Recently Ryan Smith, the plant manager of the manufacturing division of Waterways Corporation, has been focusing on changes to overhead costs. He realizes that Ben Clark's new designs call for more automation in the plant, but he is also investigating if there are any opportunities for cost savings. Ryan asked CFO Jordan Leigh for information required to complete a cost of goods manufactured statement. The usual computer-generated statements were not available as the company's management information systems soft ware was undergoing a major update. Ryan was provided with the following information.

The balances in the applicable inventory accounts at the beginning of the month were:

Raw materials inventory 38,000

Work in process inventory 52,900

During the month, the following activities took place.

1. Raw materials of $185,400 were purchased on account.

2. $130,700 of direct materials could be traced to the actual production and the rest of the raw materials amount was for indirect materials. The balance remaining in the raw materials account was $52,700.

3. Actual cost for wages and salaries was $70,000. Sixty percent of this was considered overhead; the balance was direct labour.

4. Utility costs during the month totalled $13,600, of which 75% related to the plant operations. Th e plant was operational for a total of 580 hours during the month.

5. Depreciation on assets totalled $22,400. Eighty percent of these assets were used in the manufacturing operations.

6. Prepaid property tax amounting to $4,280 was used during the month for the plant operations, and prepaid plant insurance totalled $5,000 for the month.

7. Although most of the plant equipment was new and still under warranty, $4,700 was used for preventive maintenance.

8. Other expenditures during the month were factory supplies, $16,800; security services for the plant, $10,000; janitorial services for the plant, $5,100.

9. Ending work in process was valued at $42,000.

In addition, Ryan thought it might be helpful to his cost-cutting measures if he could predict what manufacturing overhead would be in the following months. But first he needed to determine the appropriate activity base. He thought there could be two possibilities: direct labour or the number of hours of operation. From historical data he retrieved the following information:

Instructions
(a) From the information provided in the numbered list above, prepare a cost of goods manufactured schedule.
(b) Using the high-low method, and based on data in the chart above, determine which activity base would be better for predicting manufacturing overhead.

Transcribed Image Text:

Direct Labour $26,000 24,000 January February March April May June Hours of Operation 500 520 700 690 650 625 Manufacturing Overhead $145,000 148,000 170,000 176,000 160,000 155,000 32,000 27,000 25,500