Cost Terms, Concepts, and Classifications Chapter 02 Test bank, Exercises of Management Accounting

Download Cost Terms, Concepts, and Classifications Chapter 02 Test bank and more Exercises Management Accounting in PDF only on Docsity! True/False Medium 3. T Medium 4. F Medium Medium 8. T Medium Easy 10. Easy Chapter 2 Cost Terms, Concepts, and Classifications All costs incurred in a merchandising firm are considered to be period costs. Depreciation is always considered a product cost for external financial reporting purposes in a manufacturing firm. In external financial reports, factory utilities costs may be included in an asset account on the balance sheet at the end of the period. Advertising costs are considered product costs for external financial reports since they are incurred in order to promote specific products. Property taxes and insurance premiums paid on a factory building are examples of manufacturing overhead. Manufacturing overhead combined with direct materials is known as conversion cost. If the ending inventory of finished goods is understated, net income will be overstated. In a manufacturing company, goods available for sale equals the sum of the cost of goods manufactured and the beginning finished goods inventory. Variable costs are costs whose per unit costs vary as the activity level rises and falls. On a per unit basis, a fixed cost varies inversely with the level of activity. Managerial Accounting, 9/e 11 11. Easy 12. Hard 13. Hard 14. F Easy 15. T Easy Multiple Choice 16. c Easy 17. Medium 18. A Medium CPA adapted The following would typically be considered indirect costs of manufacturing a particular Boeing 747 to be delivered to Singapore Airlines: electricity to run production equipment, the factory manager's salary, and the cost of the General Electric jet engines installed on the aircraft. The following costs should be considered direct costs of providing delivery room services to a particular mother and her baby: the costs of drugs administered in the operating room, the attending physician's fees, and a portion of the liability insurance carried by the hospital to cover the delivery room. The following costs should be considered by a law firm to be indirect costs of defending a particular client in court: rent on the law firm's offices, the law firm's receptionist's wages, the costs of heating the law firm's offices, and the depreciation on the personal computer in the office of the attorney who has been assigned the client. A cost that differs from one month to another is known as a differential cost. (Appendix) Some companies classify labor fringe benefits for direct labor workers as part of the direct labor cost and some classify these costs as manufacturing overhead. The corporate controller's salary would be considered a(n): a. manufacturing cost. b. product cost. c. administrative cost. d. selling expense. The cost of fire insurance for a manufacturing plant is generally considered to be a: a. product cost. b. period cost. c. variable cost. d. all of the above. The cost of rent for a manufacturing plant is generally considered to be a: Prime cost Product cost a. No Yes b. No No Cc. Yes No d. Yes Yes Managerial Accounting, 9/e 12 31. Hard 32. Medium 33. Easy 34. B Medium 35. Medium If the cost of goods sold is greater than the cost of goods manufactured, then: a. work in process inventory has decreased during the period. b. finished goods inventory has increased during the period. c. total manufacturing costs must be greater than cost of goods manufactured. d. finished goods inventory has decreased during the period. Last month, when 10,000 units of a product were manufactured, the cost per unit was $60. At this level of activity, variable costs are 50% of total unit costs. If 10,500 units are manufactured next month and cost behavior patterns remain unchanged the: a. total variable cost will remain unchanged. b. fixed costs will increase in total. c. variable cost per unit will increase. d. total cost per unit will decrease. Variable cost: a. increases on a per unit basis as the number of units produced increases. b. remains constant on a per unit basis as the number of units produced increases. c. remains the same in total as production