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AFM102 Chapter Notes - Chapter 2: Matching Principle, Sunk Costs, Opportunity Cost

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OC2146671
10 Jan 2018
School
University of Waterloo
Department
Accounting & Financial Management
Course
AFM102
Professor
Catherine Wong

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Document Summary

Manufacturing costs: direct materials, raw materials are used to make final products, not just natural resources. Finished product of one company can be raw materials of a good produced by another company: direct materials those materials that become an integral part of a finished product and can be conveniently traced to it. Classification of manufacturing labour costs: overtime premiums the extra hourly wage rate paid to workers who must work more than normal time. Initially assigned to the balance sheet to the inventory account (inventorial costs) and then is transferred to expenses (cogs) when the goods are sold. Finished goods inventory complete units of product that have not yet been sold to customers: the income statement, basic equation for inventory accounts, beginning balance + additions to inventory = ending balance + withdrawals from inventory. Finished goods inventory is credited for the cost of the items.

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Related Questions

Case 3-49

Avid Assemblers uses normal job-order costing to assign costs toproducts. The company assembles and packages 25 different productsaccording to customer specifications. Products are worked on inbatches of 20 to 40 units. Each batch is given a job number. OnOctober 1, the company had the following balances:

Raw materials $9,800
Work in process 65,847
Finished goods 30,640


Work in process consisted of the following jobs:

Job 22 Job 24 Job 25
Direct materials $6,200 $5,190 $4,800
Direct labour 10,500 9,210 9,500
Applied overhead 7,350 6,447 6,650
Total $24,050 $20,847 $20,950
Number of units 20 40 30


Finished goods consisted of Job 23, with the following costs:

Job 23
Direct materials $8,200
Direct labour 13,200
Applied overhead 9,240
Total $30,640
Number of units 50


Shown below are the direct cost data related to jobs started inOctober:

Job 26 Job 27 Job 28 Total
Direct materials $5,180 $5,600 $4,200 $14,980
Direct labour 11,200 9,340 5,910 26,450
Number of units 20 30 20


Other information:

1. Direct materials and direct labour added tobeginning work in process in October were as follows:
Job 22 Job 24 Job 25 Total
Direct materials $1,150 $610 $1,500 $3,260
Direct labour 3,000 4,500 5,500 $13,000
2. Overhead is applied at a predetermined rate basedon the direct labour cost.
3. Actual expenses for October were as follows:
Supervisory salaries $6,000 Supplies (factory) $2,100
Factory rent 5,000 Selling expenses 8,500
Depreciation (machines) 5,000 Property tax and insurance 2,250
Indirect labour 4,000 CPP, EI, and other benefits* 4,200

* 80% of employer contributions and benefits relate to factorypersonnel.
4. Purchases of direct materials (raw materials)during October amounted to $28,500. Indirect materials (supplies)are handled in a separate account.
5. Only Job Nos. 27 and 28 are still in process atclosing on October 31. Finished goods consisted only of Job No. 25at month end.

6.

Avid writes off any under- and over-applied overhead to Cost ofGoods Sold in the month in which it is incurred.

Requirements:

a.Calculate Predetermined overhead rate

b.Calculate Unit cost of job 24 in October

c.Calulate the Oct 31 Balances for the following account:

Raw Materials, Work in Process, Finished Goods

d.What is the cost of goods manufactured?

e. Determine the under- or over- paid in October

Prepare the journal entry to dispose of this amount.

1. Process costing is normally used when:

a. large numbers of different products are manufactured

b. large numbers of nearly identical products aremanufactured

c. small numbers of nearly identical products aremanufactured

d. the fixed costs of manufacturing exceed the variable cost ofmanufacturing

2. Manufacturing overhead:

a. consists of direct material and direct labour costs

b. is easily traced to jobs

c. should not be assigned to individual jobs because it bears noobvious relationship to them

d. is a heterogeneous pool of indirect production costs that caninclude gas and electricity costs and depreciation

Demand for Stuffin’ Such stuffed animal shells and stuffing/finishing kits manufactured by RoseMarie Limited is increasing, and management requests assistance from you in determining the best sales and production mix for the coming year. The company has provided the following data:
Product Demand
Next Year
(units)		 Selling
Price
per Unit		 Direct
Materials		 Direct
Labour
Teddy bear 11,000 $ 40 $ 6.50 $ 1.50
Polar bear 9,000 $ 42 $ 5.30 $ 2.00
Husky 10,000 $ 35 $ 4.50 $ 4.00
Tiger 7,000 $ 37 $ 5.10 $ 6.00
Stuffing/finishing kits 18,000 $ 22 $ 3.50 $ 1.00
The following additional information is available:
a.

The company’s plant has a capacity of 12,250 direct labour-hours per year on a single-shift basis. The company’s current employees and equipment can produce all five products.
b. The direct labour rate of $10.00 per hour is expected to remain unchanged during the coming year.
c. Fixed costs total $195,000 per year. Variable overhead costs are $3.00 per direct labour-hour.
d. All of the company’s non-manufacturing costs are fixed.
e. The company’s finished goods inventory is negligible and can be ignored.
Required:
1.

Determine the contribution margin per direct labour-hour expended on each product (the profitability index). (Do not round intermediate calculations. Round your answers to 2 decimal places.)

2.

Prepare a schedule showing the total direct labour-hours that will be required to produce the units estimated to be sold during the coming year.

4.

What is the highest price, in terms of a rate per hour, that Stuffin’ Such should be willing to pay for additional capacity (that is, for added direct labour time)? (Do not round intermediate calculations. Round your answers to 2 decimal places.)