,000	$	304,960
Depreciation (7)	$	1,329,700	$	1,171,900
Facilities management (8)	$	885,730	$	747,700
Legal	$	690,100	$	622,700
Personnel department	$	198,000	$	195,700
Utilities—production (9)	$	860,100	$	770,200
Utilities—other (10)	$	367,840	$	309,000
Customer service (11)	$	920,400	$	927,600
	$	13,988,480	$	13,875,880

Note:
1.	Paid on the basis of production quantity
2.	Ten representatives @ $24,000 per person + 1.5% of sales revenue
3.	Manufacturing - 70%; remaining - general liability
4.	Manufacturing - 65%; Marketing - 20%; remaining for Administration
5.	Manufacturing - 50%; Marketing - 20%; remaining for Administration
6.	Variable - 40%
7.	Manufacturing - 65%; Sales & Marketing - 10%; remaining for Adminsitration (all straight line)
8.	Factory maintenance - 40%; General maintenance - 60%
9.	Fixed - 40%
10.	Equally divided between Sales & Marketing and Administration; variable - 45%
11.	Variable - 20%

Required:

1.	Classify the expense items by behaviour (based on the number of units produced/sold) and by function (manufacturing, sales/marketing, and administration). Write the amount for each item using 2015 data.

       

2-a.	What were the total amounts for product costs and period costs during 2015?

       

2-b.	Classify the product costs as direct or indirect. (As appropriate, place an √ in the Direct or Indirect column.)

       

3.	Prepare an income statement in good form for the year 2015. Compute the gross margin per unit for the year.

       

Answer 1

From the information above, I have classified the expenses by cost behaviour and by function of 2015 data.

1 Classification of Expense items by behaviour and by function 2 Type of cost Manufacturing Sales & Marketing Administration Variable 3222500 Variable 1466000 Indirect cost 268900 Semi variable Variable 370500 Fixed 240000 Fixed 687300 Fixed 36501 85169 Fixed 172991 53228 3 9921 3 Expenses 4 Direct Materials & Components 5 Direct production Wages 6 Production Supervisory Salaries 7 Salaries paid to Sales Representtatives 8 (1.5% of sales revenue=1.5%* 24700000= 370500) 9 $24000 per person * 10 representatives= 240000) 10 Advertising 11 Insurance of $ 121670 12 (Mfg-30%, general Liability - 70%) 13 Building Rent of $266140 14 (Mfg-65%, Mkt-20%, Admin-15%) 15 Other Salaries of $1175000 16 Mfg-50%, Mkt-20%, Admin-30%) 17 Honorarium to the members of the board 18 Production Quality Control of $132900 19 (Variable-40%, Fixed - 60%) 20 Market Research 21 Depreciation of $1329700 22 (Mfg-65%, Mkt-10%, Admin-25%) 23 Facilities Management of $885730 24 (Maintenance :Factory -40%, General-60%) 25 Legal 26 Personnel department Fixed 587500 235000 352500 437700 Fixed Variable Fixed Fixed Indirect cost 53160 79740 348000 332425 864305 132970 Indirect cost 354292 531438 Fixed Fixed 690100 198000

B 1 Classification of Expense items by behaviour and by function 2 3 Expenses Type of cost Manufacturing Sales & Marketing Administration 26 Personnel department Fixed 198000 27 Utilites-production of $860100 Variable 516060 28 (Variable-60%, Fixed -40%) Fixed 344040 29 Utilites-others of $367840 Variable 101156 101156 30 (Equally divided between Mkt & Admin) Fixed 82764 82764 31 (Variable-55%, Fixed -45%) 32 Customer Service of $920400 Variable 184080 33 (Variable-20%, Fixed - 80%) Fixed 736320 34 Total 7965989 1902918 4119573 35 37 36 Note: Mfg-manufacturing Mkt-Sales & marketing Admin- administration 38 39 40