Cost terms and Purposes Worksheet Solutions from Live Class

We are a car manufacturing company - we make cars. Our cost object is a car, i.e. we are trying to assign cost The car is being built in a factory and uses 20 machine hours. Based on the cost of the car, we will come up w sure we recover the costs and earn our desired return. Direct Manufacturing Costs EXAMPLE Direct Materials (DM) Tires, transmission, engine, metal, upholstery, lights, Direct Manufacturing Labour (DML or DL) Mechanic, welder, assembler, any wage based (like pe MANUFACTURING OVERHEAD (MOH) = INDIRECT MANUFACTURING COSTS Indirect Materials (IDM) Glue, supplies, oil, paint, rags, lubricants Indirect Manufacturing Labour (IDL) Manufacturing supervisors, sanitation salaries, inspec Other indirect costs Plant insurance, depreciation, factory rent, property t EXAMPLE DIRECT MATERIALS (DM) MANUFAC Quantity Cost per item Total Cost Manufactu Metal 500 $6 $3,000 Sanitation Engine 1 $4,000 $4,000 Indirect ma Seats 5 $200 $1,000 Plant insur Panes of glass 8 $125 $1,000 depreciatio radio 1 $1,000 $1,000 Property ta tires 4 $100 $400 Utilities $10,400 Plant repai Inspection DIRECT LABOUR (DL) Hours Wage Total Cost Driver is m Welder 10 $50 $500 Assembler 20 $50 $1,000 Mechanic 20 $65 $1,300 $2,800 In other wo every mach MANUFACTURING OVERHEAD (MOH) the MOH. Machine hours 20 MOH Allocation rate $100 MOH Allocated $2,000 TOTAL COST OF CAR DM $10,400 DL $2,800 MOH Allocated $2,000 Total Cost of car $15,200 TARGET MARKUP (100%) $15,200 We mark up cars 100% in order t FINAL PRICE $30,400

Gross Profit margin 50.0% ACCURATE COSTING leads to acc Imagine if we did NOT include M we would be underrecovering th PRODUCT VS PERIOD COSTS PRODUCT COSTS = INVENTORIABLE COSTS = MANUFACTURING COSTS = DM + DML + MOH PERIOD COSTS = nonproduct costs = nonmanufacturing costs = SG&A = operating expenses TYPES OF INVENTORY FOR MANUFACTURING COMPANITES TYPE EXAMPLE RM/DM Raw/Direct Materials steel, glass, etc. raw materials that are in the STORAGE WIP Work in Process/Progress Products that are 1% complete to 99% complete, unfin FG Finished Goods 100% complete products.

ts to the car. with a price to make panes of glass er hour) cost that we know how many hours they worked on the cost object ctor salaries taxes, utilities CTURING OVERHEAD ESTIMATE for year uring supervisors $5,000,000 salaries $700,000 aterials $300,000 rance $500,000 on $600,000 axes $500,000 $1,000,000 ir & maintenance $400,000 $1,000,000 $10,000,000 machine hours 100,000 machine hours $100.00 per machine hour ords, in order to RECOVER indirect costs, for hine hour that a car uses, we ALLOCATE $100 of to get a gross profit margin of 50%

curate pricing to recover costs and get a target return. MOH, we would not be getting the desired return as he costs needed to make the car. E ROOM nished products in the WORKSHOP/FACTORY

Prepare a schedule of cost of goods manufactured in good form. Only input in the YELLOW cells. The following costs relate to one month’s activity for Terrace Inc. Indirect materials $ 300 Rent on factory building $ 500 Maintenance of equipment $ 50 Direct material used $ 1,200 Utilities on factory $ 250 Direct labour $ 1,500 Selling expense $ 500 Administrative expense $ 300 Work-in-process inventory, beginning $ 600 Work-in-process inventory, ending $ 800 Finished goods inventory, beginning $ 500 Finished goods inventory, ending $ 250 Direct Materials used $1,200 Direct Labour $1,500 Manufacturing Overhead: Utilities on Factory $250 Rent on Factory Building $500 Indirect Materials $300 Maintenance of Equipment $50 Total Manufacturing Costs $3,800 Add: WIP Beginning $600 Less: WIP end -$800 Make sure Cost of Goods Manufactured $3,600 Add: Beg FG Inventory $ 500 Less: Ending FG Inventory $ (250) Cost of Goods Sold $3,850