AFM102 Chapter Notes - Chapter 2: Direct Labor Cost, Variable Cost, Fixed Cost

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lemonbeetle804

16 Jun 2018

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM102

Professor

Jie Joyce Tian

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Chapter 2

Direct Materials: Those materials that become an integral part of a finished

product and can be conveniently traced to it.

Indirect Materials: Small items of material that may become an integral part of a

finished product but whose costs of tracing exceed the benefits.

Direct Labor: Those factory labor costs that can be traced easily to individual units

of product.

Indirect Labor: The labor costs of janitors, supervisors, material handlers, and

other factory workers that cannot be conveniently traced directly to particular

products.

Manufacturing Overhead: All costs associated with manufacturing except direct

materials and direct labour.

Conversion Cost: Direct labor cost plus manufacturing overhead cost.

Prime Cost: Direct materials cost plus direct labor cost.

Overtime Premiums: The extra hourly wage rate paid to workers who must work

more than their normal time requirements.

Marketing or Selling Costs: All costs necessary to secure customer orders and get

the finished product or service to the customer.

Administrative Costs: All executive, organizational, and clerical costs associated

with the general management of an organization rather than with manufacturing,

marketing, or selling.

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Document Summary

Direct materials: those materials that become an integral part of a finished product and can be conveniently traced to it. Indirect materials: small items of material that may become an integral part of a finished product but whose costs of tracing exceed the benefits. Direct labor: those factory labor costs that can be traced easily to individual units of product. Indirect labor: the labor costs of janitors, supervisors, material handlers, and other factory workers that cannot be conveniently traced directly to particular products. Manufacturing overhead: all costs associated with manufacturing except direct materials and direct labour. Conversion cost: direct labor cost plus manufacturing overhead cost. Prime cost: direct materials cost plus direct labor cost. Overtime premiums: the extra hourly wage rate paid to workers who must work more than their normal time requirements. Marketing or selling costs: all costs necessary to secure customer orders and get the finished product or service to the customer.

Related Questions

Kubin Companyâs relevant range of production is 21,000 to 25,000 units. When it produces and sells 23,000 units, its average costs per unit are as follows:

	Average Cost per Unit
Direct materials	$	8.10
Direct labor	$	5.10
Variable manufacturing overhead	$	2.60
Fixed manufacturing overhead	$	6.10
Fixed selling expense	$	4.60
Fixed administrative expense	$	3.60
Sales commissions	$	2.10
Variable administrative expense	$	1.60

2. Assume the cost object is the Manufacturing Department and that its total output is 23,000 units.

a. How much total manufacturing cost is directly traceable to the Manufacturing Department?

b. How much total manufacturing cost is an indirect cost that cannot be easily traced to the Manufacturing Department?


2a.	Direct materials per unit
	Direct labor per unit
	Variable manufacturing overhead per unit
	Fixed manufacturing overhead per unit
	Total manufacturing cost per unit	$0.00
	Number of units sold
	Total direct costs	$0

2b.	Total indirect costs

beigemallard451

Problem 15-1A Production costs computed and recorded; reports prepared LO C2, P1, P2, P3, P4

[The following information applies to the questions displayed below.]

Marcelino Co.'s March 31 inventory of raw materials is $82,000. Raw materials purchases in April are $580,000, and factory payroll cost in April is $381,000. Overhead costs incurred in April are: indirect materials, $59,000; indirect labor, $25,000; factory rent, $31,000; factory utilities, $24,000; and factory equipment depreciation, $58,000. The predetermined overhead rate is 50% of direct labor cost. Job 306 is sold for $650,000 cash in April. Costs of the three jobs worked on in April follow.

	Job 306			Job 307			Job 308
Balances on March 31
Direct materials		$	28,000		$	36,000
Direct labor			24,000			15,000
Applied overhead			12,000			7,500
Costs during April
Direct materials			139,000			205,000		$	100,000
Direct labor			103,000			152,000			101,000
Applied overhead			?			?			?
Status on April 30	Finished (sold)			Finished (unsold)				In process

rev: 03_15_2018_QC_CS-121813

Problem 15-1A Part 1

Required:
1. Determine the total of each production cost incurred for April (direct labor, direct materials, and applied overhead), and the total cost assigned to each job (including the balances from March 31).

