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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Classifying costs

The following report was prepared for evaluating the performance of the plant manager of Marching Ants Inc. Evaluate and correct this report.

Marching Ants Inc.

Manufacturing Costs

For the Quarter Ended June 30

Materials used in production (including $ 56,200 of indirect materials) $ 607,500
Direct labor (including 584,400 maintenance salaries) 562,500
Factory overhead:
Supervisor salaries 517,500
Heat, light, and power 140,650
Sales salaries 348,750
Promotional expenses 315,000
Insurance and property taxes—plant 151,900
Insurance and property taxes—corporate offices 219,400
Depreciation—plant and equipment 123,750
Depreciation—corporate offices 90,000
Total $3,076950

To determine

Costs:

A cost indicates the payment of cash or the obligation to pay the cash in the future period for the generation of revenue or the service performed.

Period costs:

Period costs are the costs other than the product costs. These costs are not incurred in manufacturing the goods. These costs include the administrative expenses, and selling expenses

Factory Overhead Cost:

Factory overhead cost is the cost other than the direct material cost, and the direct labor cost which is not directly involved in the production of converting the raw materials to the finished products. If the direct material cost or direct labor cost does not constitute the major portion of the total cost of the finished product, then it may be classified as the factory overhead cost. For example: Cost of repairing, and maintaining factory equipment.

To evaluate: The performance of Company M and correct the amounts reported in the manufacturing cost.

Explanation

The correct manufacturing cost of Company M is determined as follows:

Particulars $ $
Cost of direct materials used in production   551,300
Direct labor   478,100
Factory overhead:  
Maintenance salaries 84,400  
Indirect materials 56,200  
Supervisor salaries 517,500  
Heat, light, and power 140,650  
Insurance and propert...

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