Question

PROBLEM 2–17 Schedule of Cost of Goods Manufactured; Income Statement; Cost Behaviour [LO1, LO2, LO3, LO4, LO5] eXcel The following information pertains to the most recent quarter at Precious Production Limited. $ 360,000 Purchases of raw materials Raw materials inventory, beginning. Raw materials inventory, ending.. Depreciation, factory. Insurance, factory Direct labour. Maintenance, factory. Administrative expenses 40.000 68,000 168,000 20.000 240,000 120,000 280,000 1,800,000 108,000 Sales Utilities, factory Supplies, factory Selling expenses 4,000 320.000 260,000 28,000 Indirect labour. Work in process inventory, beginning. Work in process inventory, ending Finished goods inventory, beginning Finished goods inventory, ending 120.000 40.000 160,000 Required: 1. Prepare a schedule of cost of goods manufactured. 2. Prepare an income statement. 52 Chapter 2 Cost Terms, Concepts, and Classifications 3. Assume that the company produced the equivalent of 10,000 units of product during the year. What was the average cost per unit for direct labour? What was the average cost per unit for factory insurance? CHECK FIGURE Cost of goods manufactured- Assume that the company expects to produce 12,000 units of product during the coming year. What average cost per unit and what total cost would you expect the company to incur for direct materials at this level of activity? For factory insurance? (In preparing your answer, assume that direct mate- rials is a variable cost and that depreciation is a fixed cost; also assume that depreciation is computed on a straight-line basis.) As the manager responsible for production costs, explain to the president any difference in the aver- age costs per unit between (3) and (4) above. Assuming the company produced 20,000 fully and partially finished units during the year, determine the cost components of the finished goods inventory, which is composed of 4,000 finished units. 4. $1,160,000; Gross margin-$760,000; Operating income- $160,000; Direct labour cost per unit 5. for 12,000 units-$24; Insurance cost per unit for 12,000 units-$1.67. 6.

Answer 1

1) Schedule of cost of goods manufactured

Particulars	Amount	Amount
Direct Material	360000
(+) Opening Raw material	40000
(-) Closing Raw material	(68000)	332000
(+) Direct Labour		240000
PRIME COST		572000
(+) Factory Depreciation	168000
(+) Factory Insurance	20000
(+) Factory Maintenance	120000
(+) Factory Utilities	108000
(+) Factory Supplies	4000
(+) Indirect Labour	260000
(+) Opening Work In Progress	28000
(-) Closing Work In Progress	(120000)	588000
FACTORY COST		1160000
(+) Administrative Expenses		280000
COST OF GOODS MANUFACTURED		1440000
(+) Opening finished goods	40000
(-) Closing finished goods	(160000)	(120000)
COST OF FINISHED GOODS SOLD		1320000
(+) Selling Expenses		320000
COST OF GOODS SOLD		1640000
(+) Profit (1800000-1640000)		160000
SALES		1800000

2) Income Statement

Sales	1800000
(-)Cost of goods sold	(1640000)
Gross profit	160000

3) No of units = 10000 units

Direct Labour = 240000

Factory Insurance = 20000

Average cost per unit for Direct Labour =240000/10000

= 24

Average cost per unit for factory Insurance

=20000/10000

= 2