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Worksheet # I: Cost Classification
Study Questions
1.

Distinguish between direct and indirect costs.

2.

Distinguish between prime cost and conversion costs.

3. The current assets sections of the balance sheets of three companies follow. Which company is a service company? Which is a merchandiser? Which is a manufacturer? How can you tell?
X-TREME
Cash……………….
$2,500
Accounts Receivable
5,500
Inventory…………..
8,000
Prepaid Expenses….
300
Total……………….
$16,800

Y-NOT?
ZESTO
Cash……………….
$3,000 Cash……………………..
$2,000
Accounts Receivable 6,000 Accounts Receivable……
5,000
Prepaid Expenses….
500 Materials Inventory……..
1,000
Total……………….
$9,500 Work in process inventory
800
Finished goods inventory
4,000
Total…………………….
$12,800

4. Francis manufacturers, a manufacturer of wood doors and windows, has prepared the following list of accounts
Advertising
Assemblers wages
Production supervisor’s salary
Depreciation of machinery
Factory utilities
Lathe (machine for shaping wood) Operators wages
Machinery repairs
Office salaries
Purchase of glue
Purchase of screws and nails
Purchase of pine
Purchase of oak

$36,000
84,200
21,400
9,200
55,600
66,400
22,600
113,800
1,600
800
99,000
250,000

There is no beginning or ending inventory.
Calculate the following:
(a)
Direct material used
(b) Direct labour cost
(c)
Factory overhead

(d)
(e)
(f)

Prime cost
Conversion cost
Production cost

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5. Compute cost of goods manufactured and cost of goods sold from the following amounts

Direct materials inventory
Work in process inventory
Finished goods inventory
Purchases of direct materials
Direct labour
Manufacturing overhead

Beginning of
Year
$22,000
38,000
18,000

End of Year
$26,000
30,000
23,000
75,000
82,000
39,000

6. Clyde’s Pets manufactures chewing bones for puppies. At the end of December 2008, his accounting records showed the following:
Inventories
Materials
Work in process
Finished goods
Other information:
Direct material purchases
Plant janitorial service
Sales salaries expense
Delivery expense
Sales revenue

Beginning
$13,500
0
0
$31,000
1,250
5,000
1,500
105,000

Ending
$9,000
1,250
5,700
Utilities for plant
Rent on plant
Customer service hotline expense
Direct labour

$4,500
9,000
1,000
18,000

Requirements:
i)
ii)
iii)

Prepare a schedule of cost of goods manufactured for the year ended December 31, 2008
Prepare an income statement for Clyde’s Pets for the year ended December 31, 2008
Given that the company manufactured 17,500 units, of its product in 2008, compute the company’s unit product cost for the year.

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Online Discussion Questions
(Kindly prepare these questions before each online session)

1. Papermaking Ltd. makes paper, which is cut and packed, before being transferred into the finished goods store. The paper is moved from department to department by forklift truck. Each pack of finished product contains one ream of paper. The paper is loaded onto wooden pallets before delivery to customers. The following cost information relates to Papermaking Ltd. for the period ended March 31, 2002.

Pulp
Clay
Wrapping paper (used in packing department)
Spare knives for cutting machine
Cleaning rags for machines
Royalty payments
Making department wages to machine crew
Cutting department wages to machine crew
Packing department wages to packers
Fork truck driver wages
Factory foreman’s salary
Wooden pallets
Dispatch department wages
Delivery vehicle drivers wages
Sales manager’s salary
Advertising costs
Sales office staff wages
General manager’s salary
Production manager’s salary
Maintenance costs 1
Administration salaries
Electricity cost 2
Administrative office machine rental cost
Sundry other costs:
Production
Administration
Selling
Distribution

$100,000
40,000
3,500
800
500
10,000
38,000
26,000
20,000
8,000
11,000
3,600
17,000...
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