Question

Selected account balances for the year ended December 31 are provided below for Superior Company:

Selling and administrative salaries	$	105,000
Insurance, factory		6,200
Utilities, factory		45,500
Purchases of raw materials		?
Indirect labour		62,000
Direct labour		95,900
Advertising expense		77,200
Cleaning supplies, factory		7,400
Sales commissions		50,500
Rent, factory building		116,000
Maintenance, factory		30,000

Inventory balances at the beginning and end of the year were as follows:

	Beginning of the Year			End of the Year
Raw materials	$	50,000		$	11,500
Work in process		?			32,100
Finished goods		46,000			86,000

   

The total manufacturing costs for the year were $703,000, and the cost of goods sold totalled $664,000.

Required:
1.a. Prepare a schedule of cost of goods manufactured.

1.b. Prepare the cost of goods sold section of the company's income statement for the year.

2. Assume that the dollar amounts given above are for the equivalent of 40,000 units produced during the year. Compute the average cost per unit for direct materials used and the average cost per unit for rent on the factory building.(Round your answers to 2 decimal places.)
  

3. Assume that in the following year the company expects to produce 50,000 units. What average cost per unit and total cost would you expect to be incurred for direct materials? For rent on the factory building? (Assume that direct materials are a variable cost and that rent is a fixed cost.) (Round your "Average Cost'' answers to 2 decimal places.)

4. This part of the question is not part of your Connect assignment.

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Answer 1

SOLUTION:

1.a. Prepare a schedule of cost of goods manufactured.

Schedule of Cost of Goods Manufactured
Particulars	Amount	Amount
Direct Materials:
Raw Materials Inventory Beginning (given)	50000
Add: Purchases of Raw Materials (Balancing Figure)	301500
Raw Materials available for use	351500
Less: Raw Materials Inventory Ending (given)	11500
Raw Materials used in Production (Balancing Figure)		340000
Direct labour (given)		95900
Manufacturing Overheas:
Indirect labour	62000
Insurance Factory	6200
Utilities Faactory	45500
Cleaning supplies factory	7400
Rent factory building	116000
Maintenance factory	30000
Total overhead cost ( all given)		267100
Total Manufacturing Cost (given)		703000
Add: WIP Inventory beginning (Balancing figure)		33100
		736100
Less: WIP Inventory Ending (given)		32100
Cost of Goods Manufactured (From 1b below)		704000

1.b. Prepare the cost of goods sold section of the company's income statement for the year.

Schedule for Cost of Goods sold
Particulars	Amount
Finished Goods Inventory Beginning (Given)	46000
Add: Cost of Goods Manufactured (Balancing Figure)	704000
Goods Available for Sale	750000
Less: Finished Goods Inventory Ending (Given)	86000
Cost of Goods Sold (Given)	664000

2. Assume that the dollar amounts given above are for the equivalent of 40,000 units produced during the year.

If 40000 units are produced,

then

average cost per direct materials = 340000/40000 = 8.5

average cost per rent factory building = 116000/40000 = 2.9

Hence,

	Average Cost
Direct materials	$ 8.5 per unit
Rent Factory Building	$ 2.9 per unit

3. Assume that in the following year the company expects to produce 50,000 units. What average cost per unit and total cost would you expect to be incurred for direct materials? For rent on the factory building?

Since material cost is variable, it will change as per the number of units produced. However, rent, factory cost will remain the same i.e 116000

So average cost per direct material for 50000 units is 8.5 and average cost per rent, factory building is 116000/50000 = 2.32 per unit

	Unit Cost	Total Cost
Direct Materials	$ 8.5 per unit	$ 425000 (50000*8.5)
Rent Factory Building	$ 2.32 per unit	$ 116000 (50000*2.32)