2.21 Can someone please explain how she came up with all the numbers on the table? how did she compute all the minutes and how she came up with 23.80 or 27.80 and so on on with the table? I need to understand thetable so I can understand the graph. Thank you

2.23 Can you please elaborate more on dotball candies annual fixed manufacturing cost with relevant range please? Thank you

CHAPTER 2 AN INTRODUCTION TO COST TERMS AND PURPOSES 2.4 Factors affecting the classification of a cost as direct or indirect include the materiality of the cost in question available information-gathering technology design of operations 2.5 A variable cost changes in total in proportion to changes in the related level of total activity or volume. An example is a sales commission that is a percentage of each sales revenue dollar. A fixed cost remains unchanged in total for a given time period, despite wide changes in the related level of total activity or volume. An example is the leasing cost of a machine that is unchanged for a given time period (such as a year) regardless of the number of units of product produced on the machine. 2-6 A cost driver is a variable, such as the level of activity or volume, that causally affects total costs over a given time span. A change in the cost driver results in a change in the level of total costs. For example, the number of vehicles assembled is a driver of the costs of steering wheels on a motor-vehicle assembly line. 2-7 The relevant range is the band of normal activity level or volume in which there is a specific relationship between the level of activity or volume and the cost in question. Costs are described as variable or fixed with respect to a particular relevant range. 2-8 A unit cost is computed by dividing some amount of total costs (the numerator) by the related number of units (the denominator). In many cases, the numerator will include a fixed cost that will not change despite changes in the denominator. It is erroneous in those cases to multiply the unit cost by activity or volume change to predict changes in total costs at different activity or volume levels. 2-9 Manufacturing-sector companies purchase materials and components and convert them into various finished goods, for example automotive and textile companies. Merchandising-sector companies purchase and then sell tangible products without changing their basic form, for example retailing or distribution. Service-sector companies provide services or intangible products to their customers, for example, legal advice or audits. 2.10 Manufacturing companies have one or more of the following three types of inventory: 1. Direct materials inventory. Direct materials in stock and awaiting use in the manufacturing process. 2. Work-in-process inventory. Goods partially worked on but not yet completed. Also called work in progress. 3. Finished goods inventory. Goods completed but not yet sold. 2.11 Inventoriable costs are all costs of a product that are considered as assets in the balance sheet when they are incurred and that become cost of goods sold when the product is sold. These 2-1 costs are included in work-in-process and finished goods inventory (they are \"inventoried\") to accumulate the costs of creating these assets. Period costs are all costs in the income statement other than cost of goods sold. These costs are treated as expenses of the accounting period in which they are incurred because they are expected not to benefit future periods (because there is not sufficient evidence to conclude that such benefit exists). Expensing these costs immediately best matches expenses to revenues. 2-12 Direct material costs are the acquisition costs of all materials that eventually become part of the cost object (work in process and then finished goods) and can be traced to the cost object in an economically feasible way. Direct manufacturing labor costs include the compensation of all manufacturing labor that can be traced to the cost object (work in process and then finished goods) in an economically feasible way. Manufacturing overhead costs are all manufacturing costs that are related to the cost object (work in process and then finished goods) but cannot be traced to that cost object in an economically feasible way. Prime costs are all direct manufacturing costs (direct material and direct manufacturing labor). Conversion costs are all manufacturing costs other than direct material costs. 2-13 Overtime premium is the wage rate paid to workers (for both direct labor and indirect labor) in excess of their straight-time wage rates. Idle time is a subclassification of indirect labor that represents wages paid for unproductive time caused by lack of orders, machine breakdowns, material shortages, poor scheduling, and the like. 2-14 A product cost is the sum of the costs assigned to a product for a specific purpose. Purposes for computing a product cost include pricing and product mix decisions, contracting with government agencies, and preparing financial statements for external reporting under GAAP. 2-15 Three common features of cost accounting and cost management are calculating the costs of products, services, and other cost objects obtaining information for planning and control and performance evaluation analyzing the relevant information for making decisions 2-17 (15 min.) Direct, indirect, fixed, and variable costs. Wonder Bakery manufactures two types of bread, which it sells as wholesale products to various specialty retail bakeries. Each loaf of bread requires a three-step process. The first step is mixing. The mixing department combines all of the necessary ingredients to create the dough and processes it through high-speed mixers. The dough is then left to rise before baking. The second step is baking, which is an entirely automated process. The baking department molds the dough into its final shape and bakes each loaf of bread in a high-temperature oven. The final step is finishing, which is an entirely manual process. The finishing department coats each loaf of bread with a special glaze, allows the bread to cool, and then carefully packages each loaf in a specialty carton for sale in retail bakeries. 