Handout-Manufacturing PDF

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BCSVFundamentals of Accounting Part I Accounting for Manufacturing BusinessI. THEORIES. A. TRUE OR FALSE. Write A if the statement is true otherwise, write B. Selling, general and administrative costs are part of manufacturing overhead. To be in compliance with generally accepted accounting principl...

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ACCT 1A&B: Fundamentals of Accounting BCSV Fundamentals of Accounting Part I Accounting for Manufacturing Business I. THEORIES. A. TRUE OR FALSE. Write A if the statement is true otherwise, write B. 1. Selling, general and administrative costs are part of manufacturing overhead. 2. To be in compliance with generally accepted accounting principles, selling and administrative expenses and interest expense should be allocated to the cost of products manufactured in order to properly value inventories on a manufacturer's balance sheet. 3. Manufacturing overhead must be assigned to both work-in-process inventory and finished goods inventory for external financial reporting purposes. 4. Only direct manufacturing costs are assigned to inventories and cost of goods sold. 5. Commissions paid to sell products are reported as part of the cost of goods sold. 6. Manufacturing overhead costs are also known as indirect manufacturing costs. 7. The manufacturing statement (also called a schedule of manufacturing activities or a schedule of cost of goods manufactured) contains information useful to outside parties and is therefore included among the financial statements required by GAAP to be published. 8. A schedule of cost of goods manufactured can be used in place of the section on the income statement titled cost of goods sold. 9. Product costs are historical figures and therefore are of little use to managers. 10. All of the raw materials purchased during a period are included in the cost of goods manufactured figure. 11. When raw materials are purchased, the work in process inventory account is debited. 12. Selling and administrative expenses should be added to the manufacturing overhead account. 13. Most factory overhead costs are direct costs and therefore can be easily identified with specific jobs. 14. Any balance in the work in process account at the end of a period should be closed to cost of goods sold. 15. A debit balance in the work in process account indicates that not all goods completed during the period were sold. B. MULTIPLE CHOICES. Choose the letter of the best answer. 16. Under Generally Accepted Accounting Principles, manufactured products are generally A. valued at market value and expensed in the period made. B. valued at market value and expensed in the period sold. Page 1 of 16

ACCT 1A&B: Fundamentals of Accounting BCSV C. valued at cost and expensed in the period made. D. valued at cost and expensed in the period sold. E. none of the above. 17. Which of the following statements is true? A. Since services are consumed as they are produced, service firms are not concerned with the cost of their product. B. There are no inventoriable costs for a nonmanufacturing company such as a dairy. C. Service industries do not use cost information for planning and control purposes. D. Management in service companies use cost information for planning and control purposes. E. Mining and petroleum companies have no inventoriable costs. 18. When products are completed, their product costs are transferred from Work-inProcess Inventory to A. Manufacturing Overhead account. B. Cost of Goods Sold account. C. Finished Goods account. D. Direct Labor account. E. Indirect Labor account. 19. As production A. B. C. D. E.

takes place, all manufacturing costs are added to the Work-in-process account. Manufacturing overhead account. Cost of goods sold account. Finished goods account. Direct labor account.

20. Manufacturing overhead A. consists of direct-material and direct-labor costs. B. is easily traced to jobs. C. includes all selling costs. D. should not be assigned to individual jobs because it bears no obvious relationship to them. E. is a heterogenous pool of indirect production costs that can include utility costs and depreciation.

21. In a manufacturing company, the costs debited to the Work in Process Inventory account represent: A. B. C. D.

Direct materials used, direct labor, and manufacturing overhead. Cost of finished goods manufactured. Period costs and products costs. None of the above; the types of costs debited to this account will depend upon the type of products being manufactured.

22. Which one of these statements is correct? A. Sales commission is a product cost and factory rent is a period cost. B. Factory wages is a product cost and direct materials is a period cost. Page 2 of 16

ACCT 1A&B: Fundamentals of Accounting BCSV C. Factory repair and maintenance is a product cost and sales commission is a period cost. D. Sales commission is a product cost and amortization on factory equipment is a product cost. 23. Three inventory categories are reported on a manufacturing company's balance sheet: (1) raw materials, (2) goods in process inventory, and (3) finished goods. Identify the order in which these inventory items are normally reported on the balance sheet. A. B. C. D.