	Job 306	Job 307	Job 308	April Total
From March
Direct Materials	$28,000	$36,000		$64,000
Direct Labor	24,000	15,000		39,000
Applied overhead	12,000	7,500		19,500
Beginning goods in process
For April
Direct Materials	139,000	205,000	100,000	444,000
Direct Labor	103,000	152,000	101,000	356,000
Applied overhead
Total costs added in April
Total costs (April 30)
Status on April 30	Finished (sold)	Finished (unsold)	In process
April 30 cost included in:

Problem 15-1A Part 2

Materials purchases (on credit).
Direct materials used in production.
Direct labor paid and assigned to Work in Process Inventory.
Indirect labor paid and assigned to Factory Overhead.
Overhead costs applied to Work in Process Inventory.
Actual overhead costs incurred, including indirect materials. (Factory rent and utilities are paid in cash.)
Transfer of Jobs 306 and 307 to Finished Goods Inventory.
Cost of goods sold for Job 306.
Revenue from the sale of Job 306.
Assignment of any underapplied or overapplied overhead to the Cost of Goods Sold account. (The amount is not material.)

2. Prepare journal entries for the month of April to record the above transactions.

Problem 15-1A Part 3

3. Prepare a schedule of cost of goods manufactured.

MARCELINO COMPANY
Schedule of Cost of Goods Manufactured
For Month Ended April 30
Total manufacturing costs
Total cost of work in process
Cost of goods manufactured

crimsonturtle112

1. ABC generally causes the least amount of cost distortionamong products because indirect costs are allocated to the productsbased on

types of activities used by theproduct.

the extent to which the activitiesare used.

both A and B.

none of the above.

Chicago Steel's operating activities for the year are listedbelow:

Beginning inventory	$1,000,800
Ending inventory	$350,500
Purchases	$750,300
Sales revenue	$1,500,400
Operating expenses	$700,200

What is the cost of goods sold for the year?

$1,751,100

$1,400,600

$750,100

$50,100

The following is selected financial data from Turtle BayManufacturing for the most recent year:

Ending raw materials inventory	$21,200
Ending work in process inventory	$44,900
Ending finished goods inventory	$53,200
Amount of underallocated manufacturing overhead	$5,100
Cost of goods sold for year	$85,500
Cost of raw materials purchased during year	$45,700
Cost of direct materials requisitioned during year	$44,300
Cost of indirect materials requisitioned during year	$7,200
Cost of goods completed during year	$120,200
Manufacturing overhead allocated	$60,400
Manufacturing overhead % of direct labor cost	135%

What is the beginning raw materials inventory?

$27,000

$51,500

$19,800

$5,800

4. Which of the following is not an activity inan ABC system that determines the cost of a manufacturedproduct?

Materials handling

Inspecting

Machining

Accounting

5. Which type of company utilizes managerialaccounting?

Manufacturers

Service

Retailers

All of the above

6. On a traditional income statement, all manufacturing-relatedcosts, whether fixed or variable, are listed

above the gross profit line.

below the operating incomeline.

above the sales line.

above the contribution margin line.

7. In a process costing system, direct labor and manufacturingoverhead are normally

incurred evenly throughout theprocess.

incurred at the end of theprocess.

incurred in full at the beginningof the process.

not recorded.

8. Manufacturing overhead costs for a productinclude

operating expenses.

indirect manufacturing costs.

direct material.

prime costs.

Here are selected basic data for Wilson Company:

Estimated manufacturing overhead	$243,750	Factory utilities	$30,900
Estimated labor hours	35,000	Indirect labor	$22,600
Actual direct labor hours	36,000	Sales commissions	$54,600
Estimated direct labor cost	$325,000	Factory rent	$47,800
Actual direct labor cost	$320,000	Factory property taxes	$28,700
Factory depreciation	$65,600	Indirect materials	$33,300

If the company allocates overhead based on direct labor cost,what are the total actual manufacturing overhead costs?

$173,000

$283,500

$228,900

$260,900

10. ERP stands for

	Enterprise Resource Planning.
	Enclosed Resource Placement.
	Edwin R. Perry, the man thatcreated the first system.
	Entity Replacement Product.

lavendermarten476

AFM102 Chapter Notes - Chapter 2: Direct Labor Cost, Variable Cost, Fixed Cost

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Problem 15-1A Part 2

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