increases. d. decreases on a per unit basis as the number of units produced increases. Within the relevant range, the difference between variable costs and fixed costs is: a. variable costs per unit fluctuate and fixed costs per unit remain constant. b. variable costs per unit are constant and fixed costs per unit fluctuate. c. both total variable costs and total fixed costs are constant. d. both total variable costs and total fixed costs fluctuate. Which of the following statements regarding fixed costs is incorrect? a. Expressing fixed costs on a per unit basis usually is the best approach for decision making. b. Fixed costs expressed on a per unit basis will react inversely with changes in activity. c. Assumptions by accountants regarding the behavior of fixed costs rest heavily on the concept of the relevant range. d. Fixed costs frequently represent long-term investments in property, plant, and equipment. Managerial Accounting, 9/e 15 36. Easy 37. Medium 38. Easy 39. Easy CMA adapted 40. Easy 41. Easy An opportunity cost is: a. the difference in total costs which results from selecting one alternative instead of another. b. the benefit forgone by selecting one alternative instead of another. c. a cost which may be saved by not adopting an alternative. d. a cost which may be shifted to the future with little or no effect on current operations. The term differential cost refers to: a. a difference in cost which results from selecting one alternative instead of another. b. the benefit forgone by selecting one alternative instead of another. a cost which does not entail any dollar outlay but which is relevant to the decision-making process. d. a cost which continues to be incurred even though there is no activity. Which of the following costs is often important in decision making, but is omitted from conventional accounting records? Fixed cost. b. Sunk cost. c. Opportunity cost. d. Indirect cost. » When a decision is made among a number of alternatives, the benefit that is lost by choosing one alternative over another is the: realized cost. opportunity cost. conversion cost. aave accrued cost. Conversion cost consists of which of the following? a. Manufacturing overhead cost. Direct materials and direct labor cost. c. Direct labor cost. d. Direct labor and manufacturing overhead cost. Prime cost consists of direct materials combined with: a. direct labor. manufacturing overhead. c. indirect materials. cost of goods manufactured. a. Managerial Accounting, 9/e 16 42. Hard 43. A Medium 44, D Medium 45. Medium Which one of the following costs should NOT be considered a direct cost of serving a particular customer who orders a customized personal computer by phone directly from the manufacturer? a. the cost of the hard disk drive installed in the computer. b. the cost of shipping the computer to the customer. c. the cost of leasing a machine on a monthly basis that automatically tests hard disk drives before they are installed in computers. d. the cost of packaging the computer for shipment. Which one of the following costs should NOT be considered an indirect cost of serving a particular customer at a Dairy Queen fast food outlet? a. the cost of the hamburger patty in the burger they ordered. b. the wages of the employee who takes the customer's order. c. the cost of heating and lighting the kitchen. d. the salary of the outlet's manager. Green Company's costs for the month of August were as follows: direct materials, $27,000; direct labor, $34,000; sales salaries, $14,000; indirect labor, $10,000; indirect materials, $15,000; general corporate administrative cost, $12,000; taxes on manufacturing facility, $2,000; and rent on factory, $17,000. The beginning work in process inventory was $16,000 and the ending work in process inventory was $9,000. What was the cost of goods manufactured for the month? a. $105,000 b. $132,000 c. $138,000 a. $112,000 A manufacturing company prepays its insurance coverage for a three-year period. The premium for the three years is $2,700 and is paid at the beginning of the first year. Eighty percent of the premium applies to manufacturing operations and 20% applies to selling and administrative activities. What amounts should be considered product and period costs respectively for the first year of coverage? Product Period a. $2,700 $ 0 b. $2,160 $ 540 c. $1,440 $ 360 ad. $ 720 $ 180 Managerial Accounting, 9/e 17 53. The gross margin for Cushing Company for the first quarter of c last year was $325,000 when sales were $700,000. The beginning Hard inventory of finished goods was $60,000 and the ending inventory of finished goods was $85,000. The cost of goods manufactured for the first quarter would have been: a. $375,000. b. $350,000. c. $400,000. d. $385,000. 