Solution- Cost Accounting-Question Bloged Previously,(The date was December 9, 2014)

Campbell Company

Income statement

For the year ended December 31, 2001

====================================================================

(1) No:

Revenue                                                                                                                      $1,360,000

Cost of goods sold:

                 Beginning finished goods, January1, 2001                       $100,000

                 Cost of goods manufactured (see scheduled bellow)       $960,000

                 Cost of goods available for sale                                      $1,060,000

                 Ending finished goods, December 31, 2001                     $150,000                 $910,000

Gross margin or (gross profit)                                                                                           $450,000

 Marketing, distribution and customer service-cost:

                 Marketing promotions                                                          $60,000

                 Marketing salaries                                                              $100,000

                 Distribution cost                                                                   $70,000

                 Customer service cost                                                        $100,000             $330,000

Operating income                                                                                                            $120,000

  

Campbell Company

Scheduled for cost of goods manufactured

For the year ended December 31, 2001

======================================================================

Direct materials:

                 Beginning inventory January 1, 2001                                              $40,000

                 Purchases of direct materials                                                        $460,000

                 Cost of direct materials available for use                                       $500,000

                 Ending inventory December 31, 2001                                            $50,000

Direct materials used                                                                                    $450,000(v)

Direct manufacturing labor                                                                            $300,000(v)

Indirect manufacturing cost:

                 Sand paper                                                           $2,000(v)

                 Materials-handling costs                                      $70,000(v)

                 Lubricants and coolants                                         $5,000(v)

                 Miscellaneous indirect manufacturing labor           $40,000(v)

                 Plant-leasing cost                                                $54,000(F)

                 Depreciation-plant equipments                            $36,000(F)

                 Property taxes on plant equipment                         $4,000(F)

                 Fire insurance on plant equipment                          $3,000(F)       $214,000

Manufacturing cost incurred during 2001                                                       $964,000

Add beginning work in process January 1, 2001                                              $10,000

                                                                                                                     $974,000

Total manufacturing for deduct ending work in process Dec. 31, 2001              $14,000

Cost of goods manufactured (to income statement)                                  $960,000

                

(2)No:

Direct materials unite cost      = Direct materials used / Unites produced

                                                = $450,000 / $900,000

                                                = $0.50

Plant-leasing Unite cost          = plant-leasing cost / Unites produced

                                                = $54,000 / $900,000

                                                = $0.06

(3)No:

The direct materials cost are variable, so they would increase in total from $450,000 to $500,000 ($1,000,000 Unites * $0.50). However, their unit cost would be unaffected : $500,000 / $$1,000,000 units =$0.50.

In contrast, the plant-leasing costs of $54,000 are fixed, so they would not increase in total. However, the plant-leasing costs per unit would decline from $0.060 to $0.054: $54,000 / $1,000,000 = $ $0.054.

(4)No:  

The explanation will begin with the answer of requirements 3. As a consultant, you should stress that utilizing (averaging) of costs that have different behavior pattern can be misleading. A common error is to assume that a total unit cost which is often a sum of variable unit cost and fixed cost, is an indicator that cost change in a wholly way as a production level change. The next chapter demonstrates the necessary for distinguishing between cost behaviors per units. You must be wary especially about average fixed cost per unit. Too often unit fixed cost is erroneously as being regard as being indistinguishable from unit variable costs.  

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PROBLEM- Cost Accounting

Campbell company is a metal and wood cutting manufacturer, selling products to the home contribution market. consider the following data for the year 2001.

Sandpaper.....................................................2,000

Material-handling cost..................................70,000

Lubricants and coolants..................................5,000

Miscellaneous indirect manufacturing cost.....40,000

Direct manufacturing labor .........................300,000

Direct materials, Jan.1,2001.........................40,000

Direct materials, Dec.31,2001.....................50,000

Finished good, Jan. 1,2001........................100,000

Finished good, Dec.31,2001......................150,000

Work in process, Jan. 1,2001.......................10,000

Wok in process, Dec.31,2001......................14,000

Plant-leasing cost.........................................54,000

Depreciation- Plant equipment....................36,000 

Property taxes on plant equipment..................4,000

Fire insurance on plant equipment...................3,000

Direct materials purchased.........................460,000

 Revenue..................................................1,360,000

Marketing promotion...................................60,000

Marketing salaries.....................................100,000

Distribution cost...........................................70,000

Customer service cost.................................100,000

Required: 

1. Prepare an income statement with a separate supporting schedule of cost of goods manufactured. For all       manufacturing item , indicate by V or F weather each is basically a variable cost or a fixed cost ( weather       the cost object is a product unite) . If in doubt , decide on the basis of weather the total cost will change         substantially over a wide range of unite produced.

2. Suppose that both direct materials and plant-leasing cost are tried to the production of 900,000 unites.         What is the unite cost direct materials assigned to each unite produced? What is the unite cost of plant -         leasing costs? Assume that the plant-leasing cost are fixed cost.

