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Problem: Cost Term

1. The document discusses classifying various costs for Porter Company according to cost terms like variable and fixed costs. It provides 9 example costs and asks the reader to classify each one. 2. The second document provides financial information for Klear-Seal Corporation and asks the reader to prepare a schedule of cost of goods manufactured and income statement. It gives direct materials, direct labor, manufacturing overhead, work in process inventory, finished goods inventory and other amounts. 3. The summary schedules the costs of raw materials used, direct labor, and manufacturing overhead to calculate a total cost of goods manufactured of $1,650,000. It uses the provided beginning and ending inventory amounts to adjust the costs.

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Aiman Israr
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61 views

Problem: Cost Term

1. The document discusses classifying various costs for Porter Company according to cost terms like variable and fixed costs. It provides 9 example costs and asks the reader to classify each one. 2. The second document provides financial information for Klear-Seal Corporation and asks the reader to prepare a schedule of cost of goods manufactured and income statement. It gives direct materials, direct labor, manufacturing overhead, work in process inventory, finished goods inventory and other amounts. 3. The summary schedules the costs of raw materials used, direct labor, and manufacturing overhead to calculate a total cost of goods manufactured of $1,650,000. It uses the provided beginning and ending inventory amounts to adjust the costs.

Uploaded by

Aiman Israr
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Problem : Cost Term

Many new cost terms have been introduced in this chapter. It will take you some time to
learn what each term means and how to properly classify costs in an organization. Consider
the following
example: Porter Company manufactures furniture, including tables. Selected costs are given
below:
1. The tables are made of wood that costs $100 per table.
2. The tables are assembled by workers, at a wage cost of $40 per table.
3. Workers assembling the tables are supervised by a factory supervisor who is paid $38,000
per year.
4. Electrical costs are $2 per machine-hour. Four machine-hours are required to produce a
table.
5. The depreciation on the machines used to make the tables totals $10,000 per year. The
machines have no resale value and do not wear out through use.
6. The salary of the president of the company is $100,000 per year.
7. The company spends $250,000 per year to advertise its products.
8. Salespersons are paid a commission of $30 for each table sold.
9. Instead of producing the tables, the company could rent its factory space for $50,000 per
year.
Required:
Classify these costs according to the various cost terms used in the chapter. Carefully study
the classification of each cost. If you don’t understand why a particular cost is classified the
way it is, reread the section of the chapter discussing the particular cost term. The terms
variable cost and fixed cost refer to how costs behave with respect to the number of tables
produced in a year.

Problem : Schedule Of Cost of Goods Manufactured & Income Statement


The following information has been taken from the accounting records of Klear-Seal
Corporation for last year:
Selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . $140,000
Raw materials inventory, January 1 . . . . . . . . . . . $90,000
Raw materials inventory, December 31 . . . . . . . . $60,000
Direct labor cost. . . . . . . . . . . . . . . . . . . . . . . . . . $150,000
Purchases of raw materials . . . . . . . . . . . . . . . . . $750,000
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,500,000
Administrative expenses . . . . . . . . . . . . . . . . . . . $270,000
Manufacturing overhead . . . . . . . . . . . . . . . . . . . $640,000
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 these data organized in a better format so that financial statements can
be prepared for the year.
Required:
1. Prepare a schedule of cost of goods manufactured . Assume raw materials consists
entirely of direct materials.
2. Compute the cost of goods sold .
3. Prepare an income statement.

Direct materials:
Raw materials inventory, January 1 . . . . . . . . . . . . . . . . . . . . . . $ 90,000
Add: Purchases of raw materials . . . . . . . . . . . . . . . . . . . . . . . . 750,000
Raw materials available for use . . . . . . . . . . . . . . . . . . . . . . . . . 840,000
Deduct: Raw materials inventory, December 31. . . . . . . . . . . . . 60,000
Raw materials used in production . . . . . . . . . . . . . . . . . . . . . . . $ 780,000
Direct labor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000
Manufacturing overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 640,000
Total manufacturing cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,570,000
Add: Work in process inventory, January 1 . . . . . . . . . . . . . . . . . . 180,000
1,750,000
Deduct: Work in process inventory, December 31 . . . . . . . . . . . . . ( 100,000)
Cost of goods manufactured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,650,000
Solution to Review Problem 2
Klear-Seal Corporation Schedule of Cost of Goods Manufactured For the Year Ended
December 31
Direct materials: Raw materials inventory, January 1 . . . . . . . . . . . . . . . . . . . . . . $ 90,000
Add: Purchases of raw materials . . . . . . . . . . . . . . . . . . . . . . . . 750,000
Raw materials available for use . . . . . . . . . . . . . . . . . . . . . . . . . 840,000 Deduct: Raw
materials inventory, December 31. . . . . . . . . . . . . 60,000
Raw materials used in production . . . . . . . . . . . . . . . . . . . . . . . $ 780,000 Direct
labor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000 Manufacturing
overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 640,000
Total manufacturing cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,570,000
Add: Work in process inventory, January 1 . . . . . . . . . . . . . . . . . . 180,000

1,750,000
Deduct: Work in process inventory, December 31 . . . . . . . . . . . . . 100,000
Cost of goods manufactured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,650,000

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