management accounting tutorial 1 question and answer

Topics: Manufacturing, December 31, Costs Pages: 9 (729 words) Published: December 12, 2014
1-17 (15 min.)Value chain and classification of costs, pharmaceutical company.

Cost Item
Value Chain Business Function
a.
b.
c.
d.
e.
f.
g.
h.
Design of products, services or processes
Marketing
Customer Service
Research and Development
Marketing
Production
Marketing
Distribution

*2-23(15–20 min.)Classification of costs, retail sector.

Cost object: Videos sold in video section of store
Cost variability: With respect to changes in the number of videos sold
There may be some debate over classifications of individual items, especially with regard to cost variability.

Cost Item
D or I
V or F
A
I
F
B
D
V
C
D
F
D
I
F
E
I
V
F
I
F
G
D
V

**2-39 (25–30 min.) Income statement and schedule of cost of goods manufactured.

Chan Ltd
Income Statement
for the Year Ended 31 December 2011
(in millions)
Revenues$700
Cost of goods sold:
Beginning finished goods, 1 Jan. 2011$ 80
Cost of goods manufactured (below) 408
Cost of goods available for sale488
Ending finished goods, 31 Dec. 2011 (24) (464)
Gross margin236
Marketing, distribution, and customer-service costs (180) Operating income$ 56

Chan Ltd
Schedule of Cost of Goods Manufactured
for the Year Ended 31 December 2011
(in millions)
Direct material costs:
Beginning inventory, 1 Jan. 2011$ 60
Direct materials purchased 160
Cost of direct materials available for use220
Ending inventory, 31 Dec. 2011 (10)
Direct materials used$210
Direct manufacturing labour costs80
Indirect manufacturing costs:
Plant supplies used 12
Property taxes on plant2
Plant utilities10
Indirect manufacturing labour costs40
Depreciation––plant and equipment18
Miscellaneous manufacturing overhead costs 20 102
Manufacturing costs incurred during 2011392
Add beginning work-in-process inventory, 1 Jan. 2011 20 Total manufacturing costs to account for412
Deduct ending work-in-process inventory, 31 Dec. 2011 (4) Cost of goods manufactured (to income statement)$408

5.27 Proration of overhead.

=

150000/250000 = 60%

2. Overhead allocated = 60%Actual direct manufacturing labour cost
= 60%$270,000 =$162,000

Overallocated plant overhead = Actual plant overhead costs – Allocated plant overhead costs = $146,000 – $162,000 = –$16,000

Overallocated plant overhead = $16,000

3a. All overallocated plant overhead is written off to cost of goods sold.

Both work in process (WIP) and finished goods inventory remain unchanged. Account
Dec. 31, 2010 Balance
(Before Proration)
(1)
Proration of $16000
Overallocated
Manuf. Overhead
(2)
Dec. 31, 2010 Balance
(After Proration)
(3) = (1) – (2)
WIP
$ 60,000
$ 0
$ 60,000
Finished Goods
260,000
0
260,000
Cost of Goods Sold
580,000
16,000
564,000
Total
$900,000
$16,000
$884,000

3b. Overallocated plant overhead prorated based on ending balances: Account
Dec. 31, 2011 Balance
(Before Proration)
(1)
Balance as a
Percent of Total
(2) = (1) ÷ $900,000
Proration of $16,000
Overallocated
Manuf. Overhead
(3) = (2)$16,000
Dec. 31, 2011 Balance
(After Proration)
(4) = (1) – (3)
WIP
$ 60,000
0.0667
0.0667$16,000 =$1067
$ 58,933
Finished Goods
260,000
0.2889
0.2889$16,000 = 4,622
255,378
Cost of Goods Sold
580,000
0.6444
0.6444$16,000 = 10,311
569,689
Total
$900,000
1.0000
$16,000
$884,000

3c. Overallocated plant overhead prorated based on 2011 overhead in ending balances: Account
Dec. 31, 2011 Balance
(Before Proration)
(1)
Allocated Manuf.
Overhead in
Dec. 31, 2011 Balance
(2)
Allocated Manuf. Overhead in Dec. 31, 2011 Balance
as a Percent of Total...
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