Tutorial 3 MA(1)

Tutorial 3 Exercises Exercise (1): Classify the following costs as either product (inventoriable) costs or period (noninventoriable) costs in a manufacturing company: 1. Depreciation on salespersons’ cars 2. Rent on equipment used in the factory 3. Lubricants used for maintenance of machines 4. Salaries of finished goods warehouse personnel 5. Soap and paper towels used by factory workers at the end of a shift 6. Factory supervisors’ salaries 7. Heat, water, and power consumed in the factory 8. Materials used for boxing products for shipment overseas (units are not normally boxed) 9. Advertising costs 10. Factory Workers insurance. 11. Depreciation on chairs and tables in the factory lunchroom... 12. The wages of the receptionist in the administrative offices .... 13. Lease cost of the corporate jet used by the company's executives 14. Rent on rooms at a Florida resort for holding the annual sales conference 15. Attractively designed box for packaging the company’s product—breakfast cereal Solution (1): Product Cost 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

Depreciation on salespersons’ cars ................................................ Rent on equipment used in the factory......................................... Lubricants used for maintenance of machines ............................ Salaries of finished goods warehouse personnel ........................ Soap and paper towels used by factory workers at the end of a shift ......................................................................................... Factory supervisors’ salaries .......................................................... Heat, water, and power consumed in the factory ....................... Materials used for boxing products for shipment overseas (units are not normally boxed) ................................................... Advertising costs.............................................................................. Workers’ compensation insurance on factory employees ......... Depreciation on chairs and tables in the factory lunchroom..... The wages of the receptionist in the administrative offices ...... Lease cost of the corporate jet used by the company's executives ...................................................................................... Rent on rooms at a Florida resort for holding the annual sales conference ............................................................................ Attractively designed box for packaging the company’s product—breakfast cereal ...........................................................

Period Cost X

X X X X X X X X X X X X X X

Exercise (2): Costs Work in process inventory 10/1/2012 Direct Material inventory 10/1/2012 Direct Material purchased Direct Material used Variable Manufacturing Overhead costs Total Manufacturing Overhead costs Total Manufacturing costs Costs of goods manufactured (COGM) Cost of goods sold (COGS) Finished goods inventory 10/1/2012 Calculate the following costs: 1- Direct material inventory 10/31/2012. 2- Fixed Manufacturing overhead costs for October 2012. 3- Direct Manufacturing labor costs for October 2012. 4- Work in process inventory 10/31/2012. 5- Cost of Goods available for sale in October 2012. 6- Finished goods inventory for 10/31/2012.

Solution (2)

August 2012 230 105 365 385 265 450 1610 1660 1700 130

Exercise (3) Supply the missing data in the following case. Direct materials used Direct Labor cost Beginning work in process inventory Ending work in process inventory Sales Total manufacturing costs Beginning finished goods inventory Cost of goods manufactured Goods available for sale Ending finished goods inventory Cost of goods sold Conversion cost

$4,500 $9,000 $2500 ? $30000 $18500 $1000 $18000 ? ? $17000 ?

Solution: 1. COGM = Beg. WIP inventory + Total Manufacturing Costs – End. WIP inventory 18,000 = 2,500 + 18,500 – End. WIP inventory End. WIP inventory = 21,000 – 18,000 = $3,000

2. Cost of Goods Available for Sale = Beg. FG inventory + COGM = 1,000 + 18,000 = $19,000 3. COGS = Beginning FG inventory + COGM – Ending FG inventory 17,000 = 1,000 + 18,000 – Ending FG inventory Ending FG inventory = 19,000 – 17,000 = $2,000 4. Conversion cost = DL Cost + MOH Total Manufacturing Costs = DM used + DL + MOH 18,500 = 4,500 + 9,000 + MOH MOH =18,500 – 13,500 = $5,000 Conversion Cost = 9,000 + 5,000 = $14,000