(1) (2) (2) (3)

(2) (1) (3) (2)

(3) (3) (1) (1)

24. For a manufacturing company, the cost of goods available for sale during a given accounting period is A. B. C. D.

The beginning inventory of finished goods The cost of goods manufactured during the period The sum of the above None of the above

25. Which of the following would not be classified as manufacturing overhead? A. B. C. D.

Wage of the factory janitor Engine of a car Insurance on factory building Indirect materials

26. As current technology changes manufacturing processes, it is likely that direct A. B. C. D.

Labor will increase Labor will decrease Materials will decrease Materials will increase

27. For inventoriable costs to become expenses under the matching principle A. B. C. D.

The product must be finished and in stock The product must be expensed based on its percentage of completion The product to which they attach must be sold All accounts payable must be settled

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ACCT 1A&B: Fundamentals of Accounting BCSV

28. Cost of goods manufactured in a manufacturing company is synonymous to A. Ending inventory in a merchandising company B. Beginning inventory in a merchandising company C. Cost of goods available for sale in a merchandising company D. Cost of goods purchased in a merchandising company

29. If the amount of Cost of goods manufactured during a period exceeds the amount of total manufacturing costs for the period, then A. B. C. D.

Ending WIP is Ending WIP is Ending WIP is Ending WIP is

greater than or equal to the beginning WIP greater than the amount of the beginning WIP equal to the cost of goods manufactured less than the amount of beginning WIP

30. What accounts would be debited and credited when the direct materials are purchased on account?

II.

Debit:

Credit:

A.

Work in process

Direct materials

B.

Direct materials

Work in process

C.

Direct Materials

Accounts payable

D.

Work in process

Accounts payable

PROBLEM SOLVING.

PROBLEM A: Llanto Company has the following data on July 31, 2013: Manufacturing Overhead Decrease in inventories: Materials Goods in Process

P 30,101.80 2,430.00 590.00

Increase in inventories: Finished goods

1,320.40

The manufacturing overhead amounts to 50% of the direct labor and the direct labor and manufacturing overhead combined equal 50% of the total cost of manufacturing. All materials are purchased FOB Shipping point. Page 4 of 16

ACCT 1A&B: Fundamentals of Accounting BCSV Required: Compute for the 1. Material purchases 2. Cost of goods manufactured 3. Cost of goods sold

PROBLEM B: The following information was taken from the accounting records of Dulfo Manufacturing Co. for 2013: Increase in materials inventory Decrease in finished goods inventory Material purchases Direct labor payroll Factory expenses Freight out

P 45,000 150,000 1,290,000 600,000 900,000 135,000

Required: Compute for the 4. Cost of materials used 5. Manufacturing cost PROBLEM C: Nestle Corp. manufactured 50,000 kg. of Koko Krunch in 2013 at the following costs: Opening Work-in-process Materials (90% is direct materials) Labor (7% is indirect labor) Closing work-in-process

P88,125 182,500 242,500 67,500

Factory overhead is 125% of direct labor cost and includes indirect materials and indirect labor. Required: Compute for the 6. Direct cost 7. Cost of goods manufactured PROBLEM D: Angel Burger’s material purchase during 2012 are P25,590 and materials put into production are direct and indirect materials, respectively, worth P18,500 and P7,090. The total factory payroll is P74,000 of which P50,000 represents direct labor. Other factory overhead costs amount to P32,000. Angel Burger applies the actual factory overhead costs to process. Sales, cost of sales, and the cost of goods manufactured, respectively, are P130,000, P120,000, and P128,000. Required: Compute for the 8. How much is the increase (decrease) in the work-in-process inventory? 9. How much is the increase (decrease) in the finished goods inventory?

PROBLEM E: Colomer Co. is a manufacturing concern using the perpetual inventory system. The following materials inventory account data is provided: Beginning balance

P 275,000 Page 5 of 16

ACCT 1A&B: Fundamentals of Accounting BCSV Other debits to the account Excess of ending inventory over beginning inventory

825,000 55,000

10.How much is the cost of materials issued to production? PROBLEM F: The following selected information pertains to Juntao Corp.: direct materials, P62,500; indirect materials, P12,500; factory payroll, 75,000 of direct labor and P11,250 of indirect labor; and other factory overhead incurred, P37,500. Required: compute for the 11.Prime cost 12.Conversion cost

PROBLEM G: J. Co. is a manufacturing company engaged in making donuts. The following information is available as of Feb. 1, 2013: Work-in-process Direct materials inventory

P 10,710 48,600

The following manufacturing activity occurred during the month of February: Purchased direct materials costing P60,000 Direct labor worked 9,900 hours at P5.00 per hour Factory overhead of P2.50 per direct labor hour was applied to production At the end of February, the following information was gathered in connection with the inventories: Work-in-process Direct materials inventory

