Test Bank for Fundamental Managerial Accounting Concepts, 10th Edition by Edmonds

Test Bank for Fundamental Managerial Accounting Concepts, 10th Edition by Edmonds

141) Jarvis Company provided the following information regarding its first year of operations:

Beginning inventory 0 units

Number of units produced 20,000

Number of units sold 18,000

Required:

Determine the following amounts: (a) Total overhead costs.

(b) Total product costs. (c) Product cost per unit.

(d) Total cost of ending finished goods inventory. (e) Total cost of goods sold.

Answer:

(a) Overhead costs: 

(b) Product costs:

(c) Product cost per unit:

Total product costs/units produced = $246,000/20,000 = $12.30 per unit

(d) Total cost of ending finished goods inventory:

2,000 units in ending inventory (20,000 units produced – 18,000 units sold) times $12.30 cost per unit = $24,600

(e) Cost of goods sold:

18,000 units sold times $12.30 cost per unit = $221,400

Difficulty: 3 Hard

Topic: Manufacturing Product Costs on Financial Statements; Components of Product Cost; Average Cost per Unit; Costs Can Be Assets or Expenses; Overhead Costs: A Closer Look Learning Objective: 01-03 Show how manufacturing product costs affect financial statements.;

01-02 Identify the cost of manufacturing a product. Bloom's: Apply

AACSB: Knowledge Application

AICPA: BB Industry; FN Measurement

142) Arizona Company provided the following information regarding its most recent year of operations:

(e) Total cost per unit, including product costs and upstream and downstream costs

(f) The selling price per unit that would be required if the company wishes to earn a profit margin equal to 25% of total cost

(g) Comment on the company's profitability at its current selling price

Answer:

(a) Total product costs:

(b) Total upstream costs:

(c) Total downstream costs:

(d) Total product cost per unit:

Total product costs/units produced = $164,000/20,000 = $8.20 per unit

(e) Total cost per unit:

Total costs/units produced = $376,000/20,000 = $18.80 per unit

(f) Selling price to earn a profit margin equal to 25% of total cost:

Total unit cost + (total unit cost times profit margin) = $18.80 + ($18.80 × 25%) = $23.50 per unit

(g) Current profitability:

The company's current selling price of $20.50 ($410,000/20,000 units) covers the product costs and the upstream and downstream costs, but it does not provide the amount of profit that the company would like to earn. Instead of generating a profit margin of 25% of total costs, it is earning a profit margin of approximately 9% of total costs.

Difficulty: 3 Hard

Topic: Manufacturing Product Costs on Financial Statements; Components of Product Cost; Average Cost per Unit; Costs Can Be Assets or Expenses; Cost Classification in Manufacturing Companies; Overhead Costs: A Closer Look

Learning Objective: 01-03 Show how manufacturing product costs affect financial statements.;

01-02 Identify the cost of manufacturing a product.; 01-04 Compare the treatment of upstream, midstream, and downstream costs in manufacturing, service, and merchandising companies. Bloom's: Apply

AACSB: Knowledge Application

AICPA: BB Industry; FN Measurement

143) Reno Company provided the following information regarding its operations for the month ending September 30:

2) Prepare a schedule of inventory costs that shows total product costs, ending inventory, and cost of goods sold; and

3) Prepare an income statement for the month ending September 30.

Answer:

1) Total manufacturing overhead cost:

2) Schedule of inventory costs:

3) Income statement:

Reno Company

Income Statement

For the Month Ended September 30

Sales $ 196,000

Less: Cost of goods sold 79,500

Gross margin 116,500

Less: General, selling and administrative expenses

Administrative expenses $ 30,000

Marketing and distribution expenses 24,000

Selling expenses 18,000 72,000

Operating income $ 44,500

Difficulty: 3 Hard

Topic: Components of Product Cost; Average Cost per Unit; Costs Can Be Assets or Expenses; Effect of Product Costs on Financial Statements

Learning Objective: 01-03 Show how manufacturing product costs affect financial statements.;

01-02 Identify the cost of manufacturing a product. Bloom's: Apply

AACSB: Knowledge Application

AICPA: BB Industry; FN Measurement

144) The Szakos Company engaged in the following transactions during the current year:

1. a) Acquired $50,000 of cash by issuing common stock to owners b) Paid $10,000 to acquire manufacturing equipment
2. c) Paid $5,000 cash for materials used in production d) Paid $2,000 for wages of production workers
3. e) Paid $8,000 in general, selling, and administrative costs
4. f) Recognized $1,000 of depreciation on the manufacturing equipment g) Sold inventory for $18,000 cash
5. h) The cost of the inventory sold was $6,500

Required:

Show the balance sheet and income statement effects of the transactions by completing the financial statement model provided.