Question

The 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		47,000		51,000
Number of customers		12,600		11,700
Revenues	$	23,900,000	$	25,340,000
Expenses
Direct materials & components	$	3,210,500	$	3,543,700
Direct production wages (1)	$	1,456,400	$	1,599,000
Production supervisory salaries	$	264,900	$	241,600
Salaries paid to sales representatives (2)	$	628,500	$	650,100
Advertising	$	680,900	$	574,000
Insurance (3)	$	118,470	$	113,400
Building rent (4)	$	262,140	$	260,300
Other salaries (5)	$	1,167,000	$	1,239,000
Honorarium to the members of the board	$	433,700	$	433,700
Production quality control (6)	$	131,700	$	136,920
Market research	$	347,040	$	304,000
Depreciation (7)	$	1,328,100	$	1,170,300
Facilities management (8)	$	884,930	$	746,900
Legal	$	687,700	$	620,300
Personnel department	$	197,200	$	194,900
Utilities—production (9)	$	856,100	$	766,200
Utilities—other (10)	$	363,840	$	305,000
Customer service (11)	$	918,800	$	926,000
	$	13,937,920	$	13,825,320

Note:
1.	Paid on the basis of production quantity
2.	Ten representatives @ $27,000 per person + 1.5% of sales revenue
3.	Manufacturing - 70%; remaining - general liability
4.	Manufacturing - 70%; Marketing - 10%; remaining for Administration
5.	Manufacturing - 40%; Marketing - 25%; remaining for Administration
6.	Variable - 30%
7.	Manufacturing - 70%; Sales & Marketing - 15%; remaining for Adminsitration (all straight line)
8.	Factory maintenance - 40%; General maintenance - 60%
9.	Fixed - 30%
10.	Equally divided between Sales & Marketing and Administration; variable - 35%
11.	Variable - 10%

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

Please find below table useful to compute desired results: -

в с D 1 Behaviour Function 2 Variable Fixed Sales/MKT Admin 3 Direct Material & Components 3210500 =B3 4 Direct Production wages 1456400 =B4 5 Production Supervisory salaries 264900 =C5 6 Salaries paid to sales representative =13*1.5% 1=27000*10 628500 7 Advertising 680900 =B7 8 Insurance =118470*70% =118470*30% =B8 =C8 9 Building Rent 262140 =C9*70% =C9*10% =C9*20% 10 Other Salaries 1167000 =C10*40% =C10*25% =C10*35% 11 Honorarium to the members of the board [433700 =B11 12 Production quality control =D12*30% =D12*70% 131700 13 Market Research 347040 J=B13 14 Depreciation 1328100 =C14*70% =C14*15% =C14*15% 15 Facilities management 884930 =C15*40% =15*60% 16 Legal 687700 =B16 17 Personnel Department 197200 =C17 18 Utilities - Production D18*70% =D18*30% |856100 19 Utilities - Others 1=363840*35% =363840*65% =B19+C19)/2 =B19+C19)/2 20 Customer service =E20*10% =E20*90% 918800 21 =SUM(B3-B20) =SUM(C3:C20) =SUM(D3-D20) =SUM(E3:E20) =SUM(F3:F20) 22 =B21+C21 =D21+E21+F21 23 2a 24 Product Cost =D21 25 Period Cost =B22-B24 Income Statement for the year Particulars Amount Amount Revenue 23900000 Cost of goods sold Direct Material & Components Direct Production wages =D4 Production Supervisory salaries I=D5 Insurance Building Rent =D9 Other Salaries =D10 Production quality control I=D12 Depreciation D14 Facilities management =D15 Utilities - Production =D18 ESUM(15:114) Gross Profit =J3-J14 =D8 Operating & Administrative Expenses Insurance =F8 Building Rent =F9 Other Salaries =F10 Honorarium to the members of the board |=F11 Depreciation =F14 Facilities management =F15 Legal =F16 Personnel Department =F17

н Utilities - Others Net Operating Profit =F19 =SUM(I18:126) =J15-J26 Yes =E6 =E7 A 26 2b 27 Classification of direct and indirect costs 28 Product Costs Direct 29 Direct Material & Components 30 Direct Production wages 31 Production Supervisory salaries 32 Insurance 33 Building Rent 34 Other Salaries 35 Production quality control 36 Depreciation 37 Facilities management 38 Utilities - Production -E9 Selling & Distribution Expenses Salaries paid to sales representative Advertising Building Rent Other Salaries Market Research Depreciation Utilities - Others Customer service Profit before tax =E10 =E13 =E14 =E19 =E20 =SUM(130:137) =J27-J37

End results would be as follows: -

3.. Function Sales/ MKT Admin Amount 23,900.000 628.500 680.900 26,214 291,750 B Behaviour Variable Fixed MFG 3,210,500 3,210,500 1.456,400 1.456.400 264,900 264.900 358,500 270,000 680.900 82.929 35,541 82.929 262.140 183,498 1.167,000 466.800 433,700 39,510 92.190 131,700 347,040 1,328.100 | 929,670 884.930 353,972 687.700 197,200 599.270 256.830 856.100 127,344 236,496 91.880 826.920 8.115,673 5,822,247 7.936,469 13.937.920 13.937.920 2 3 Direct Material & Components 4 Direct Production wages 5 Production Supervisory salaries 6 Salaries paid to sales representative 7 Advertising 8 Insurance 9 Building Rent 10 Other Salaries 11 Honorarium to the members of the board 12 Production quality control 13 Market Research 14 Depreciation 15 Facilities management 16 Legal 17 Personnel Department 18 Utilities - Production 19 Utilities - Others 20 Customer service 21 22 23 2a 24 Product Cost 25 Period Cost 35,541 52,428 408,450 433,700 Income Statement for the year Particulars Amount Revenue Cost of goods sold Direct Material & Components 3.210.500 Direct Production wages 1.456,400 Production Supervisory salaries 264.900 Insurance 82.929 Building Rent 183,498 Other Salaries 466.800 Production quality control 131.700 Depreciation 929,670 Facilities management 353,972 Utilities - Production 856,100 Gross Profit 347,040 199.215 7,936,469 15,963,531 199.215 530,958 687,700 197,200 181.920 181.920 918.800 3,274,339 2.727.112 Operating & Administrative Expenses Insurance Building Rent Other Salaries Honorarium to the members of the board Depreciation Facilities management Legal Personnel Department 35.541 52.428 408,450 433,700 199,215 530,958 687,700 197,200 7,936,469 6,001,451

TG H Utilities - Others Net Operating Profit 181.920 2.727,112 13,236,419 27 Indirect No No Yes No 26 2b Classification of direct and indirect costs 28 Product Costs Direct 29 Direct Material & Components Yes 30 Direct Production wages Yes 31 Production Supervisory salaries 32 Insurance 33 Building Rent 34 Other Salaries No 35 Production quality control 36 Depreciation 37 Facilities management 38 Utilities - Production Yes No Yes Selling & Distribution Expenses Salaries paid to sales representative Advertising Building Rent Other Salaries Market Research Depreciation Utilities - Others Customer service Profit before tax 628,500 680.900 26.214 291,750 347,040 199,215 181.920 918.800 Yes Yes 3,274,339 9.962.080 No