P24,210 51,000

Required: compute for the 13.Total cost to account for 14.Cost of goods manufactured PROBLEM H: The following data are obtained from Captain CoCo Co.:  Cost of goods manufactured is P187,500

1 3

based on



Inventory valuation are as follows: raw materials ending inventory is

  

raw materials, beginning; no initial inventory of work in progress, but at the end of period P12,500 was on hand; finished goods inventory was four times as large at end of period as at the start. Net income after taxes amounted to P26,000, income tax rate is 35%. Purchase of raw materials amounted to net income before taxes. Breakdown of costs incurred in manufacturing cost was as follows: Raw materials consumed Direct labor Factory expenses

50% 30% 20%

Page 6 of 16

ACCT 1A&B: Fundamentals of Accounting BCSV Required: compute for the 15.Amount of raw materials beginning inventory PROBLEM I: Child’s play, Inc. manufactures rag dolls. During the fiscal year just ended, it incurred prime costs of P1,500,000 and conversion cost of P1,800,000. Overhead is applied at the rate of 200% of direct labor cost. 16.How much is the material cost? PROBLEM J: The following cost data were taken from the records of Cinnamon manufacturing co.: Depreciation on factory equipment Depreciation on sales office Advertising Freight out Wages of production workers Raw materials used Sales salaries and commissions Factory rent Factory insurance Materials handling Administrative salaries

P 1,000 500 7,000 3,000 28,000 47,000 10,000 2,000 500 1,500 2,000

Required: compute for the 17.Manufacturing cost 18.Distribution cost 19.General and administrative expense

PROBLEM K: Cattleya Manufacturing Company produces notebooks and pad papers. The company’s raw material inventory account includes the costs of both the direct and indirect materials. Account balances for the company at the beginning and end of November 2012 follow: Inventories Raw materials Work-in-process Finished goods

November 30 P69,600 120,000 104,800

October 31 P93,200 146,400 72,000

During the month, the company purchased P656,000 of raw materials, direct material used during the period amounted to P504,000. Factory payroll costs for November were P788,000, of which 75% was related to direct labor. Overhead charges for depreciation, insurance, utilities, and maintenance totaled P600,000 for November. Required: compute for the 20.Total cost to account for 21.Cost of goods manufactured 22.Total goods available for sale 23.Cost of sales PROBLEM L: The cost of goods sold in April 2013 for Adriano Co. was P2,644,100. The April 30 Work-inprocess inventory was 25% of April 1 work-in-process inventory. Overhead was 225% of Page 7 of 16

ACCT 1A&B: Fundamentals of Accounting BCSV direct labor cost. During April, P1,182,000 of direct materials were purchased. Other April information follows: Inventories Direct materials Work-in-process Finished goods

April 1 30,000 90,000 125,000

April 30 42,000 ? 18,400

Required: compute for the 24.Prime cost 25.Conversion cost 26.Goods placed in process

PROBLEM M: The following transactions were incurred by Reyes Industries during May 2013: I. II. III. IV. V. VI. VII.

Issued P800,000 of direct material to production. Paid 40,000 hours of direct labor at P18 per hour. Accrued 15,500 hours of indirect labor cost at P15 per hour. Recorded P102,100 of depreciation on factory assets. Accrued P32,800 of factory supervisor’s salaries. Issued P25,400 of supplies to production Completed goods costing P1,749,300 and transferred them to finished goods.

Required: compute for the 27.Manufacturing cost 28.Manufacturing overhead included in work-in-process inventory during May 2013 if Work-in-process inventory had an ending balance of P59,600 and a beginning balance of P18,900. PROBLEM N:

Sales Direct material used Direct labor Prime cost Conversion cost Factory overhead Cost of goods manufactured Beg. Work-in-process End Work-in-process Beg. Finished goods End Finished goods Cost of goods sold Gross margin Operating expenses Net income (loss)

CASE I P9,300 1,200 ? 3,700 4,800 ? 6,200 500 ? ? 1,200 ? 3,500 ? 2,200

CASE II ? ? 4,900 ? 8,200 ? 14,000 900 1,200 1,900 ? 12,200 ? 3,500 4,000

CASE III P112,000 18,200 ? ? 49,300 17,200 ? 5,600 4,200 7,600 ? 72,200 ? 18,000 ?

