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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Income Statement, Cost of Services Provided, Service Attributes

Berry Company is an architectural firm located in Detroit, Michigan. The company works with small and medium-size construction businesses to prepare building plans according to the client’s contract. The following data are provided for the previous year:

Chapter 2, Problem 57P, Income Statement, Cost of Services Provided, Service Attributes Berry Company is an architectural

Required:

  1. 1. Calculate the cost of goods manufactured.
  2. 2. Calculate the cost of goods sold.
  3. 3. Assume that the average fee for a design is $2,100. Prepare an income statement for Berry.
  4. 4. CONCEPTUAL CONNECTION Refer to the cost of goods sold (calculated in Requirement 2). What is the dominant cost? Briefly explain why this cost is the dominant one for Berry.

1.

To determine

Calculate the amount of cost of goods manufactured.

Explanation

Cost of Goods Manufactured:

Cost of goods manufactured can be defined as the total amount of cost incurred by a company to complete the goods and transfer the completed goods to the finished goods inventory.

Use the following formula to compute cost of goods manufactured:

Cost of goods manufactured=(Direct material used+Direct labor+Manufacturing overhead+Beginning WIPEnding WIP)

Substitute $50,000 for direct material used, $800,000 for direct labor, $100,000 for manufacturing overhead, $60,000 for beginning WIP (work in process), and $100,000 for ending WIP in the above formula.

Cost of goods manufactured=($50,000+$800,000+$100,000

2.

To determine

Calculate the amount of cost of goods sold.

3.

To determine

Prepare an income statement of Company B.

4.

To determine

Explain the term dominant cost and why company B’s cost is dominant.

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