Solutions to
Homework Problems for Basic Cost Concepts & Terminology
by David Albrecht
Solution to Problem #1
Classifying Manufacturing Costs. The Sale Away Company assembles custom sailboats from
components supplied by various manufacturers. The company is very small and its assembly shop and
retail sales store are housed in a boathouse.
1.
2.
3.
4.
5.
6.
7.
8.
The wages of employees who build the sailboats. Product/Direct labor
The cost of advertising in the local newspapers. Period/Selling
The cost of an aluminum mast installed in a sailboat. Product/Direct material
The wages of the assembly shop’s supervisor. Product/Manufacturing overhead
Rent on the boathouse. Allocated between manufacturing overhead and selling
The wages of the company’s bookkeeper. Period/Administrative, but some might be allocated
to manufacturing overhead.
Sales commissions paid to the company’s salespeople. Period/Selling
Depreciation on power tools. Product/Manufacturing overhead
Solution to Problem #2
Classification of Costs as Period or Product Costs. Fairwings Avionics is a company that
manufactures sophisticated radar sets for commercial aircraft.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
The cost of the memory chips used in a radar set. Product/Direct materials
Factory heating costs. Product/Manufacturing overhead
Factory equipment maintenance costs. Product/Manufacturing overhead
Training costs for new administrative employees. Period/Administrative
The cost of the solder that is used in assembling the radar sets. Product/Direct material, but
some might assign it to manufacturing overhead because it such a little cost and not worth
tracking.
The travel costs of the company’s salespersons. Period/Selling
Wages and salaries of factory security personnel. Product/Manufacturing overhead
The cost of air-conditioning executive offices. Period/Administrative
Wages and salaries in the department that handles billing customers. Period/Administrative
Depreciation on the equipment in the fitness room used by factory workers.
Product/Manufacturing overhead
Telephone expenses incurred by factory management. Product/Manufacturing overhead
The costs of shipping completed radar sets to customers. Period/Selling
The wages of the workers who assemble the radar sets. Product/Direct labor
The president’s salary. Period/Administrative
Health insurance premiums for factory personnel. Product/Direct labor
© 2014 by W. David Albrecht
230
Solution to Problem #3
Cost Classification. Listed below are costs found in various organizations.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
Depreciation, executive jet. Fixed Period/Administrative
Costs of shipping finished goods to customers. Variable Period/Selling
Wood used in manufacturing furniture. Variable Product/Direct material
Sales manager’s salary. Fixed Period/Selling
Electricity used in manufacturing furniture. Variable (mixed) Product/MOH
Secretary to the company president. Fixed Period/Administrative
Aerosol attachment placed on a spray can produced by the company. Variable Product/Direct
material
Billing costs. Fixed Period/Administrative
Packing supplies for shipping products overseas. Variable Period/Selling
Sand used in manufacturing concrete. Variable Product/Direct material
Supervisor’s salary, factory. Fixed Product/MOH
Executive life insurance. Fixed Period/Administrtive
Sales commissions. Variable Period/Selling
Fringe benefits, assembly-line workers. Variable Product/Direct labor
Advertising costs. Fixed Period/Selling
Property taxes on finished goods warehouses. Fixed Period/Selling
Lubricants for production equipment. Variable Product/MOH
Solution to Problem #4
Exercise room attached to assembly plant
Depreciation on sewing machines
Cost of fabric
Human effort involved in maintaining sewing machines
Cost of electricity for the manufacturing plant
Cost of water/sewer for a distribution plant
Cost of handles.
Human effort need to sew fabric into octagons
Depreciation on headquarters building
Advertisements mailed to department stores
Human effort at distribution plant
© 2014 by W. David Albrecht
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Solutions to
Homework Problems for Income Statement Equations
by David Albrecht
Solution to Problem #5
Income statement equations ! short
For 2014, the following data are given:
Direct materials used . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $70
Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Sales revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500
Selling & administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340
Work in process, January 1, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Work in process, December 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Finished goods, January 1, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Finished goods, December 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Required:
1.
2.
3.
Compute the cost of goods manufactured
Compute the cost of goods sold
Compute the amount of profit or loss
Sales rev
! CGS
GM
!SG&A
Income
500
!220
280
!340
!60
BFG
+ CGM
CGAS
! FG
CGS
40
200
240
! 20
220
BWIP
+ DM used
+ DL
+ MOH
! EWIP
CGM
50
70
60
90
!70
200
Solution to Problem #6
Income statement equations ! short
For the month of October, the following data are given:
Cost of direct materials used . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7
Cost of beginning finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Cost of beginning work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Cost of selling and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Cost of overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Cost of ending finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Cost of ending work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Required: Compute amounts for:
1.