54, Last month a manufacturing company had the following operating B results: Hard Beginning finished goods inventory $ 74,000 Ending finished goods inventory $ 73,000 Sales ........ $464,000 Gross margin $ 52,000 What was the cost of goods manufactured for the month? a. $413,000 b. $411,000 c. $412,000 d. $463,000 55. The following information was provided by Wilson Company for the A year just ended: Hard Beginning finished goods inventory $150,750 Ending finished goods inventory 140,475 Sales 475,000 Gross margin 150,000 The cost of goods manufactured for the year was: a. $314,725. b. $335,275. c. $325,000. d. $335,275. 56. The following information was provided by Grand Company for the A year just ended: Hard Beginning finished goods inventory $130,425 Ending finished goods inventory 125,770 Sales . 500,000 Gross margin 100,000 The cost of goods manufactured for the year was: a. $395,345. b. $95,345. c. $104,655. d. $404,655. Managerial Accounting, 9/e 20 57. Hard CMA adapted 58. Hard 59. Cc Medium CMA adapted The following inventory valuation errors were discovered by Knox Corporation's new controller just after the annual financial statements were published at the end of Year 3. > The Year 3 ending inventory was understated by $17,000. > The Year 2 ending inventory was understated by $61,000. > The Year 1 ending inventory was overstated by $23,000. The net income for Knox in each of these years was: Year 3 Year 2 Year 1 Net income $168,000 $254,000 $138,000 Assuming there were no income taxes, the net income in each year should be adjusted to: Year 3 Year 2 Year 1 $212,000 $170,000 $161,000 $124,000 $338,000 $115,000 $ 90,000 $338,000 $161,000 $124,000 $170,000 $115,000 aave Delta Merchandising, Inc., has provided the following information for the year just ended: Net sales .......eeee eee eee $128,500 Beginning inventory 24,000 Purchases 80,000 Gross margin 38,550 The ending inventory for the company at year end was: a. $65,450. b. $24,500. c. $14,050. ad. $9,950. The beginning balance of the Raw Materials inventory account for May was $27,500. The ending balance for May was $28,750 and $128,900 of raw materials were used during the month. The materials purchased during the month cost: a. $131,300. b. $127,650. c. $130,150. d. $157,650. Managerial Accounting, 9/e 21 60. Easy 61. Medium 62. Easy 63. B Medium 64. Cc Medium Gabel Inc. is a merchandising company. Last month the company's merchandise purchases totaled $63,000. The company's beginning merchandise inventory was $13,000 and its ending merchandise inventory was $15,000. What was the company's cost of goods sold for the month? a. $91,000 b. $63,000 c. $65,000 a. $61,000 Haack Inc. is a merchandising company. Last month the company's cost of goods sold was $84,000. The company's beginning merchandise inventory was $20,000 and its ending merchandise inventory was $18,000. What was the total amount of the company's merchandise purchases for the month? a. $86,000 b. $82,000 c. $84,000 a. $122,000 During January, the cost of goods manufactured was $93,000. The beginning finished goods inventory was $16,000 and the ending finished goods inventory was $20,000. What was the cost of goods sold for the month? a. $129,000 b. $89,000 c. $93,000 a. $97,000 (Appendix) Sally Smith is employed in the production of various electronic products, and earns $8 per hour. She is paid time- and-a-half for work in excess of 40 hours per week. During a given week she worked 45 hours and had no idle time. How much of her week's wages would be charged to manufacturing overhead? a. $60 b. $20 c. $40 a. $0 (Appendix) During the first week of April, Gillian worked a total of 50 hours assembling products and had no idle time. Gillian is paid $15 per hour for regular time, and is paid time-and-a-half for all hours in excess of a 40 hour week. The amount of Gillian's wages that should be charged to direct labor for the week is: a. $600. b. $225. c. $750. d. $975. Managerial Accounting, 9/e 22 73. The net income for the year (in thousands of dollars) was: B a. $410. Medium b. $110. Refer To: c. $40. 