REQUIRED: Prepare a report (no more than 10-pages) for Brendan Pierce that addre
ID: 2473648 • Letter: R
Question
REQUIRED: Prepare a report (no more than 10-pages) for Brendan Pierce that addresses the following:
a) The purpose of a product costing system. ?
b) Preparation of a Schedule of Cost of Goods Manufactured, Cost of Goods Sold and Income ?Statement (Use only Appendix A for this section).
c) Prepare a Schedule of Cost of goods manufactured and determine the following (based only ?on Appendix B):
Predetermined overhead rate for June; ?
Overhead applied for the month of June; ?
Ending balance of the work-in-process inventory in June; and, ?
Over- or under-applied overhead in the month of June. ?
d) Discuss how overheads can be over- or under-applied and how the company should deal with the over- or under-application. ?
e) Explain the figures found in the regression equation provided in Appendix C and use it to estimate the cost of indirect materials if 850 machine hours are to be used during a month (assume that 850 machine hours falls within the relevant range). ?
f) Explain how you would determine the validity of the data used for the regression. ?
g) Use the high-low method to estimate the behaviour of the company’s indirect materials ?cost, based on the data in Appendix C. State the cost behaviour pattern in equation form. ?
h) Determine which cost estimate (regression or high-low) you would recommend to Brendan ?and the senior managers and explain why. ?
Appendix A Capital Industries Statement of Cost of Goods Sold For the month ended April 30, 2015 Inventory of Finished Goods, March 31, 2015 Cost of Goods Manufactured Cost of Goods Available for Sale Inventory of Finished Goods, April 30, 2015 Cost of Goods Sold 50,000 790,000 840,000 247,000 593,000 Capital Industries Pre-closing Account Balances 31 May 2015 Cash and Marketable Securities Accounts and notes receivable Direct materials inventory (30 April 2015) Work-in-process Inventory (30 April 2015) Finished Goods Inventory (30 April 2015) Property, Plant and Equipment (nett) Accounts, notes and taxes payable Bonds payable Paid-in capital Retained earnings Sales Purchases of direct materials Freight-inwards for materials purchases* Direct labour indirect factory labour Office salaries Sales salaries Utilities* Rent* Property tax* Insurance* Depreciation* 54,000 210,000 28,000 150,000 247,000 1,140,000 70,000 600,000 100,000 930,000 1,488 510,000 15,000 260,000 90,000 122,000 42,000 135,000 9,000 60,000 20,000 54,000 * See additional information overleafExplanation / Answer
The Product Costing system allows you to store and retrieve cost information. It also helps you to manage your costs by providing informational inputs to your company's business plan. With accurate product costing, you can evaluate the following manufacturing processes to determine the impact to your company's bottom line:
Manufacturing budgets (direct labor, indirect labor, and overhead)
Product design (design and manufacturing engineering)
Accounting (gross margin by product line or item)
When you arrived at work for the first time, you learnt that the though the company has been in
existence for the last twelve years, they have never had an accountant. The accounts were typically
prepared by the Jodie Watts, secretary of Brendan Pierce and Tom Nicholson, a part-time
accountant who came in once or twice a month. Tom has informed Brendan that he could no longer
spare the time to come in and has suggested the need for an accountant on a full time basis, which
is why you have been hired. Brendan, though, is still not convinced of the need for a full time
accountant. “Look, why do I need a full-time accountant? At the end of the day, all I need to do is
total up my revenues, total up my expenses and the difference is my profit. Do I really need to
understand my product costs? What is the purpose of that? It’s not like I can lower my prices if my
product costs are lower. I just follow the big guys like Harvey Norman and A-mart and price my
product according to their prices. Why do I need to know what my product costs are?” asked
Brendan.
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