201

EXERCISES: 2.57, 2.58, 2.63,

11.33, 11.34

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Exercise 2.57
The following data refer to Fresno Fashions Company for the year 20X2:
Sales revenue
Work-in-process inventory, December 31
Work-in-process inventory, January 1
Selling and administrative expenses
Income tax expense
Purchases of raw materials
Raw-material inventory, December 31
Raw-material inventory, January 1
Direct labor
Utilities: plant
Depreciation: plant and equipment
Finished-goods inventory, December 31
Finished goods inventory, January 1
Indirect material
Indirect labor
Other manufacturing overhead

$ 945.000
30.000
40.000
145.000
80.000
180.000
25.000
40.000
200.000
40.000
60.000
50.000
20.000
11.000
16.000
76.000

Required:
a. Prepare Fresno Fashion's schedule of cost of goods manufactured for the year.
b. Prepare Fresno Fashion's schedule of cost of goods sold for the year.
c. Prepare Fresno Fashion's income statement for the year.
d. Build and Excel spreadsheet to complete requirements a through c.
Solution
a. Schedule of cost of goods manufactured for the year
Beginning work-in-process inventory, January 1
Raw materials inventory, January 1
+ Purchases of raw materials
Raw materials available for use
- Raw materials inventory, December 31
Total direct material costs
Direct labor
Manufacturing overhead
Utilities: Plant
+ Depreciation: plant and equipment
+ Indirect material
+ Indirect labor
+ Other manufacturing overhead
Total manufacturing overhead

40.000
40.000
+ 180.000
220.000
- 25.000
195.000
200.000
40.000
60.000
11.000
16.000
78.000
205.000

Total manufacturing costs for the year

+ Work-in-process inventory, January 1
- Ending work-in-process inventory, December 31
Cost of goods manufactured for the year

600.000
40.000
30.000
610.000

b. Schedule of cost of goods sold for the year

Finished goods inventory, January 1
+ Cost of goods manufactured during the year
Finished goods available for sale
- Finished goods inventory, December 31
Cost of goods sold for the year

20.000
610.000
630.000
50.000
580.000

c. Fresno Fashion's income statement

Fresno Fashion
Income statement
For the year ended December 31
Sales revenue
- Cost of goods sold
Gross margin
- Selling and administrative expenses
Operating profit

945.000
580.000
365.000
145.000
220.000

Net income before taxes

- Income tax expense
Net income after taxes

220.000
80.000
140.000

Exercise 2.58
Sacramento Electronics Corporation incurred the following costs during 20X1.
The company sold all of its products manufactured during the year.
Direct material
Direct labor
Manufacturing overhead:
Utilities (primarily electricity)
Depreciation on plant and equipment
Insurance
Supervisory salaries
Property taxes
Selling costs:
Advertising
Sales commissions
Administrative costs:
Salaries of top management and staff
Office supplies
Depreciation on building and equipment

2.900.000
1.950.000
140.000
230.000
150.000
300.000
220.000
195.000
90.000
369.000
40.000
75.000

During the 20X1, the company operated at about half of its capacity due to a
slowdown in the economy. Prospects for 20X2 are slightly better. The marketing
manager forecasts a 20 percent growth in sales over 20X1 level.
Required
Categorize each of the preceding costs as most likely variable or fixed. Forecast
the 20X2 amount for each cost item.
Solution

Direct material
Direct labor
Manufacturing overhead:
Utilities (primarily electricity)
Depreciation on plant and equipment
Insurance
Supervisory salaries
Property taxes
Selling costs:
Advertising
Sales commissions
Administrative costs:
Salaries of top management and staff
Office supplies
Depreciation on building and equipment

Prediction

2.900.000
1.950.000

Cost
Category
Variable
Variable

140.000
230.000
150.000
300.000
220.000

Fixed
Fixed
Fixed
Fixed
Fixed

140.000
230.000
150.000
300.000
220.000

195.000
90.000

Fixed
Variable

195.000
108.000

Fixed
Fixed
Fixed

369.000
40.000
75.000

369.000
40.000
75.000

3.480.000
2.340.000

Exercise 2.63
Each of the following columns is independent and for a different company. Use
the data given, which refers to one year for example, to find the unknown
account balances.
Account
Finished-goods inventory, January 1
Finished-goods inventory, December 31
Work-in-process inventory, January 1
Work-in-process inventory, December 31
Raw-material inventory, January 1
Raw-material inventory, December 31
Purchases of raw materials
Cost of goods manufactured during the
year
Total manufacturing costs
Cost of goods sold
Gross margin
Direct material used
Direct labor
Manufacturing overhead
Sales revenue

1
$1,900
300
2,700
3,800
(a)
3,600
16,100
(b)

Company
2
(d)
$4,400
6,700
3,100
3,500
2,900
12,000
27,220

3
$17,200
28,400
82,400
76,730
16,000
14,100
64,200
313,770

55,550
56,050
(c)
15,300
26,450
13,800
103,300

23,600
27,200
16,400
(e)
3,800
7,200
(f)