2-2 ad. $180. Reference: 2-3 NOTE TO THE INSTRUCTOR: Questions 66 to 69, 70 to 73, and 74 to 77 are different versions of the same question. The following data (in thousands of dollars) have been taken from the accounting records of Karlist Corporation for the just completed year. Sales $800 Raw materials inventory, beginning $ 60 Raw materials inventory, ending $ 70 Purchases of raw materials ...... $180 Direct labor $100 Manufacturing overhead $190 Administrative expenses $110 Selling expenses ...... 0... eee eee eee $150 Work in process inventory, beginning $ 70 Work in process inventory, ending $ 80 Finished goods inventory, beginning . $120 Finished goods inventory, ending ........ $160 Use these data to answer the following series of questions. 74. The cost of the raw materials used in production during the c year (in thousands of dollars) was: Medium a. $240. Refer To: b. $190. 2-3 c. $170. a. $250. 75. The cost of goods manufactured (finished) for the year (in A thousands of dollars) was: Medium a. $450. Refer To: b. $470. 2-3 c. $530. ad. $540. 76. The cost of goods sold for the year (in thousands of dollars) B was: Medium a. $610. Refer To: b. $410. 2-3 c. $490. a. $570. Managerial Accounting, 9/e 77. The net income for the year (in thousands of dollars) was: B a. $390. Medium b. $130. Refer To: c. $70. 2-3 ad. $190. Reference: 2-4 The following data pertain to Harriman Company's operations during July: July 1 July 31 Raw materials inventory 0 $5,000 Work in process inventory ... ? 4,000 Finished goods inventory .... $12,000 ? Other data: Cost of goods manufactured ........ $105,000 Raw materials used ............ 40,000 Manufacturing overhead costs 20,000 Direct labor costs 39,000 Gross profit 100,000 Sales ....... 210,000 78. The beginning work in process inventory was: A a. $10,000. Hard b. $14,000. Refer To: c. $1,000. 2-4 ad. $4,000. 79. The ending finished goods inventory was: c a. $17,000. Hard b. $12,000. Refer To: c. $7,000. 2-4 a. $2,000. Reference: 2-5 Bergeron Inc. reported the following data for last year: Work in process inventory, beginning .. $100 Work in process inventory, ending $150 Finished goods inventory, beginning $180 Finished goods inventory, ending $200 Direct labor cost .... $300 Direct materials cost . $500 Manufacturing overhead cost $400 80. The prime cost is: B a. $900. Easy b. $800. Refer To: c. $500. 2-5 a. $700. Managerial Accounting, 9/e 26 81. A Easy Refer To: 2-5 82. D Medium Refer To: 2-5 Reference: The conversion cost is: a. $700. b. $800. c. $900. a. $500. The cost of goods manufactured is: a. $1,250. b. $1,180. c. $1,220. ad. $1,150. 2-6 Geneva Steel Corporation produces large sheets of heavy gauge steel. company showed the following amounts relating to its production for the year just completed: Direct materials used in production ... $110,000 Direct labor costs for the year 55,000 Work in process, beginning 22,000 Finished goods, beginning 45,000 Cost of goods available for sale 288,000 Cost of goods sold ............eee 238,000 Work in process, ending ............00- 16,000 83. The balance of the finished goods inventory at the end of the B year was: Hard a. $95,000. Refer To: b. $50,000. 2-6 c. $193,000. d. $45,000. 84. Manufacturing overhead cost for the year was: D a. $84,000. Hard b. $78,000. Refer To: c. $56,000. 2-6 a. $72,000. 85. Cost of goods manufactured for the year was: c a. $171,000. Hard b. $160,000. Refer To: c. $243,000. 2-6 d. $244,000. Managerial Accounting, 9/e 27 Essay 92. Stony Electronics Corporation manufactures a portable radio Easy designed for mounting on the wall of the bathroom. The following list represents some of the different types of costs incurred in the manufacture of these radios: plant manager's salary. of of of heating the plant. heating executive offices. printed circuit boards used in the radios. and commissions of company salespersons. Depreciation on office equipment used in the executive Depreciation on production equipment used in the plant. janitorial personnel who clean the plant. 