Question

(20 marks) EBY Metal Products reported the following components in its manufacturing costs for April 29 (in thousands): 2. Direct costs Direct materials Direct manufacturing labor salaries Subcontracting 430 (TL) 110 Manufacturing overhead: 40 Fringe benefits on direct manufacturing labor Production setup Other manufacturing overhead 240 Please note that Subcontracting Costs are treated as a direct cost item separate from direct materials Compute (a) prime costs and (b) the conversion costs of EBY Metal Products using the cost classifications described above

Answer 1

1) Prime Cost= Direct Materials+ Direct labor+Direct Expenses

=430+110+120

=660

Conversion Cost= Direct labor+ Manufacturing Overhead

=110+40+60+240

=450

2)

Campbell Company
Income statement for the year ended 31 December 2016
Revenues		$1,260,000.00
Cost of goods sold:
Beginning finished goods, January 1, 2016	$           100,000.00
Cost of goods manufactured (see schedule below)	$           960,000.00
Cost of goods available for sale	$        1,060,000.00
Ending finished goods, December 31, 2016	$           150,000.00	$   910,000.00
Gross margin (or gross profit)		$   350,000.00
Sales, Shipping and Administration costs
Sales commissions	$             60,000.00
Sales salaries	$           100,000.00
Shipping costs	$             70,000.00
Administration costs	$           100,000.00	$   330,000.00
Operating income		$     20,000.00

Campbell Company
Schedule of cost of goods manufactured for the year ended 31 December 2016
Direct materials:
Beginning inventory, January1, 2016	$             40,000.00
Purchases of direct materials	$           460,000.00
Cost of direct materials available for use	$           500,000.00
Ending inventory, December 31, 2016	$             50,000.00
Direct materials used		$   450,000.00
Direct manufacturing labour		$   300,000.00
Indirect manufacturing costs:
Sandpaper	$               2,000.00
Materials-handling costs	$             70,000.00
Lubricants and coolants	$               5,000.00
Miscellaneous indirect manufacturing labour	$             40,000.00
Plant-leasing costs	$             54,000.00
Depreciation – plant equipment	$             36,000.00
Property taxes on plant equipment	$               4,000.00
Fire insurance on plant equipment	$               3,000.00	$   214,000.00
Manufacturing costs incurred during 2016		$   964,000.00
Add beginning work in process January 1, 2016		$     10,000.00
Total manufacturing costs to account		$   974,000.00
Deduct ending work in process December 31, 2016		$    (14,000.00)
Cost of goods manufactured (to Income Statement)		$   960,000.00

3)Direct material unit cost = Direct materials used ÷ Units produced

=450,000/900,000

=0.5