Question

Number 1 An analysis of the accounts of Williams Company reveals the following manufacturing cost data for the month ended September 30, 2017 Inventories Raw materials Work in process Finished goods Beginning $12,000 7,500 10,000 Ending $11,300 5,000 12.000 Costs incurred: raw materials purchases $62,500, direct labor $51,000, manufacturing overhead $25,650. The specific overhead costs were: indirect labor $6,500, factory insurance $5,000, machinery depreciation $6,000, machinery repairs $2,800, factory utilities $3,600, miscellaneous factory costs $1,750. Assume that all raw materials used were direct materials. Instructions (a) Prepare the cost of goods manufactured schedule for the month ended 9/30/17 Show the presentation of the ending inventories on 9/30/17, Balance Sheet. (c) Williams Company is considering the purchase of a new automated assembly line for its factory. The purchase would result in several changes in Williams' cost structure. Both direct labor and indirect labor would decrease by 40%. Factory insurance would increase to $8,000, machinery depreciation would double, machinery repairs would decrease to $500, utilities would decrease to $2,500 and miscellaneous factory costs would increase to $1,850. Materials usage would remain at current levels. (c) Analyze the new purchase by preparing a cost of goods manufactured schedule for September 30, 2017 using the new data. Should Williams Company make this purchase? Explain the factors that should be considered in the decision?

Answer 1

Solution:

1. Cost of goods manufactured schedule:

Descriptions	Cost
Cost of Raw material uses: Beginning + Purchase – Closing $ 12,000 + $ 62,500- $ 11,300	$ 63,200
Changes in work in Progress: $ 7,500 + $ 5,000	$ 2,500
Changes in Finished goods: $ 10,000 - $ 12,000	$ -2,000
Direct Labor	$ 51,000
Manufacturing overhead as reduced by Total- 25,650 Less: Indirect Labor of $ 6,500	$ 19,150
Total cost of goods manufactured	$ 133,850

2. Ending inventory balance

Closing Stock:                          $ 28,300

            Finished goods:            $ 12,000

            Work in progress:          $ 5,000

            Raw Material:                $ 11,300           

3. Cost of goods manufactured schedule with new data

Descriptions	Cost
Cost of Raw material uses: Beginning + Purchase – Closing $ 12,000 + $ 62,500- $ 11,300	$ 63,200
Changes in work in Progress: $ 7,500 + $ 5,000	$ 2,500
Changes in Finished goods: $ 10,000 - $ 12,000	$ -2,000
Direct Labor	$ 51,000
Manufacturing overhead as reduced by Total- 25,650 Less: Indirect Labor of $ 6,500	$ 19,150
Total cost of goods manufactured as per earlier method	$ 133,850
Less: Reduction in Direct Labor $ 51,000 X 40%	$ - 20,400
Indirect Labor reduction having no impact
Increase in factory insurance $ 8,000 - $ 5,000	$ 3,000
Increase in machine depreciation Getting double	$ 6,000
Decrease in machine repair $ 2,800 - $ 500	$ -2,300
Decrease in utilities $ 3,600 - $ 2,500	$ - 1,100
Increase in miscellaneous $ 1,850 - $ 1,750	$ 100
New cost of manufacture	$ 119,150

Explanation: The company should consider purchase of new assembly line as the overall cost of manufacture would decrease. However the company should also consider cost of funding the new assembly line and see the benefit exceed that cost of fund.