1. The 2. The cost 3. The cost 4. The cost 5. Salaries 6. offices. 7. 8. Wages of 9. The cost 10. The cost 11. The cost 12. The cost 13. The cost 14, The cost 15. The cost Required: of of of of of of of insurance on the plant building. electricity to light the plant. electricity to power plant equipment. maintaining and repairing equipment in the plant. printing promotional materials for trade shows. solder used in assembling the radios. telephone service for the executive offices. Classify each of the items above as product (inventoriable) cost or period (noninventoriable) costs for the purpose of preparing external financial statements. Answer: 1. Product. 2. Product. 3. Period. 4. Product. 5. Period. 6. Period. 7. Product. 8. Product. 9. Product. 10. Product. 11. Product. 12. Product. 13. Period. 14. Product. 15. Period. Managerial Accounting, 9/e 30 93. Medium Bill Pope has developed a new device that is so exciting he is considering quitting his job in order to produce and market it on a large-scale basis. Bill will rent a garage for $300 per month for production purposes. Utilities will cost $40 per month. Bill has already taken an industrial design course at the local community college to help prepare himself for this venture. The course cost $300. Bill will rent production equipment at a monthly cost of $800. He estimates the material cost per unit will be $5, and the labor cost will be $3. He will hire workers and spend his time promoting the product. To do this he will quit his job which pays $3,000 per month. Advertising and promotion will cost $900 per month. Required: Complete the chart below by placing an “Xx” under each heading that helps to identify the cost involved. There can be “Xs” placed under more than one heading for a single cost, e.g., a cost might be a sunk cost, an overhead cost and a product cost; there would be an “Xx” placed under each of these headings opposite the cost. Oppor- Vari- Mfg. Differ- tunity | Sunk | able | Fixed | Over- | Product | Selling] ential Cost Cost | Cost | Cost Head Cost Cost Cost* Garage rent Utilities Cost of the industrial design course Equipment rented Material cost Labor cost Present salary Advertising * Between the alternatives of going into business to make the device or not going into business to make the device. Managerial Accounting, 9/e 31 Answer: Oppor- Vari- Mfg. Differ- tunity | Sunk | able | Fixed | Over- | Product | Selling] ential Cost Cost | Cost | Cost Head Cost Cost Cost* Garage rent x x x x Utilities x x x x Cost of the x industrial design course Equipment x x x x rented Material x x x cost Labor cost x x x Present x x salary Advertising x x x 94. Logan Products, a small manufacturer, has submitted the items Hard below concerning last year's operations. The president's secretary, trying to be helpful, Administrative salaries Advertising expense Depreciation - Depreciation - Depreciation - Direct labor Raw materials inventory, Raw materials inventory, Finished goods inventory, Finished goods inventory, cost factory building | factory equipment office equipment cece eee e eee eee eeeee 21, beginning ending beginning ending has alphabetized the list. General liability insurance expense Indirect labor cost Insurance on factory Purchases of raw materials Repairs and maintenance of factory Sales salaries Taxes on factory ... see Travel and entertainment expense Work in process inventory, Work in process inventory, Managerial Accounting, 9/e beginning ending $ 2, 1, 1, 2, 3, se. 46, sees 44, bec eee eee eee eee 11, 1, 14, 2, sees 1, see 1, sees 1, 400 200 800 600 180 900 100 200 980 410 240 800 400 600 900 000 450 410 670 110 32 Answer: Oppor - tunity Cost Sunk Cost Vari - able Cost Fixed Cost Product Cost Selling & Admin Cost Differ- ential Cost* Rent on unused factory space § Depreciation on the factory space Direct material and direct labor Rental cost of the small warehouse Advertising cost Production supervisor's salary Sales commissions § We suggest you allow either answer (a blank or an X) in this cell. Some experts would consider an opportunity cost to be a differential cost and others would not. in the text do not really cover this contingency. Managerial Accounting 9/e It is all a matter of definition and the definitions given 35 96. A list of accounts for a manufacturing company for an accounting Hard period is given below. Find the unknown amounts indicated by question marks. Sales seeeae $39,000 Cost of goods sold .... ? Purchases of direct materials 11,000 Direct labor ......e cece eee eee 5,000 Finished goods inventory, beginning 5,000 Work in process, beginning .......... 