Cost of goods manufactured or completed
2.
Cost of direct labor
3.
Total manufacturing costs (DM + DL + MOH)
Sales rev
! CGS
GM
!SG&A
Income
!33
!6
BFG
+ CGM
! FG
CGS
15
? = 35
! 17
33
© 2014 by W. David Albrecht
BWIP
+ DM used
+ DL
+ MOH
! EWIP
CGM
8
7
?=9
15
!4
? = 35
232
Solution to Problem #7
Income statement equations ! short
For 2014, the following data are given:
Cost of selling and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $30
Cost of beginning finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Cost of ending work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Cost of ending finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Sales revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Current manufacturing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Required: Compute these amounts for 2014:
1.
Profit or loss
2.
Cost of goods sold
3.
Cost of goods manufactured
4.
Cost of beginning work in process
Sales rev
! CGS
GM
!SG&A
Income
150
? = !80
70
!30
? = 40
BFG
+ CGM
CGAS
! FG
CGS
21
? = 74
? = 95
! 15
80
© 2014 by W. David Albrecht
BWIP
?=3
+ CM + DL + MOH
80
! EWIP
CGM
!9
74
233
Solution to Problem #8
Income statement equations ! medium
For 2014, the following data are given:
Purchases of direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 650
Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 420
Indirect labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Rent, factory building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Rent, finished goods warehouse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Sales commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360
General administrative salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280
Depreciation, factory equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
Utilities, factory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Utilities, administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Sales revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500
Direct materials inventory, 1/1/2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Finished goods inventory, 1/1/2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
Work in process inventory, 1/1/2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Work in process inventory, 12/31/2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Direct materials inventory, 12/31/2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Finished goods inventory, 12/31/2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340
Required:
1.
2.
3.
Compute the cost of goods manufactured
Compute the cost of goods sold
Compute the amount of profit or loss
Sales rev
! CGS
GM
!Selling
!Admin.
Income
2,500
!1,314
1,186
!425
!320
!441
BFG
+ CGM
CGAS
! FG
CGS
120
1,534
1,654
! 340
1,314
BWIP
125
+ DM used
695
+ DL
420
+ MOH
354
! EWIP
!60
CGM
1,534
Bmat
+MatPurch
!Emat
Dmat used
85
650
!40
695
MOH = 60 + 84 + 120 + 90 = 354
Selling = 65 + 360= 425
SG&A = 280 + 40 = 320
© 2014 by W. David Albrecht
234
Solution to Problem #9
Income statement equations ! long
Sales rev
4,160
! CGS
!1,520
GM
2,640
! Selling !1,221
! Admin
!289
π
1,130
Advertising
Labor, FG warehouse
Customer delivery sal
Total
Beg FG
+ CGM
! End FG
CGS
360
581
280
1,221
90
1,545
!115
1,520
Beg WIP
83
+ DM used
954
+ DL
378
+ MOH
270
! End WIP !140
CGM
1,545
Rent HQ
Prez’s salary
109
180
Total
289
© 2014 by W. David Albrecht
Beg Mat
+ Mat Purchases
! End Mat
DM used
Utilities, factory
Rent, factory bldg
Dep, fact equip
Indirect mfg labor
Total
110
921
! 77
954
51
74
120
25
270
235
Solution to Problem #10
Income statement equations ! long
Sales rev
! CGS
GM
! S&A
Income
5,221
!1,693
3,528
!1,479
2,049
Beg FG
+ CGM
! End FG
CGS
210
1,678
!195
1,693
Beg WIP
143
+ DM used
613
+ DL
410
+ MOH
622
! End WIP !110
CGM
1,678
Sales Commissions
Labor, FG warehouse
Customer service
410
171
280
Rent HQ
37
Prez’s salary
489
Dep, Prez off furn 92
Total
861
Total
618
© 2014 by W. David Albrecht
Beg Mat
73
+ Mat Purchases 624
! End Mat
! 84
DM used
613
Utilities, factory
Rent, factory bldg
Dep, fact equip
Indirect mfg labor
Total
28
46
510
38
622
236