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    P2 41 2 42 Solutions

    Uploaded by

    Marjorie Palma
    The document provides financial information for Schaeffer Corporation for the year ended December 31, 2017. It includes an income statement and schedule of cost of goods manufactured. The income statement shows revenues of $359 million and costs of goods sold of $254 million, resulting in a gross margin of $105 million. After deducting marketing and distribution costs of $90 million, operating income was $15 million. The schedule of cost of goods manufactured details the costs of $224 million to produce goods during the year.

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    P2 41 2 42 Solutions

    Uploaded by

    Marjorie Palma
    377 views3 pages
    The document provides financial information for Schaeffer Corporation for the year ended December 31, 2017. It includes an income statement and schedule of cost of goods manufactured. The income statement shows revenues of $359 million and costs of goods sold of $254 million, resulting in a gross margin of $105 million. After deducting marketing and distribution costs of $90 million, operating income was $15 million. The schedule of cost of goods manufactured details the costs of $224 million to produce goods during the year.

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    P2 41 2 42 Solutions.doc

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    The document provides financial information for Schaeffer Corporation for the year ended December 31, 2017. It includes an income statement and schedule of cost of goods manufactured. The income statement shows revenues of $359 million and costs of goods sold of $254 million, resulting in a gross margin of $105 million. After deducting marketing and distribution costs of $90 million, operating income was $15 million. The schedule of cost of goods manufactured details the costs of $224 million to produce goods during the year.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    377 views3 pages

    P2 41 2 42 Solutions

    Uploaded by

    Marjorie Palma
    The document provides financial information for Schaeffer Corporation for the year ended December 31, 2017. It includes an income statement and schedule of cost of goods manufactured. The income statement shows revenues of $359 million and costs of goods sold of $254 million, resulting in a gross margin of $105 million. After deducting marketing and distribution costs of $90 million, operating income was $15 million. The schedule of cost of goods manufactured details the costs of $224 million to produce goods during the year.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
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    At a glance
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    The document discusses cost accounting concepts including the income statement, schedule of cost of goods manufactured, prime costs, conversion costs, inventoriable costs and period costs.

    Prime costs include direct materials and direct manufacturing labor. Conversion costs include indirect manufacturing costs. They are calculated based on costs incurred for direct materials, direct manufacturing labor, and indirect manufacturing costs.

    Inventoriable costs include costs that are included in inventory valuation and become part of the cost of goods sold. Period costs are expenses recognized immediately on the income statement for the period incurred and do not enter into inventory valuation.

    Problem 2-41 Income statement and schedule of cost of goods manufactured.

    The following items (in


    millions) pertain to Schaeffer Corporation:
    Schaeffer’s manufacturing costing system uses a three-part classification of direct materials, direct
    manufacturing labor, and manufacturing overhead costs.

    For Specific Date For Year 2017


    Work-in-process inventory, Jan. 1, 2017 $10 Plant utilities $ 8
    Direct materials inventory, Dec. 31, 2017 4 Indirect manufacturing labor 21
    Finished-goods inventory, Dec. 31, 2017 16 Depreciation—plant and equipment 6
    Accounts payable, Dec. 31, 2017 24 Revenues 359
    Accounts receivable, Jan. 1, 2017 53 Miscellaneous manufacturing overhead 15
    Work-in-process inventory, Dec. 31, 2017 5 Marketing, distribution, and 90
    customer-service costs
    Finished-goods inventory, Jan 1, 2017 46 Direct materials purchased 88
    Accounts receivable, Dec. 31, 2017 32 Direct manufacturing labor 40
    Accounts payable, Jan. 1, 2017 45 Plant supplies used 9
    Direct materials inventory, Jan. 1, 2017 34 Property taxes on plant 2
    Required:
    Prepare an income statement and a supporting schedule of cost of goods manufactured. (For additional
    questions regarding these facts, see the next problem.)

    Problem 2-41 SOLUTION

    Income statement and schedule of cost of goods manufactured.

