Part-1
The following information pertains to the Wong Corporation:
Specific date Year 2013
Work in process, January 1, 2013 $12,000,000 Plant utilities $ 6,000,000
Direct Materials, December 31, 2013 $ 6,000,000 Indirect manufacturing labour $24,000,000
Finished Goods, December 31,2013 $14,400,000 Amortization -Plant, Building, & Equipment $10,800,000
Accounts payable, December 31,2013 $24,000,000 Revenues $420,000,000
Accounts receivable, January 1, 2013 $60,000,000 Miscellaneous manufacturing overhead $ 12,000,000
Work in process, December 31, 2013 $ 2,400,000 Marketing, distribution, and customer service costs $108,000,000
Finished goods, January 1, 2013 $48,000,000 Purchases of direct materials $ 96,000,000
Accounts receivable, Dec. 31, 2013 $36,000,000 Direct manufacturing labour $ 48,000,000
Accounts payable, January 1, 2013 $48,000,000 Plant supplies used $ 7,200,000
Direct materials, January 1, 2013 $36,000,000 Property taxes on plant $ 1,200,000
Wong, manufacturing cost system uses a three-part classification of manufacturing costs. There are two prime costs and one conversion cost: direct materials, direct manufacturing labour, and indirect manufacturing costs.
REQUIRED:
1. Identify the prime costs. Identify the conversion costs.
2. Prepare an income statement and a supporting schedule of cost of goods manufactured.
3. How would your answer to part 2 be modified if you were asked for a schedule of cost of goods manufactured and sold instead of a schedule of cost of goods manufactured? Be specific.
Part-2
The Firestone Company retails two products, a standard and a deluxe version of a luggage carrier. The budgeted income statement is as follows:
Standard Deluxe Carrier Carrier Total
Units sold 150,000 50,000 200,000
Revenues @ $20 and $30 per unit $3,000,000 $1,500,000 $4,500,000
Variable costs@ $14 and $18 per unit $2,100,000 $ 900,000 $3,000,000
Contribution margins@ $6 and $12 per unit $ 900,000 $ 600,000 $1,500,000
Fixed costs $1,200,000
Operating income $ 300,000
REQUIRED:
1. Compute the breakeven point in units, assuming that the planned revenue mix is maintained
2. Compute the breakeven point in units if
a. Only standard carriers are sold
b. Only deluxe carriers are sold
3. Suppose 200,000 units are sold, but only 20,000 are deluxe. Compute the operating income. Compute the breakeven point if these relationships persist in the next period.
Compare your answers with the original plans and the answer in requirement 1. What is the major lesson of this problem?