Standard process costs and review of Chapters 9 and 10 (CPA) Norwood Corporation is considering changing its method of inventory valuation from absorption costing to direct costing and has engaged you to determine the effect of the proposed change on the 19_8 financial statements.

The Corporation manufactures Gink, which is sold for $20 per unit. Marsh is added before processing starts, and labor and overhead are added evenly during the manufacturing process. Production capacity is budgeted at 110,000 units of Gink annually. The standard costs per unit of Gink are:

Marsh, 2 pounds $3.00 Labor 6.00 Variable manufacturing overhead 1.00 Fixed manufacturing overhead 1.10 A process-cost system is used employing standard costs. Variances from standard costs are now charged or credited to cost of goods sold. If direct costing were adopted, only variances resulting from variable costs would be charged or credited to cost of goods sold.

Inventory data for 19.8 follow:

UNITS JANUARY 17 DECEMBER 31 Marsh (pounds) 50,000 40,000 Work in process 2/5 processed 10,000 1/3 processed 15,000 Finished goods : 20,000 12,000 During 19_8 220,000 pounds of Marsh were purchased and 230,000 pounds were transferred to work in process. Also, 110,000 units of Gink were transferred to finished goods. Actual fixed manufacturing overhead during the year was $121,000. There were no variances between standard variable costs and actual variable costs during the year.
. Prepare schedules that present the computation of:

a. Equivalent units of production for material and conversion costs.

b. Number of units sold.

c. Standard unit costs under direct costing and absorption costing.

d. Amount, if any, of over- or underapplied fixed manufacturing overhead.
. Prepare a comparative statement of cost of goods sold using standard direct costing and standard absorption costing. l-01