    Schaeffer Corporation
    Income Statement
    for the Year Ended December 31, 2017
    (in millions)

    Revenues $359
    Cost of goods sold
    Beginning finished goods, Jan. 1, 2017 $ 46
    Cost of goods manufactured (below) 224
    Cost of goods available for sale 270
    Ending finished goods, Dec. 31, 2017 16 254
    Gross margin 105
    Marketing, distribution, and customer-service costs 90
    Operating income (loss) $ 15

    This study source was downloaded by 100000832424834 from CourseHero.com on 01-19-2022 08:50:10 GMT -06:00

    https://www.coursehero.com/file/30639377/P2-41-2-42-Solutionsdoc/
    Schaeffer Corporation
    Schedule of Cost of Goods Manufactured
    for the Year Ended December 31, 2017
    (in millions)

    Direct material costs


    Beginning inventory, Jan. 1, 2017 $ 34
    Direct materials purchased 88
    Cost of direct materials available for use 122
    Ending inventory, Dec. 31, 2017 4
    Direct materials used $118
    Direct manufacturing labor costs 40
    Indirect manufacturing costs
    Plant supplies used 9
    Property taxes on plant 2
    Plant utilities 8
    Indirect manufacturing labor costs 21
    Depreciation––plant and equipment 6
    Miscellaneous manufacturing overhead costs 15 61
    Manufacturing costs incurred during 2017 219
    Add beginning work-in-process inventory, Jan. 1, 2017 10
    Total manufacturing costs to account for 229
    Deduct ending work-in-process inventory, Dec. 31, 2017 5
    Cost of goods manufactured (to income statement) $224

    Problem 2-42 Terminology, interpretation of statements (continuation of 2-41).


    Required:
    1. Calculate total prime costs and total conversion costs.
    2. Calculate total inventoriable costs and period costs.
    3. Design costs and R&D costs are not considered product costs for financial statement purposes. When might
    some of these costs be regarded as product costs? Give an example.
    4. Suppose that both the direct materials used and the depreciation on plant and equipment are related to the
    manufacture of 2 million units of product. Determine the unit cost for the direct materials assigned to those
    units and the unit cost for depreciation on plant and equipment. Assume that yearly depreciation is
    computed on a straight-line basis.
    5. Assume that the implied cost-behavior patterns in requirement 4 persist. That is, direct material costs behave
    as a variable cost and depreciation on plant and equipment behaves as a fixed cost. Repeat the computations
    in requirement 4, assuming that the costs are being predicted for the manufacture of 3 million units of
    product. Determine the effect on total costs.
    6. Assume that depreciation on the equipment (but not the plant) is computed based on the number of units
    produced because the equipment deteriorates with units produced. The depreciation rate on equipment is
    $1.50 per unit. Calculate the depreciation on equipment assuming (a) 2 million units of product are
    produced and (b) 3 million units of product are produced.

    This study source was downloaded by 100000832424834 from CourseHero.com on 01-19-2022 08:50:10 GMT -06:00

    https://www.coursehero.com/file/30639377/P2-41-2-42-Solutionsdoc/
    Problem 2-42 SOLUTION

    Terminology, interpretation of statements (continuation of 2-36).

    1. Direct materials used $118 million


    Direct manufacturing labor costs 40 million
    Prime costs $158 million

    Direct manufacturing labor costs $ 40 million


    Indirect manufacturing costs 61 million
    Conversion costs $101 million

    2. Inventoriable costs (in millions) for Year 2017


    Plant utilities $ 8
    Indirect manufacturing labor 21
    Depreciation—plant and equipment 6
    Miscellaneous manufacturing overhead 15
    Direct materials used 118
    Direct manufacturing labor 40
    Plant supplies used 9
    Property taxes on plant 2
    Total inventoriable costs $219
    Period costs (in millions) for Year 2017
    Marketing, distribution, and customer-service costs $ 90

    3. Design costs and R&D costs may be regarded as product costs in case of contracting with a
    governmental agency. For example, if the Air Force negotiated to contract with Lockheed to build a new type of
    supersonic fighter plane, design costs and R&D costs may be included in the contract as product costs.

    4. Direct materials used = $118,000,000 ÷ 2,000,000 units = $59 per unit


    Depreciation on plant and equipment = $6,000,000 ÷ 2,000,000 units = $3 per unit

    5. Direct materials unit cost would be unchanged at $59. Depreciation unit cost would be $6,000,000 ÷
    3,000,000 = $2 per unit. Total direct materials costs would increase by 50% to $177,000,000 ($59 per unit
    × 3,000,000 units). Total depreciation cost of $6,000,000 would remain unchanged.

    6. In this case, equipment depreciation is a variable cost in relation to the unit output. The amount of
    equipment depreciation will change in direct proportion to the number of units produced.
    (a) Depreciation will be $3 million ($1.50 × 2 million) when 2 million units are produced.
    (b) Depreciation will be $4.5 million ($1.50 × 3 million) when 3 million units are produced.

    This study source was downloaded by 100000832424834 from CourseHero.com on 01-19-2022 08:50:10 GMT -06:00

    https://www.coursehero.com/file/30639377/P2-41-2-42-Solutionsdoc/
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