Compute cost of goods manufactured and cost of goods sold from the following amounts, using the equation method. Begin Beginning of the year End of Year Direct materials inventory $22,000 $26,000 Work in process inventory 38,000 30,000 Finished goods inventory 18,000 23,000 Purchases of direct materials 75,000 Direct labor 82,000 Manufacturing overhead 39,000
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
- Compute cost of goods
manufactured and cost of goods sold from the following amounts, using the equation method. Begin Beginning of the year End of Year
Direct materials inventory $22,000 $26,000
Work in process inventory 38,000 30,000
Finished goods inventory 18,000 23,000
Purchases of direct materials 75,000
Direct labor 82,000
Manufacturing overhead 39,000
2. Clyde’s Pets manufactures chewing bones for puppies. At the end of December 2008, his accounting records showed the following:
Inventories Beginning Ending
Materials $13,500 $9,000
Work in process 0 1,250
Finished goods 0 5,700
Other information:
Direct material purchases $31,000 Utilities for plants $4,500
Plant janitorial service 1,250 Rent on plants 9,000
Sales salaries expense 5,000 Customer service hotline expense 1,000
Delivery expense 1,500 Direct labor 18,000
Sales revenue 105,000
Requirements:
Prepare a schedule of cost of goods manufactured for the year ended December 31, 2008.
Prepare an income statement for Clyde’s Pets for the year ended December 31, 2008.
Given that the company manufactured 17,500 units, of its product in 2008, compute the company’s unit product cost for the year.
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