Question

C LIO, customer profit U ty, quality, just-in-time systems, investment decisions, transfer pricing, and performance evaluation. Each of these topics invariably has product costing planning and control, and decision-making perspectives. A command of the first 11 chapters will help you master these topics. For example, Chapter 12 on strategy describes the balanced scorecard, a set of finan- cial and nonfinancial measures used to implement strategy that builds on the planning and control functions. The section on strategic analysis of operating income builds on ideas of product costing and variance analysis. The section on downsizing and managing capacity builds on ideas of relevant revenues and relevant costs DECISION POINT What are the three Key features of cost accounting and cost management? PROBLEM FOR SELF-STUDY Foxwood Company is a metal- and woodcutting manufacturer, selling products to the home- construction market. Consider the following data for 2017: Sandpaper Materials-handling costs Lubricants and coolants Miscellaneous indirect manufacturing labor Direct manufacturing labor Direct materials inventory, Jan 1, 2017 Direct materials inventory, Dec 31, 2017 Finished-goods inventory, Jan. 1, 2017 Finished-goods inventory, Dec 31, 2017 Work-in-process inventory, Jan. 1. 2017 Work-in-process inventory, Dec 31, 2017 Plant-leasing costs Depreciation-plant equipment Property taxes on plant equipment Fire insurance on plant equipment Direct materials purchased Revenues Marketing promotions Marketing salaries Distribution costs Customer service costs $ 2,000 70,000 5,000 40,000 300,000 40,000 50,000 100,000 150,000 10,000 14,000 54,000 36,000 4,000 3,000 460,000 1,360,000 60,000 100,000 70,000 100,000 Require Prepare an income statement with a separate supporting schedule of cost of goods manu- factured. For all manufacturing items, classify costs as direct costs or indirect costs and indicate by V or F whether each is a variable cost or a fixed cost (when the cost object is a product unit). If in doubt, decide on the basis of whether the total cost will change sub- stantially over a wide range of units produced. 2 Suppose that both the direct material costs and the plant-leasing costs are for the produc- tion of 900,000 units. What is the direct material cost of each unit produced? What is the plant-leasing cost per unit? Assume that the plant-leasing cost is a fixed cost. * Suppose Foxwood Company manufactures 1,000,000 units next year. Repeat the compu- tation in requirement 2 for direct materials and plant-leasing costs. Assume the implied cost-behavior patterns persist. As a management consultant, explain concisely to the company president why the unit cost for direct materials did not change in requirements 2 and 3 but the unit cost for Pan Teasing costs did change.

Answer 1

1)
Foxwood Company
Income Statement
For the Year Ended December 31, 2017
Revenues		$   1,360,000.00
Cost of goods sold:
Beginning finished goods inventory January 1, 2017	$    100,000.00
Cost of goods manufactured (see the following schedule)	$    960,000.00
Cost of goods available for sale	$ 1,060,000.00
Less: ending finished goods inventory	$  (150,000.00)	$      910,000.00
Gross margin (or gross profit)		$      450,000.00
Operating costs
Marketing promotions	$      60,000.00
Marketing salaries	$    100,000.00
Distribution costs	$      70,000.00
Customer-service costs	$    100,000.00	$      330,000.00
Operating income		$      120,000.00
Foxwood Company
Schedule of Cost of Goods Manufactured
For the Year Ended December 31, 2017
Direct materials
Beginning inventory, January 1, 2017			$    40,000.00
Purchases of direct materials			$  460,000.00
Cost of direct materials available for use			$  500,000.00
Ending inventory, December 31, 2017			$   (50,000.00)
Direct materials used			$  450,000.00	V
Direct manufacturing labor			$  300,000.00	V
Manufacturing Overhead costs:
Sandpaper	2000	V
Materials-handling costs	70000	V
Lubricants and coolants	5000	V
Miscellaneous indirect manufacturing labor	40000	V
Plant-leasing costs	54000	F
Depreciation—plant equipment	36000	F
Property taxes on plant equipment	4000	F
Fire insurance on plant equipment	3000	F	$  214,000.00
Manufacturing costs incurred during 2011			$  964,000.00
Beginning work-in-process inventory, January 1, 2017			$    10,000.00
Total manufacturing costs to account for			$  974,000.00
Ending work-in-process inventory, December 31, 2011			$   (14,000.00)
Cost of goods manufactured (to income statement)			$  960,000.00
2)
Direct material unit cost = Direct materials used ÷ Units produced
Direct material unit cost = $450,000 ÷ 900,000 units =	$               0.50	per unit
Plant-leasing unit cost= Plant-leasing costs ÷ Units produced
Plant-leasing unit cost=  $54,000 ÷ 900,000 units	$               0.60	per unit
3)
Direct material unit cost = Direct materials used ÷ Units produced
Direct material unit cost = $1,000,000 x .50 ÷ 1,000,000 units =	$               0.50	per unit
Plant-leasing unit cost= Plant-leasing costs ÷ Units produced
Plant-leasing unit cost=  $54,000 ÷ 1,000,000 units	$             0.054	per unit
The direct material costs are variable, so they would increase in total from $450,000to $500,000 (1,000,000 units x  $0.50 per unit) but cost per unit would be unaffected.
The plant-leasing costs of $54,000 are fixed, so it will remain fixed at all levels of unit but per unit cost would decline from $0.060t to $0.054
4)
The direct material costs are variable , its total cost  would increase but cost per unit would be unaffected at all level of production units.
The plant-leasing costs  are fixed, so it will remain constant at all levels of unit but per unit cost would change.