3. Repeat the computation in requirement 2 for direct materials and plant-leasing cost, Assuming that the cost     are being predicted for the manufacturing of 1,000,000 unites next year. Assumed that the implied cost-         behavior patterns persist.

4. As a management consultant, explain concisely to the president why the unit costs for direct materials             didn't change in requirement 2 and 3 but the unite cost for plant-lessing cost did change.   

The solution will provided to the next BLOG Follow Us. 

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Cost of goods manufactured

Cost of goods manufactured refers to the cost of goods brought to completion, whether they were started before or during the current accounting period.

Must have to know to solve the problem:

=> Cost of beginning inventory
=> Cost of goods manufactured
=> Cost of goods available for sale
=> Cost of ending inventory
=> Cost of goods sold

Beginning inventory:

Beginning inventory is the recorded cost of inventory in a company's accounting records at the start of an accounting period. The beginning inventory is the recorded cost of inventory at the end of the immediately preceding accounting period, which then carries forward into the start of the next accounting period.

Beginning inventory is an asset account, and is classified as a current asset. Technically, it does not appear in the balance sheet, since the balance sheet is normally created as of a specific date, which is normally the end of the accounting period, and so the ending inventory balance appears on the balance sheet. However, as just noted, beginning inventory is the same as the ending inventory from the immediately preceding accounting period, so it does appear in the balance sheet as the ending inventory in the preceding period.

The primary use of beginning inventory is to serve as the starting point of the cost of goods sold calculation for an accounting period, for which the calculation is:

Beginning inventory

+ Purchases during the period

- Ending inventory

= Cost of goods sold

A secondary use of beginning inventory is for the calculation of average inventory, which is used in the denominator of a number of performance measurements, such as the inventory turnover formula. These measurements can use just the ending inventory figure, but using the beginning and ending inventory balances to derive an average inventory figure for an accounting period tends to generate a smoothing effect that counteracts an unusually high or low ending inventory figure.

The cost of goods manufactured:

The cost of goods manufactured is the cost assigned to units either completed or still in the process of being completed at the end of an accounting period. This cost is most useful when disaggregated into its component parts and examined on a trend line. By doing so, you can determine the costs that a company is incurring over time to produce a certain mix and quantity of units. The concept is useful for examining the cost structure of a company's production operations.

Cost of goods available for sale:

Cost of goods available for sale is the total recorded cost of beginning finished goods or merchandise inventory in an accounting period, plus the cost of any finished goods produced or merchandise added during the period. Thus, the calculation of the cost of goods available for sale is:

Beginning sellable inventory 

+ finished goods produced 

+ Merchandise acquired

The cost of any freight needed to acquire merchandise (known as "freight in") is typically considered a part of this cost.

Ending inventory:

Ending inventory can be considered either the total unit quantity of ending units of inventory in stock at the end of an accounting period, or the total valuation of that inventory at the end of an accounting period. The ending inventory figure is needed to derive the cost of goods sold, as well as the ending inventory balance to include in a company's balance sheet.

The cost of goods sold:

The cost of goods sold includes those costs attributable to the products or services sold by a business. It is usually separately reported in the income statement, so that the gross margin can also be reported. Analysts like to track the gross margin percentage on a trend line, to see how well a company's price points and production costs are holding up in comparison to historical results.

One way to calculate the cost of goods sold is to aggregate the period-specific expense listed in each of the general ledger accounts that are designated as being associated with the cost of goods sold. This list usually includes the following accounts:

§                        Direct materials

§                        Direct labor

§                        Factory overhead

§                       Freight in and freight out

The list may also include commission expense, since this cost usually varies with sales. The cost of goods sold does not include any administrative or selling expenses.

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GENERALLY ACCEPTED ACCOUNTING PRINCIPLES - GAAP

DEFINITION OF 'GENERALLY ACCEPTED ACCOUNTING PRINCIPLES - GAAP'

The common set of accounting principles, standards and procedures that companies use to compile their financial statements. GAAP are a combination of authoritative standards (set by policy boards) and simply the commonly accepted ways of recording and reporting accounting information.

INVESTOPEDIA EXPLAINS 'GENERALLY ACCEPTED ACCOUNTING PRINCIPLES - GAAP'

GAAP are imposed on companies so that investors have a minimum level of consistency in the financial statements they use when analyzing companies for investment purposes. GAAP cover such things as revenue recognition, balance sheet item classification and outstanding share measurements. Companies are expected to follow GAAP rules when reporting their financial data via financial statements. If a financial statement is not prepared using GAAP principles, be very wary!

That said, keep in mind that GAAP is only a set of standards. There is plenty of room within GAAP for unscrupulous accountants to distort figures. So, even when a company uses GAAP, you still need to scrutinize its financial statements. 

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