Chapter 2 Practice Problems

Question 1

Cost and sales information for the most recent fiscal year are shown below:

WALLACE RIVER COMPANY
Cost and Sales Information
For the Year Ended December 31
Purchases of raw materials	$	98,000
Raw materials inventory, beginning		18,000
Raw materials inventory, ending		25,000
Depreciation, factory		46,800
Insurance, factory		5,000
Direct labour		68,000
Maintenance, factory		30,000
Administrative expense		73,200
Sales		530,000
Utilities, factory		27,000
Supplies, factory		1,000
Selling expense		83,200
Advertising expense		23,200
Indirect labour, factory		65,000
Work in process inventory, beginning		7,000
Work in process inventory, ending		30,000
Finished goods inventory, beginning		10,000
Finished goods inventory, ending		40,000

Required:

1. Prepare a schedule of cost of goods manufactured.

2. Prepare an income statement.

3. Assume that the company produced 10,000 units of product during the year. What was the average cost per unit for direct materials? What was the average cost per unit for factory depreciation? (Round your answers to 2 decimal places.)

4. Assume that the company expects to produce and sell 15,000 units of product during the coming year. What average cost per unit and what total cost would you expect the company to incur for direct materials and for factory depreciation at this level of activity? Assume that raw materials costs charged by suppliers will not change next year. For factory depreciation, assume that the company uses straight-line depreciation and that the factory equipment has five years of useful life remaining. (Round your answers to 2 decimal places.)

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

Question 2

Carlton Manufacturing Company provided the following details about operations in February:

Purchases of raw materials	$	178,000
Maintenance, factory		41,800
Direct labour		35,700
Depreciation, factory equipment		61,400
Indirect materials, factory		3,800
Selling and administrative salaries		47,300
Utilities, factory		29,200
Sales commissions		19,100
Insurance, factory equipment		4,800
Depreciation, sales equipment		23,200
Advertising expenses		115,500
Rent, factory building		?

The company also provided details regarding the balances in the inventory accounts at the beginning and end of the month as follows:

	Beginning of Month			End of Month
Raw materials	$	41,000		?
Work in process		30,400		?
Finished goods		23,000		?

Raw materials used in production cost $192,920, total overhead costs for the month were $219,920, the goods available for sale totalled $424,000, and the cost of goods sold totalled $365,500.

Required:

1-a. Prepare a schedule of cost of goods manufactured of the company’s income statement for the month of February.

1-b. Prepare a schedule cost of goods sold section of the company’s income statement for the month of February.

2. Assume that the dollar amounts given above are for the equivalent of 18,200 units produced during the month. Compute the average cost per unit for direct materials used, and compute the average cost per unit for rent on the factory building. (Round your answers to 2 decimal places.)

3. Assume that in the following month the company expects to produce 23,200 units. What average cost per unit and total cost would you expect to be incurred for direct materials, and for rent on the factory building? Direct materials are a variable cost and rent is a fixed cost. (Round “Unit cost” answers to 2 decimal places.)

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

Question 3

The following information was taken from the accounting records of Mitchell Company for last year:

Selling expenses	$	140,000
Raw materials inventory, January 1		90,000
Raw materials inventory, December 31		60,000
Utilities, factory		36,000
Direct labour cost		150,000
Depreciation, factory		162,000
Purchases of raw materials		750,000
Sales		2,500,000
Insurance, factory		40,000
Supplies, factory		15,000
Administrative expenses		270,000
Indirect labour		300,000
Maintenance, factory		87,000
Work in process inventory, January 1		180,000
Work in process inventory, December 31		100,000
Finished goods inventory, January 1		260,000
Finished goods inventory, December 31		210,000

Management wants to organize these data into a better format so that financial statements can be prepared for the year.

Required:

1. Prepare a schedule of cost of goods manufactured.

2. Compute the cost of goods sold. 

3. Using data as needed from (1) and (2) above, prepare an income statement.

4. Assuming production of finished and semi-finished goods amounted to 412,500 units for the past year, calculate the cost components of the ending finished goods inventory of 55,176 units. (Hint: The categories of costs in the ending inventory are the same as the total manufacturing costs; only the amounts are different.) (Do not round intermediate calculations and round down final answers to nearest whole dollar amount.)

Related: (Solution) Mos3370 Chapter 3 Practice Problems

Step by Step Solution with Explanation – Chapter 2 Practice Problems

Question 1

Here is the complete schedule of Cost of Goods Manufactured

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