Question 1

Cost Classifications
Consider the following costs that were incurred during the current year:

  1. Tire costs incurred by Ford Motor Company.
  2. Sales commissions paid to the sales force of Dell Inc.
  3. Wood glue consumed in the manufacture of Thomasville furniture.
  4. Hourly wages of refinery security guards employed by ExxonMobil Corporation.
  5. The salary of a financial vice president of Hewlett Packard.
  6. Advertising costs of Coca-Cola.
  7. Straight-line depreciation on factory machinery of Boeing Corporation.
  8. Wages of assembly-line personnel of Whirlpool Corporation.
  9. Delivery costs on customer shipments of Ben & Jerry’s ice cream.
  10. Newsprint consumed in printing The New York Times.
  11. Plant insurance costs of Texas Instruments.
  12. Glass costs incurred in light-bulb manufacturing of General Electric.

 

Required: Evaluate each of the preceding and determine whether the cost is  (a) a product cost or a period cost, ( b ) variable or fixed in terms of behavior, and ( c ) for the product costs only, whether the cost is properly classified as direct material, direct labor, or manufacturing overhead.

 

Question 2

 

Finlon Upholstery, Inc. uses a job-order costing system to accumulate manufacturing costs. The company’s work-in-process on December 31, 20×1, consisted of one job (no. 2077), which was carried on the year-end balance sheet at $156,800. There was no finished-goods inventory on this date. Finlon applies manufacturing overhead to production on the basis of direct-labor cost. (The budgeted direct-labor cost is the company’s practical capacity, in terms of direct-labor hours, multiplied by the budgeted direct-labor rate.) Budgeted totals for 20×2 for direct labor and manufacturing overhead are $4,200,000 and $5,460,000, respectively. Actual results for the year follow:

 

Direct material used ……………………………………………$ 5,600,000

Direct labor…………………………………………………………….4,350,000

Indirect material used ………………………………………………..65,000

Indirect labor …………………………………………………………….2,860,000

Factory depreciation………………………………………………………1,740,000

Factory insurance …………………………………………………………..59,000

Factory utilities ……………………………………………………………..830,000

Selling and administrative expenses …………………………………. 2,160,000

Total ………………………………………………………………………..$17,664,000

 

Job no. 2077 was completed in January 20×2; there was no work in process at year-end. All jobs produced during 20×2 were sold with the exception of job no. 2143, which contained direct-material costs of $156,000 and direct-labor charges of $85,000. The company charges any under- or overapplied over-head to Cost of Goods Sold.

Required:

  1. Determine the company’s predetermined overhead application rate.
  2. Determine the additions to the Work-in-Process Inventory account for direct material used, direct labor, and manufacturing overhead.
  3. Compute the amount that the company would disclose as finished-goods inventory on the December 31, 20×2, balance sheet.
  4. Prepare the journal entry needed to record the year’s completed production.
  5. Compute the amount of under- or overapplied overhead at year-end, and prepare the necessary journal entry to record its disposition.
  6. Determine the company’s 20×2 cost of goods sold.
  7. Would it be appropriate to include selling and administrative expenses in either manufacturing overhead or cost of goods sold? Briefly explain.

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