The following data relates to the operation of Cambridge Manufacturing Company for the year ended December 31st, 2015: Sales $608,600 Direct Labor $90,000 Purchases of Raw Material 315,500 Indirect Labor 15,000 Return of Raw Material 13,000 Indirect Material 16,000 Freight in 5,000 Factory Rent 20,200 Foreman’s Salary 30,000 Selling and Admin. Expenses 35,000 Factory Insurance 7,000 Bad debt Expense 1,500 Inventories January 01, 2015 December 31st, 2015 Raw Materials $30,000 68,000 Work in process 40,000 ? Finished Goods 70,000 56,000 The company assigns FOH on the basis of Direct Labor Cost. Required: a. Determine FOH Rate b. Compute the Cost of WIP on December 31st, 2015 c. Prepare Statement of Cost of Goods Manufactured and Income Statement for 2015
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.
The following data relates to the operation of Cambridge Manufacturing Company for the year ended December 31st, 2015:
Sales $608,600 Direct Labor $90,000
Purchases of Raw Material 315,500 Indirect Labor 15,000
Return of Raw Material 13,000 Indirect Material 16,000
Freight in 5,000 Factory Rent 20,200
Foreman’s Salary 30,000 Selling and Admin. Expenses 35,000
Factory Insurance 7,000
Inventories January 01, 2015 December 31st, 2015
Raw Materials $30,000 68,000
Work in process 40,000 ?
Finished Goods 70,000 56,000
The company assigns FOH on the basis of Direct Labor Cost.
Required:
a. Determine FOH Rate
b. Compute the Cost of WIP on December 31st, 2015
c. Prepare Statement of Cost of Goods Manufactured and Income Statement for 2015
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