Assignment
Mario Company's newly hired accountant prepared the following report for 2014 which resulted in an average cost of $130.85 based on producing 30,000 units.
Sales $4,368,000
Less: Purchase of direct materials $ 768,000
Wages and salaries paid $1,426,800
Utilities (manufacturing plant) $ 162,350
Utilities (office) $ 42,150
Bank loan repayment (manufacturing equipment) $ 225,000
Advertising $ 21,550
Other office expenses $ 11,600
Other 'out of pocket' manufacturing expenses $1,268,050 $3,925,500
Net income $ 442,500
Average production cost per unit $ 130.85
Upon review the General Manager was visibly upset because she strongly believed that the average production cost could not be that high. She has asked you to review the report and has also provided you with the following additional information.
1. Wages and salaries paid included the following: - 16,800 direct labour hours @ $14.50 per hour - Salaries to manufacturing personnel, $146,500 - Sales commissions @ $5 per unit sold - Remaining amount pertained to selling and administrative salaries
2. For 2014, manufacturing overhead was estimated to be $1,600,000 to be applied using direct labour hours as the allocation base. The company estimated 16,000 direct labour hours for the year.
3. Loan repayment pertained to equipment worth $1.2 million with a useful life of eight years, depreciated using the straight line method.
4. The year started with zero inventories. Ending inventories were as follows: Materials - $36,200; Work-in-Progress - $11,800; Finished Goods (2,000 units) - ??
Sales $4,368,000 Less: Purchase of direct materials $ 768,000 Wages and salaries paid $1,426,800 Utilities (manufacturing plant) $ 162,350 Utilities (office) $ 42,150 Bank loan repayment (manufacturing equipment) $ 225,000 Advertising $ 21,550 Other office expenses $ 11,600 Other 'out of pocket' manufacturing expenses $1,268,050 $3,925,500 Net income $ 442,500 Average production cost per unit $ 130.85
Required 1. Prepare a Cost of Goods Manufactured Statement in good form. (Hint: Remember to include applied overhead in the COGM statement, not actual overhead.)
2. Compute the average production cost per unit. How would you explain the difference between the amount that you have computed and the amount of $130.85 computed by the accountant in the company?
3. Did the company experience any over- or under-applied overhead during the year? Please compute the amount and label appropriately. Prepare a journal entry to record the disposal (closing) of the over- or under-applied overhead.
4. Compute the number of units sold during the year.
5. Compute the cost of goods sold for the year.