Chapter 18, Problem 18SP

Requirement 1

To determine

To classify:

The following manufacturing costs of Business Solutions as either (a) variable or fixed and (b) direct or indirect costs.

Answer to Problem 18SP

Solution:

	Costs	Variable or Fixed	Direct or Indirect
1	Monthly flat fee to clean workshop	Fixed	Indirect
2	Laminate coverings for desktops	Variable	Direct
3	Taxes on assembly workshop	Fixed	Indirect
4	Glue to assemble workstation component parts	Variable	Indirect
5	Wages of desk assembler	Variable	Direct
6	Electricity for workshop	Variable	Indirect
7	Depreciation on tools	Fixed	Indirect

Explanation of Solution

Monthly flat fee to clean workshop − the monthly rent of a building or factory is fixed thus, it does not change with the level of output and this cannot be directly associated with the product, thus it will be a fixed and indirect cost.

Laminate coverings for desktops − this is a cost which will directly change with the level of output and it can be associated with the each unit of product, thus it will be a variable and direct cost.

Taxes on assembly workshop − the taxes on assembly workshop a building or factory is fixed thus, it does not change with the level of output and this cannot be directly associated with the product, thus it will be a fixed and indirect cost.

Glue to assemble workstation component parts − the glue to assemble workstation component parts will directly change with the level of output but it cannot be associated with the each unit of product, thus it will be a variable and indirect cost.

Wages of desk assembler − the wages of desk assembler will directly change with the level of output and it can be associated with the each unit of product, thus it will be a variable and direct cost.

Electricity for workshop − the use of electricity may depend on the time spent in the workshop thus related with the level of output but it cannot be associated with the each unit of product, thus it will be a variable and indirect cost

Depreciation on tools − the depreciation on tools is fixed and indirect cost in nature.

Conclusion

Thus, the manufacturing costs of Business Solutions have been classified as either variable or fixed and direct or indirect costs.

Requirement 2.

To determine

To prepare:

Schedule of cost of goods manufactured for Business Solutions using the information given for the month ended January 31, 2016

Answer to Problem 18SP

Solution:

Business Solutions
Schedule of Cost of Goods manufactured
Direct Material Used	$ 2,200
Direct Labor	$ 900
Total factory overheads	$ 490
Total manufacturing costs	$ 3,590
Add: Beginning Work in process inventory	0
Total costs of work in process inventory	$ 3,590
Less: Ending work in process inventory	$ 540
Cost of goods manufactured	$ 3,050

Explanation of Solution

The preparation of schedule of cost of goods manufactured can be explained as under −

Total manufacturing costs

The information given to calculate total manufacturing costs is −

Direct Material Used = $ 2,200

Direct Labor = $ 900

Total factory overheads = $ 490

  $\begin{array}{l}Totalmanufacturingcosts=DirectMaterialUsed+DirectLabor+Totalfactoryoverheads\hfill \\ Totalmanufacturingcosts=\$\text{ 2},200+\$\text{ 90}0+\$\text{ 49}0\hfill \\ Totalmanufacturingcosts=\$\text{ 3},590\hfill \end{array}$

Total costs of work in process inventory −

The information given to calculate the total costs of work in process inventory is −

Total manufacturing costs = $ 3,590

Beginning work in process inventory = $ 0

  $\begin{array}{l}\begin{array}{l}Totalcostsofworkinprocessinventory=Totalmanufacturingcosts\\ \text{ + Beginning }workinprocessinventory\end{array}\hfill \\ Totalcostsofworkinprocessinventory=\$\text{ 3,59}0+0\hfill \\ Totalcostsofworkinprocessinventory=\$3,590\hfill \end{array}$

Cost of goods manufactured −

The information given to calculate the total cost of goods manufactured is −

Total costs of work in process inventory = $ 3,590

Ending work in process inventory = $ 540

  $\begin{array}{l}\begin{array}{l}Costofgoodsmanufactured=Totalcostsofworkinprocessinventory\\ -Endingworkinprocessinventory\end{array}\hfill \\ Costofgoodsmanufactured=\$3,590-\$540\hfill \\ Costofgoodsmanufactured=\$3,050\hfill \end{array}$

Conclusion

Thus, the schedule of cost of goods manufactured for Business Solutions using the information given for the month ended January 31, 2016 has been prepared.

Requirement 3

To determine

To prepare:

Cost of goods sold section of a partial income statement for Business Solutions for the month ended January 31, 2016.

Answer to Problem 18SP

Solution:

Business Solutions
Income statement
For the month Ended January 31, 2016
Sales		XXX
Less: Cost of goods sold
Cost of good manufactured	$ 3,050
Add: Finished Goods Inventory - Beginning	0
Less: Finished Goods Inventory - Ending	$ 350
Cost of Goods sold		$ 2,700

Explanation of Solution

The information given to prepare costs of goods sold section for partial income statement is −

• Cost of Goods manufactured = $ 3,050
• Finished Goods Inventory − Beginning = 0
• Finished Goods Inventory − Ending = $ 350

  $\begin{array}{l}CostofGoodssold=\\ CostofGoodsmanufactured\\ +FinishedGoodsInventoryBeginning\\ -FinishedGoodsInventoryEnding\end{array}$

  $\begin{array}{l}CostofGoodssold=\$\text{ 3},050+0-\$350\\ CostofGoodssold=\$\text{ 2},700\end{array}$

Conclusion

Thus, the cost of goods sold section of a partial income statement for Business Solutions for the month ended January 31, 2016 has been prepared.