800 Work in process, ending 3,000 Gross margin eee eee ee 11,700 Finished goods inventory, ending ? Accounts payable, beginning 4,000 Accounts payable, ending 2,800 Direct materials inventory, beginning ..... 1,000 Direct materials inventory, ending 3,000 Indirect labor .......... 2,000 Indirect materials used ... 4,000 Utilities expense, factory 3,000 Depreciation on factory equipment 7,000 Answer: Cost of goods sold = 39,000 - 11,700 = 27,300. Direct materials used = 1,000 + 11,000 - 3,000 = 9,000. Cost of goods manufactured = 9,000 + 5,000 + (2,000 + 4,000 + 3,000 + 7,000) + 800 - 3,000 = 27,800. Finished goods inventory, ending = 5,000 + 27,800 - 27,300 = 5,500. 97. Use the following information to determine the gross margin for Hard Pacific States Manufacturing for the year just ended (all amounts are in thousands ($000) of dollars: SAl€S cece eee cece eee eee eens $31,800 Purchases of direct materials 7,000 Direct labor ......e cece eee eee 5,000 Work in process inventory, 1/1 800 Work in process inventory, 12/31 3,000 Finished goods inventory, 1/1 4,000 Finished goods inventory, 12/31 5,300 Accounts payable, 1/1 1,700 Accounts payable, 12/31 1,500 Direct materials inventory, 1/1 6,000 Direct materials inventory, 12/31 1,000 Indirect labor ...... sees eee eee eee 600 Indirect materials used ........ 500 Utilities expense, factory 1,900 Depreciation on factory equipment ......... 3,500 Managerial Accounting, 9/e 36 Answer: Direct materials used = 6,000 + 7,000 - 1,000 = 12,000. Cost of goods manufactured = 12,000 + 5,000 + (600 + 500 + Cost of goods sold Gross margin = 31,800 4, 1,900 + 3,500) + 800 - 3,000 = 21,300. 000 + 21,300 - 5,300 = 20,000. 20,000 = 11,800 98. The following information is from Marchant Manufacturing Co. Hard for September: Direct materials used in production .. $ 95,000 Direct labor ........eeeee 67,000 Total manufacturing cost .... 234,000 Raw materials inventory, Sept. 24,000 Work in process inventory, Sept. 1... 6,000 Finished goods inventory, Sept. 1 .... 101,000 Purchases of raw materials 102,000 Cost of goods manufactured 233,000 Administrative expense 41,000 Selling expense ........ 56,000 Sales ......... 344,000 Gross margin ences .. 127,000 Net income 10... cee eee e ence cece ence eee 30,000 Required: a. Compute the Cost of b. Compute the balance 30. c. Compute the balance September 30. d. Compute the balance 30. Goods Sold. in Finished Goods Inventory at September in Work in Process Inventory at in Raw Materials Inventory at September e. Compute the total manufacturing overhead. (Hint: The easiest method of solving this problem is to sketch out the income statement and the schedule of cost of goods manufactured, enter the given amounts, and then enter the unknowns as plug figures.) Managerial Accounting, 9/e 37 100. NOTE TO THE INSTRUCTOR: Questions 99, 100 and 101 are different Medium versions of the same question. The following data (in thousands of dollars) have been taken from the accounting records of Larner Corporation for the just completed year. SalOS cece cece cece eee cece eee ee $870 Purchases of raw materials $110 Direct labor $130 Manufacturing overhead $200 Administrative expenses $160 Selling expenses ences $140 Raw materials inventory, beginning $ 30 Raw materials inventory, ending $ 60 Work in process inventory, beginning $ 50 Work in process inventory, ending $ 10 Finished goods inventory, beginning .. $150 Finished goods inventory, ending .......... $140 Required: a. Prepare a Schedule of Cost of Goods Manufactured in good form. b. Compute the Cost of Goods Sold. c. Using data from your answers above as needed, prepare an Income Statement in good form. Managerial Accounting, 9/e Answer: a. Schedule of cost of goods manufactured Direct