Question

For Specific Date For Year 2013 Work-in-process inventory, Jan 1, 2013 Direct materials inventory, Dec. 31, 2013 Finished goods inventory, Dec. 31, 2013 Accounts payable, Dec. 31, 2013 Accounts receivable, Jan. 1, 2013 Work-in-process inventory, Dec 31, 2013 Finished goods inventory, Jan 1, 2013 Accounts receivable, Dec. 31, 2013 Accounts payable, Jan. 1, 2013 Direct materials inventory, Jan 1, 2013 Plant utilities Indirect manufacturing labor Depreciation-plant and equipment Revenues Miscellaneous manufacturing overhead Marketing, distribution, and customer service costs Direct materials purchased Direct manufacturing labor Plant supplies used Property taxes on plant Prepare an income statement and a supporting schedule of cost of anods manufactured. (For additional questions regarding these facts, see the next problem.) Required Required 2-31 Terminology, interpretation of statements (continuation of 2-30). 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 managers regard some of these costs 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 1 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 2 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 $2 per unit. Calculate the depreciation on equipment assuming (a) 1 million units of product are produced and (b) 2 million units of product are produced.

please explain in detail 1-6

Answer 1

Answer is given below with working notes

Income Statement For the year ended December 31, 2013 Amount $354 $251 As per working note below $103 Sales Less: Cost of Goods Sold Gross profit Less: Operating expenses Marketing, distribution and customer service cost Net profit Supporting Schedules $30 $88 Schedule of Cost of Goods manufactured Opening inventory of Raw Material Add: purchases Total Raw Material Available Less: Closing inventory of Raw Material Raw material used Direct Labor Prime Cost Indirect manufacturing labor Plant utilities Depreciation - plant and equipment Miscellaneous manufacturing overhead Plant supplies Property taxes on Plant Total manufacturing cost Add: Opening work in process inventory $12 $232 Less: Closing work in process inventory Cost of Goods Manufactured $227 Schedule of Cost of Goods Sold Opening Finished Goods inventory Add: Cost of Goods manufactured Cost of Goods available for sale Less: Closing Finished Goods inventory Cost of Goods sold $227 As per working above $270 $19 $251 $111 1 Prime Cost Raw material used Direct Labor Prime Cost $151 Total Conversion cost Direct Labor Manufacturing Overhead Total Conversion cost $40 $69 $109 $151 Inventoriable Cost Prime Cost Manufacturing Overhead Inventoriable cost $69 $220 Period cost $971 3 Design cost and research and development cost incurred on existing products can be treated as product cost For example Cost incurred on project to reduce wastages cost incurred on reducing defects or improving quality 4 Unit Cost Direct Material used Total units manufactured Direct Material per unit $111 Million 1 Million $111 per unit Depreciation on Plant and equipment Total units manufactured Cost per unit $8 Million 1 Million $8 per unit 5 Direct Material per unit output Total Cost Depreciation on Plant and equipment Total Cost Existing Cost Effect on Total cost $111 2 Million $222 Million $8 Million $230 ($2+$8) $119 $111 Million Same since fixed cost Increase 6 Depreciation on equipment Depreciation per unit 1 million units are produced 2 million units are produced $2 Million $4 Million