Chapter 16 Introduction to Managerial Accounting – Tutorial Questions

E16-15 Classifying costs

Wheels, Inc. manufactures wheels for bicycles, tricycles, and scooters. For each cost given below, determine
if the cost is a product cost or a period cost. If the cost is a product cost, further determine if the cost is direct
materials (DM), direct labor (DL), or manufacturing overhead (MOH) and then determine if the product cost
is a prime cost, conversion cost, or both. If the cost is a period cost, further determine if the cost is a selling
expense or administrative expense (Admin). Cost (a) is answered as a guide.

Product Period
Cost
DM DL MOH Prime Conversion Selling Admin.

a. Metal used for rims X X

b. Sales salaries

c. Rent on factory

d. Wages of assembly
workers

e. Salary of production
supervisor

f. Depreciation on office
equipment

g. Salary of CEO

h. Delivery expense
E16-20 Preparing a schedule of cost of goods manufactured

Auburn Corp., a manufacturer of magnetic discs, provided the following information for the year ended
December 31, 2019:

Balances: Beginning Ending

Direct Materials $ 65,000 $ 25,000

Work-in-Process Inventory 110,000 65,000

Finished Goods Inventory 45,000 54,000

Other information:

Depreciation, plant building and equipment $ 18,000

Direct materials purchases 160,000

Insurance on plant 27,000

Sales salaries 49,000

Repairs and maintenance—plant 12,000

Indirect labor 37,000

Direct labor 127,000

Administrative expenses 63,000

Requirements

1. Use the information to prepare a schedule of cost of goods manufactured.

2. What is the unit product cost if Auburn Corp. manufactured 4,000 discs for the year?
P16-26A Classifying period costs and product costs

Seven Hills, Inc. is the manufacturer of hose gun equipment. The company incurs the following costs while
manufacturing roofing items:

• Shaft and handle of hose gun

• Parts of hose gun

• Factory labor for workers assembling hose guns

• Nylon thread used by the hose gun (not traced to the product)

• Glue to hold the parts together

• Plant security guard’s wages

• Depreciation on factory equipment

• Rent on plant

• Sales commissions

• Administrative salaries

• Plant utilities

• Shipping costs to deliver finished hose guns to customers

Requirements
1. Describe the difference between period costs and product costs.

2. Classify Seven Hills’s costs as period costs or product costs. If the costs are product costs, further
classify them as direct materials, direct labor, or manufacturing overhead.
P16-27A Calculating cost of goods sold for merchandising and manufacturing companies

Below are data for two companies:

Company X Company Y

Beginning balances:

Merchandise Inventory $ 12,600

Finished Goods Inventory $ 17,000

Ending balances:

Merchandise Inventory 15,300

Finished Goods Inventory 13,700

Net Purchases 165,500

Cost of Goods Manufactured 225,500

Requirements

1. Define the three business types: service, merchandising, and manufacturing.

2. Based on the data given for the two companies, determine the business type of each one.

3. Calculate the cost of goods sold for each company.

Gourmet Bones manufactures its own brand of pet chew bones. At the end of December 2018, the
accounting records showed the following:

Balances: Beginning Ending

Direct Materials $ 13,500 $ 7,500

Work-in-Process Inventory 0 3,500

Finished Goods Inventory 0 5,200

Other information:

Direct materials purchases $ 36,000

Plant janitorial services 700

Sales salaries 6,000

Delivery costs 1,300

Net sales revenue 107,000

Utilities for plant 1,300

Rent on plant 17,000

Customer service hotline costs 1,200

Direct labor 23,000

Requirements

1. Prepare a schedule of cost of goods manufactured for Gourmet Bones for the year ended December 31,
2018.

2. Prepare an income statement for Gourmet Bones for the year ended December 31, 2018.

3. How does the format of the income statement for Gourmet Bones differ from the income statement of a
merchandiser?

4. Gourmet Bones manufactured 17,900 units of its product in 2018. Compute the company’s unit product
cost for the year, rounded to the nearest cent.
Additional Exercise

Given the following selected account balances of Roger Company, prepare its manufacturing statement and
statement of profit or loss for the year ended 31 December 20X5.

Sales $1,252,000
Raw material inventory, 31 Dec 20X4 39,000
Work in process inventory, 31 Dec 20X4 55,900
Finished goods inventory, 31 Dec 20X4 64,750
Raw materials purchases 177,600
Direct labour 227,000
Factory computer supplies used 19,840
Indirect labour 49,000
Repairs – factory equipment 7,250
Rent of factory building 59,000
Advertising expenses 96,000
General and administrative expenses 131,300
Raw material inventory, 31 Dec 20X5 44,700
Work in process inventory, 31 Dec 20X5 43,500
Finished goods inventory, 31 Dec 20X5 69,300