corner PROBLEMS Problem 228 Cost Assignment Methods Brody Co

PROBLEMS Problem 2.28 Cost Assignment Methods Brody Company makes industrial cleaning solvents. Various chemicals, detergent, and water are mixed together and then bottled in 10-gallon drums. Brody provided the following information OBJEC for last year: Raw materials purchases Direct labor Depreciation on factory equipment Depreciation on factory building Depreciation on headquarters building Factory insurance Property taxes: $250,000 140,000 45,000 30,000 50,000 15,000 Factory Headquarters Utilities for factory Utilities for sales office Administrative salaries Indirect labor salaries Sales office salaries Beginning balance, raw materials Beginning balance, work in process Beginning balance, finished goods Ending balance, raw materials Ending balance, work in process Ending balance, finished goods 20,000 18,000 34,000 1,800 150,000 156,000 90,000 124,000 124,000 84,000 102,000 130,000 82,000 Last year, Brody completed 100,000 units. Sales revenue equaled $1,200,000, and Brody paid a sales commission of 5 percent of sales. continued)

Solution

1) Direct materials used.in production: Raw materials purchases 250000 Beginning balance, Raw Materials 124000 Total materials available for use 374000 Ending balance, Raw Materials 102000 Direct materials used in production 272000 2) Total prime cost. (Direct material + Direct labor) Direct material used 272000 Direct labor 140000 Total Prime Cost 412000 3) Total conversion cost: (Direct labor + Manufacturing Over head) Direct labor 140000 Depreciation on factory equipment 45000 Depreciation on factory building 30000 Factory insurance 15000 Factory taxes 20000 Utilities for factory 34000 Indirect labor salaries 156000 Total conversion cost 440000 4) Statement of Cost of goods manufactured: Material used 272000 Direct labor 140000 Manufacturing overhead Depreciation on factory equipment 45000 Depreciation on factory building 30000 Factory insurance 15000 Factory tax 20000 Utilities for factory 34000 Indirect labor salaries 156000 300000 Beginning balance, WIP 124000 Total manufacturing cost 836000 Ending balance, WIP 130000 Cost of goods manufactured 706000 The unit product cost = 706,000/100,000 = 7.06 5) Cost of goods sold statement: Cost of goods manufactured 706000 Beginning balance, Finished Goods 84000 Total goods available for sale 790000 Ending balance, Finished Goods 82000 Cost of goods sold 708000 6) Income statement: Sales revenue 1200000 100.00% Cost of goods sold 708000 59.00% Gross margin 492000 41.00% Sales & administrative expense: Sales office salaries 90000 7.50% Sales commission 60000 5.00% Utilities for sales office 1800 0.15% Headquarter property taxes 18000 1.50% Depreciation on headquarters building 50000 4.17% Administrative salaries 150000 12.50% Total sales and administrative expenses 369800 30.82% Operating income 122200 10.18%