Question

Pat Fike, accountant for Nozama Company, prepared the following amounts to include on the financial statements for the period ending August 31, 20XX. Sales $1,200,000 Purchases of materials 250,000 Manufacturing labor 270,000 Advertising 37,000 Administrative travel 27,000 Manufacturing utilities 49,000 Facility rental 90,000 Depreciation 60,000 Sales commissions I 31,000 Insurance 40,000 Office utilities 25,000 Management salaries 380,000 The purchase of materials included 20% indirect materials. 40% of the manufacturing labor was for indirect manufacturing labor The facility was used partly for the sales and administrative team (20%) 30% of the depreciation expense was related to delivery trucks 60% of the insurance relates to manufacturing activities 40% of the management salaries relate to manufacturing activities . . .

Answer 1

Working notes: Amount Factory Facility rental Depreciation Insurance Management salaries $90,000 $60,000 $40,000 $380,000 80% 70% 60% 40% Sales and admin 20% 30% 40% 60% Allocation Sales and Factory admin $72,000 $18,000 $42,000 $18,000 $24,000 $16,000 $152,000 $228,000 1 $9,000 $198,000 $162,000 Nozama Company Statement of Cost of Goods Manufactured Beginning Work in process inventory Direct materials Used Beginning Raw Materials inventory $6,000 Purchases of Raw materials $250,000 Raw material available for use $256,000 Less: Indirect material $50,000 $206,000 Ending Raw materials inventory $8,000 Direct material used Direct labor ($270,000*60%) Manufacturing overhead: Indirect materials $50,000 Indirect Labor ($270,000*40%) $108,000 Manufacturing utilities $49,000 Facility rental $72,000 Depreciation $42,000 Insurance $24,000 Management salaries $152,000 Total manufacturing overheads Total Manufacturing Costs incurred during the year Total Manufacturing Costs to account for Ending Work in Process Inventory Cost of Goods Manufactured $497,000 $857,000 $866,000 $10,000 $856,000 Nozama Company Schedule of Cost of Goods Sold Beginning Finished goods inventory Add: Cost of goods manufactured Cost of goods available for sale Ending Finished goods inventory Cost of goods sold $11,000 $856,000 $867,000 $7,000 $860,000 2 Nozama Company Income Statement For The Year Ended August 31, 20xx Sales $1,200,000 Less: Cost of goods sold $860,000 Gross profit $340,000 Less: Operating expenses Selling and administrative expenses Management salaries $228,000 Advertising $37,000 Administrative travel $27,000 Sales commission $31,000 Office Utilities $25,000 Facility rental $18,000 Depreciation $18,000 Insurance $16,000 Total operating expenses $400,000 Net Income (Loss) -$60,000

High Low method 1 Variable component Fixed cost $7.00 per oil change $13,200 Working notes: Operating expense May High $37,700 3,500 February Low Difference $32,100 $5,600 2,700 800 Operating expense Number of oil changes Variable cost per oil change Difference in maintenance cost Difference in number of oil changes $5,600 800 $7.00 Calculation of Fixed cost Units Variable cost per oil change Variable cost Fixed cost May 3,500 $7.00 $24,500 $13,200 February 2,700 a $7.00 6 $18,900 a*b $13,200 2 Projected Operating cost Variable cost Fixed cost Projected Operating cost $25,200 3,600*$7 $13,200 $38,400