308,100
302,570
641,280
66,100
124,700
(g)
943,850

a)
Raw material inventory, January 1
+ Purchases of raw materials
- Raw material, December 31
= Direct material used
(a) + 16,100 3,600 = 15,300 (a) = 2,800
b)
Work in process inventory, January 1
+ (Direct material used + Direct labor + Manufacturing overhead)
- Work in process inventory, December 31
= Cost of goods manufactured during the year
2,700 + (15,300 + 26,450 + 13,800) 3,800 = (b) (b) = 54,450

c)
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Sales revenue
Cost of goods sold
= Gross margin
103,300 56,050 = (c) (c) = 47,250
d)
Beginning finished goods inventory, January 1
+ Cost of goods manufactured during the year
Ending finished goods inventory, December 31
= Costs of goods sold
(d) + 27,220 4,400 = 27,200 (d) = 4,380

e)
Beginning raw material inventory, January 1
+ Purchases of raw materials
- Ending raw material inventory, December 31
= Direct material used
3,500 + 12,000 2,900 = (e) (e) = 12,600
f)
Sales revenue
Costs of goods sold
= Gross margin
(f) 27,200 = 16,400 (f) = 43,600
g)
Manufacturing overhead
+ Direct labor
+ Direct material used
= Total manufacturing costs
308,100 = (g) + 124,700 + 66,100 (g) = 117,300

Exercise 11.33
Fast Eddies Limo Service operates a fleet of limousines. Management wants to
estimate the fixed and variable costs per mile. A recent trade publication
indicated that variable costs should be no more than $.25 per mile. To check his
costs against those indicated in the trade journal, Fast Eddie collected the
following data for his limousine fleet for last month:

Limousine Number
1
2
3
4
5
6
7
8
9
10

Costs ($)
3500
3400
3200
3800
3500
4000
3200
3000
4200
3900

Miles
12400
11800
10600
11500
11800
13200
9800
9200
11700
12300

Required
a. Use the high low method to estimate the fixed and variable portions of
overhead costs based on miles driven.
b. What is the estimated total cost of driving one limousine 10,000 miles?
c. Fast Eddie has heard that the high low method has a major limitation
compared to simple regression. What is it?
Solution:
a.
(13.200) $4.000
(9.200) $3000.
- :
V=

40003000 1000
=
=0,25 $ /mile
132009200 4000

,

. :
FCmax=4000 0,25*13200 = $700 &FCmin= 3000 0,25*9200 = $700

b. 10000
miles, :
TC= FC + VC*miles= 700 + 10000*0,25 = 700 + 2500 = $3200
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Exercise 11.34
Refer to the data for Fast Eddies Limousine Service in Exercise 11.33
Required:
Build your own spreadsheet. Using miles as the cost driver, build an Excel
spreadsheet to derive the simple regression results and estimated total cost for
Fast Eddies Limousine Service.
Limousine
Number
1
2
3
4
5
6
7
8
9
10
total

Costs

Miles

3.500
3.400
3.200
3.800
3.500
4.000
3.200
3.000
4.200
3.900

12.400
11.800
10.600
11.500
11.800
13.200
9.800
9.200
11.700
12.300
114.300

SUMMARY OUTPUT
Regression Statistics
Multiple R
0,754752487
R Square
0,569651316
Adjusted R
0,515857731
8

Square
Standard Error
Observations

272,5599779
10

ANOVA
df
1
8
9

Regression
Residual
Total

Intercept
X Variable 1

Intercept
X Variable 1

SS
786688,4675
594311,5325
1381000

Coefficients
810,9177098
0,241389527
Lower 95%
-1154,33289
0,070333178

MS
786688,4675
74288,94156

Standard Error
852,2320386
0,074178683
Upper 95%
2776,168313
0,412445876

F
10,58957701

Significance F
0,011628397

t Stat
P-value
0,951522207 0,369197951
3,254163027 0,011628397

Lower 95,0%
-1154,332894
0,070333178

Upper 95,0%
2776,16831
0,41244588

RESIDUAL OUTPUT
Observatio
n
1
2
3
4
5
6
7
8
9
10

Predicted Y
3804,14784
1
3659,31412
5
3369,64669
3
3586,89726
7
3659,31412
5
3997,25946
2
3176,53507
1
3031,70135
5
3635,17517
2
3780,00888
8

Residuals

Standard
Residuals

-304,1478409

-1,183583531

-259,3141249

-1,009114274

-169,6466928

-0,660175759

213,1027331

0,829283827

-159,3141249

-0,619966836

2,740537738

0,010664732

23,46492852

0,091313168

-31,70135546

-0,123365013

564,8248278

2,198001348

119,9911118

0,466942338

 (TC=FC+VC*Q) :
= bo +b1 + e
:

Y: cost

: miles

: bo=810,92 b1=0,241
: = 114.300 miles
(TC) :
= 810,92 + 0,241 114.300 = 810,92 + 27.546,3 = 28.357,22$

X Variable 1 Line Fit Plot

Predicted Y

X Variable 1

10

X Variable 1 Residual Plot

Residuals

X Variable 1

11