materials: Raw materials inventory, beginning $ 30 Add: Purchases of raw materials $110 Raw materials available for use $140 Deduct: Raw materials inventory, ending $ 60 Raw materials used in production $ 80 Direct labor $130 Manufacturing overhead $200 Total manufacturing cost ..... $410 Add: Work in process inventory, beginning . $50 $460 Deduct: Work in process inventory, ending . $ 10 Cost of goods manufactured ..........0-000e 450 Computation of cost of goods sold Finished goods inventory, beginning ......... Add: Cost of goods manufactured Goods available for sale ....... ences Deduct: Finished goods inventory, ending Cost of goods sold Income statement Sales Less: Cost of goods sold Gross margin Less: Administrative expenses Less: Selling expenses Net income Managerial Accounting, 9/e 41 101. NOTE TO THE INSTRUCTOR: Questions 99, Medium versions of the same question. The following data (in thousands of dollars) have been taken from the accounting records of Larmont Corporation for the just completed year. 100 and 101 are different SAlOS cece eee cece eee e eee ee eect eee eeeeee $990 Purchases of raw materials Direct labor ............-. eee ee Manufacturing overhead Administrative expenses Selling expenses ....... Raw materials inventory, beginning Raw materials inventory, ending Work in process inventory, beginning Work in process inventory, ending Finished goods inventory, Required: beginning Finished goods inventory, ending a. Prepare a Schedule of Cost of Goods Manufactured in good form. b. Compute the Cost of Goods Sold. c. Using data from your answers above as needed, prepare an Income Statement in good form. Answer: a. Schedule of cost of goods manufactured Direct materials: Raw materials inventory, Add: Purchases of raw materials Raw materials available for use Deduct: Raw materials used in production Raw materials inventory, Direct labor ..............0005- Manufacturing overhead ....... Total manufacturing cost ..... Add: Work in process inventory, Deduct: Work in process inventory, ending Cost of goods manufactured b. Computation of cost of goods sold Finished goods inventory, Add: Cost of goods manufactured .. Goods available for sale Deduct: Finished goods inventory, Cost of goods sold Managerial Accounting, 9/e beginning ........ beginning a I low Iss a had yD S ending E ae v cop oo Ss | Io a = © ° beginning a a Blo ole EE a ln eB In o loo a a x S ending in |e lo Jo IS |o 42 b. Total wages and fringe benefits would be $1,047.50 as shown above. Allocation of wages and fringe benefits: Direct labor: Wage cost: 46 hrs. x $15 = $ 690.00 Fringe benefit: 46 hrs. x $5 = 230.00 Total direct labor ........ g 920.00 Manufacturing overhead: Idle time: ......e sees eee 3 hrs. x $15 = $ 45.00 Overtime premium: 9 x $7.50 67.50 Fringe benefits: .........- 3 hrs. x $5 = 15.00 Total manufacturing overhead $127.50 Total wages and fringe benefits $1,047.50 104. (Appendix) Fred Adams is employed by the Cedar Manufacturing Medium Company on their assembly line. Fred is paid $15 per hour for regular time, and time and a half for all work in excess of 40 hours per week. During the two weeks of the pay period just completed Fred reported the following: Week 1: Idle time due to machine breakdowns Idle time due to material shortages Overtime Week 2: Idle time Overtime Required: 3 hours 2 hours None None 9 hours Compute Fred's wages for each week and allocate Fred’s wages for each week between direct labor cost and manufacturing overhead. Managerial Accounting, 9/e 45 Answer: Week 1: Fred’s wages equal 40 hours x $15 per hour, or $600. Fred’s wages would be allocated between direct labor and manufacturing overhead as follows: Direct labor cost: 35 hours x $15 = ........ $525.00 Manufacturing overhead: 5 hours x $15 =.... 75.00 TOtAl Lecce ce ee ee ee eee ee eens Week 2: Fred’s wages equal: 40 hours x $15 per hour = $600.00 9 hours x $22.50 per hour eveeeeeees 202.50 Total wages for Week 2 ...... sees eee ee ee eee $802.50 Fred’s wages would be allocated between direct labor and manufacturing overhead as follows: Direct labor cost: 49 hours x $15 per hour = $735.00 Manufacturing overhead: 9 hours x $7.50 = 67.50 Total vee ee cece eee cece cece e eee eeeeeneeees $802.50 Managerial Accounting, 9/e 46