Required: For each of the following cases, compute for the missing amounts. CASE I: 29.Direct labor cost 30.Factory overhead 31.Ending Work-in process Page 8 of 16

ACCT 1A&B: Fundamentals of Accounting BCSV 32.Beginning Finished goods 33.Cost of goods sold 34.Operating expenses CASE II: 35.Sales 36.Direct material used 37.Prime cost 38.Factory overhead 39.Ending finished goods 40.Gross margin CASE III: 41.Direct labor 42.Prime cost 43.Cost of goods manufactured 44.Ending finished goods 45.Gross margin 46.Net income(loss) PROBLEM O: The following data represent transactions and balances for December 2013, the De Vera Company’s first month of operations. Purchased direct material on account Issued direct material to production Accrued direct labor payroll Paid factory rent Accrued factory utilities Recorded factory equipment depreciation Paid factory supervisor salary Ending work-in-process (6,000 units) Ending finished goods inventory (3,000 units) Sales on account (P24 per unit)

P248,000 186,000 134,000 3,600 16,200 15,800 6,400 35,000 ? 648,000

Required: compute for the 47.Number of units sold in December 48.Number of units completed in December 49.Cost of goods manufactured in December 50.Per unit cost of goods manufactured in December PROBLEM P: September 30, 2013 inventory and cost data for Figueras Company are as follows: Direct labor Direct material purchased Direct material used Selling and administrative expenses Factory overhead

Direct material Work-in-process Finished goods

P 182,400 196,300 195,800 171,200 205,700 9/30/13 ? 33,300 55,500

8/31/13 P12,300 25,900 62,700

Required: compute for the 51.Peso value of direct materials inventory at Sept. 30, 2013 Page 9 of 16

ACCT 1A&B: Fundamentals of Accounting BCSV 52.Total product costs for Sept. 2013 53.Cost of goods manufactured 54.Net income (loss). Assume that the income tax rate is 40% and Sales for Sept. 2013 were P985,000. PROBLEM Q: On August 1, 2013, Deonoso Corporation had the following account balances: Raw materials Inventory (direct & indirect) Work-in-process Inventory Finished goods inventory

P 72,000 108,000 24,000

During August, the following transactions took place: I. Raw material was purchased on account, P570,000 II. Direct material (P121,200) and indirect material (P15,000) were issued to production III. Factory payroll consisted of P180,000 for direct labor employees and P42,000 for indirect labor employees IV. Office salaries totaled P144,600 for the month V. Utilities of P40,200 were accrued; 70% - factory. VI. Depreciation of P60,000 was recorded on plant assets; 80% - factory VII. Rent of P66,000 as paid on the building. 60% of the space is occupied by the factory. VIII. At the end of August, the Work in process inventory balance was P49,800 IX. At the end of August, the finished goods inventory balance was P53,400 Sierra Corporation uses an actual cost system and debits actual overhead costs incurred to Work in process Inventory. Required: Compute for the 55.Total amount of product cost 56.Period cost 57.Cost of goods sold PROBLEM R: Acuavera, Inc. began business in July 2013. The firm makes an exercise machine for home and gym use. Following are data taken from the firm’s accounting records that pertain to its first month of operations. Direct material purchased on account Direct material issued to production Direct labor payroll accrued Indirect labor payroll paid Factory insurance expired Factory utilities paid Factory depreciation recorded Ending WIP inventory Ending FG inventory (30 units) Sales on account (P5,200 per unit)

P 900,000 377,000 126,800 40,600 6,000 17,800 230,300 51,000 97,500 1,040,000

Required: Compute for the 58.Number of units sold during July 59.Cost of goods manufactured 60.Number of units completed in July 61.Per unit cost of goods manufactured for the month 62.Cost of goods sold Page 10 of 16

ACCT 1A&B: Fundamentals of Accounting BCSV 63.Gross margin for July PROBLEM S: Judith Co. showed cost of goods sold of P4,320,000 in its statement of comprehensive income after the first year of operations. The total manufacturing cost comprised 50% materials used, 30% direct labor incurred, and 20% manufacturing overhead. Goods in process at year-end were 10% of the total manufacturing cost. Finished goods at year-end amounted to 20% of the cost of goods manufactured. Required: compute for the 64.Amount of direct labor cost. 65.Finished goods, end. PROBLEM T: The following information was taken from Ejew Company’s accounting records for the current year: Increase in raw materials inventory Decrease in finished goods inventory Raw materials purchased Direct labor payroll Factory overhead Freight out

150,000 350,000 4,300,000 2,000,000 3,000,000 450,000

There was n...