Problem 2-8 Preparing Financial Statements; Cost Behaviour (LO1 - CC1; LO5 - CC9

Question

Problem 2-8 Preparing Financial Statements; Cost Behaviour (LO1 - CC1; LO5 - CC9, 10; LO6 - CC11, 12) Selected account balances for the year ended December 31 are provided below for Superior Company: Selling and administrative salaries Insurance, factory Utilities, factory Purchases of raw materials Indirect labour Direct labour Advertising expense Cleaning supplies, factory Sales commissions Rent, factory building Maintenance, factory $109,000 7,400 46,000 277,000 64,000 74,400 7,800 51,000 105,000 30,000 Inventory balances at the beginning and end of the year were as follows: Beginning of End of the Year the Year $ 61,600 13,600 34,900 Raw materials Work in process Finished goods 42,000 The total manufacturing costs for the year were $723,000, the goods available for sale totalled $751,000 and the cost of goods sold totalled $668,000

Explanation / Answer

Part-1(a) Superior Company Schedule of Cost of Goods Manufactured For the year ended December 31 Direct Material Raw Material inventory, beginning $61,600.00 Add: Purchase of Raw Materials $277,000.00 Raw Material available for use $338,600.00 Less: Raw Material Inventory, Ending -$13,600.00 Raw Material Used in Production $325,000.00 Direct Labour ( W/Note-1 $137,800.00 Manufacturing Overhead Cleaning Supplies, Factory $7,800.00 Indirect Labour $64,000.00 Insurance, Factory $7,400.00 Maintainance, Factory $30,000.00 Utilities, Factory $46,000.00 Rent, Factory, Building $105,000.00 Total Overhead Cost $260,200.00 Total Manufacturing Cost $723,000.00 Add: WIP in Beginning (W/Note-3) $11,900.00 Less: WIP , Ending -$34,900.00 Cost of Goods Manufactured (W/Note-2) $700,000.00 Part-1(b) Superior Company Schedule of Cost of Goods Manufactured For the year ended December 31 Finished Goods Inventory, Beginning 42000 Add: Cost of Goods Manufactured $700,000.00 Good available for Sale $751,000.00 Less: Finished Goods Inventory, Ending ( W/Note-4) -$9,000.00 Cost Of goods Sold $1,484,000.00 Part-2 Computation of average cost of Material and Rent for 50000 Unit Units Total Cost Average Cost Direct Material 50000 $325,000.00 $6.50 Per Unit Rent on the Factory Building 50000 $105,000.00 $2.10 Per Unit Part-3 Computation of average cost of Material and Rent for 60000 Unit Units Cost /Unit Total Cost Remark Direct Material 60000 $6.50 $390,000.00 Variable Cost Rent on the Factory Building 60000 $105,000.00 $105,000.00 Fixed Cost Working Note-1 Calculation of Direct Labour Manufacting Cost $723,000.00 Raw Material Used in Production -$325,000.00 Total Overhead Cost -$260,200.00 Direct Labour $137,800.00 Working Note-2 Calculation of Cost goods Manufactured Cost of Goods Avialble for Sale $751,000.00 Less: Sales Commission -$51,000.00 Cost of Goods Manufactured $700,000.00 Working Note-3 Calculation of WIP in Beginning Cost of Goods Manufactured $700,000.00 Add: Closing WIP $34,900.00 Less: Manufacturing cost -$723,000.00 WIP in Beginning $11,900.00 Working Note-4 Calculation of Finished Goods in Beginning Goods Available for Sale $751,000.00 Less: Cost of Goods Manufactured -$700,000.00 Less: Finished Goods Inventory, Beginning -$42,000.00 Finished Goods Inventory, Ending $9,000.00

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