2-2 Required: 1. Costs involved in the process are listed next. For each cost, indicate whether it is a direct variable, direct fixed, indirect variable, or indirect fixed cost, assuming \"units of production of each kind of bread\" is the cost object. Costs: Yeast Flour Packaging materials Depreciation on ovens Depreciation on mixing machines Rent on factory building Fire insurance on factory building Factory utilities Finishing department hourly laborers Mixing department manager Materials handlers in each department Custodian in factory Night guard in factory Machinist (running the mixing machine) Machine maintenance personnel in each department Maintenance supplies for factory Cleaning supplies for factory 2. If the cost object were the \"mixing department\" rather than units of production of each kind of bread, which preceding costs would now be direct instead of indirect costs? SOLUTION 1. Yeastdirect, variable Flourdirect, variable Packaging materialsdirect (or could be indirect if small and not traced to each unit), variable Depreciation on ovensindirect, fixed (unless \"units of output\" depreciation, which then would be variable) Depreciation on mixing machinesindirect, fixed (unless \"units of output\" depreciation, which then would be variable) Rent on factory buildingindirect, fixed Fire Insurance on factory buildingindirect, fixed Factory utilitiesindirect, probably some variable and some fixed (e.g., electricity may be variable but heating costs may be fixed) Finishing department hourly laborersdirect, variable (or fixed if the laborers are under a union contract) Mixing department managerindirect, fixed Materials handlersdepends on how they are paid. If paid hourly and not under union contract, then indirect, variable. If salaried or under union contract, then indirect, fixed Custodian in factoryindirect, fixed Night guard in factoryindirect, fixed Machinist (running the mixing machine)depends on how they are paid. If paid hourly and not under union contract, then indirect, variable. If salaried or under union contract, then indirect, fixed Machine maintenance personnelindirect, probably fixed, if salaried, but may be variable if paid only for time worked and maintenance increases with increased production Maintenance suppliesindirect, variable Cleaning suppliesindirect, most likely fixed because the custodians probably do the same amount of cleaning every night 2-3 2. If the cost object is Mixing Department, then anything directly associated with the Mixing Department will be a direct cost. This will include: Depreciation on mixing machines Mixing Department manager Materials handlers (of the Mixing Department) Machinist (running the mixing machines) Machine Maintenance personnel (of the Mixing Department) Maintenance supplies (if separately identified for the Mixing Department) Of course the yeast and flour will also be a direct cost of the Mixing Department, but it is already a direct cost of each kind of bread produced. 2-18 (15-20 min.) Classification of costs, service sector. Market Focus is a marketing research firm that organizes focus groups for consumer-product companies. Each focus group has eight individuals who are paid $60 per session to provide comments on new products. These focus groups meet in hotels and are led by a trained, independent marketing specialist hired by Market Focus. Each specialist is paid a fixed retainer to conduct a minimum number of sessions and a per session fee of $2,200. A Market Focus staff member attends each session to ensure that all the logistical aspects run smoothly. Required: Classify each cost item (A-H) as follows: a. Direct or indirect (D or I) costs of each individual focus group. b. Variable or fixed (V or F) costs of how the total costs of Market Focus change as the number of focus groups conducted changes. (If in doubt, select on the basis of whether the total costs will change substantially if there is a large change in the number of groups conducted.) You will have two answers (D or I; V or F) for each of the following items: Cost Item D or I V or F A. Payment to individuals in each focus group to provide comments on new products B. Annual subscription of Market Focus to Consumer Reports magazine C. Phone calls made by Market Focus staff member to confirm individuals will attend a focus group session (Records of individual calls are not kept.) D. Retainer paid to focus group leader to conduct 18 focus groups per year on new medical products E. Recruiting cost to hire marketing specialists F. Lease payment by Market Focus for corporate office G. Cost of tapes used to record comments made by individuals in a focus group session (These tapes are sent to the company whose products are being tested.) H. Gasoline costs of Market Focus staff for company-owned vehicles (Staff members submit monthly bills with no mileage breakdowns.) I. Costs incurred to improve the design of focus groups to make them more effective SOLUTION Cost object: Each individual focus group 2-4 Cost variability: With respect to the number of focus groups There may be some debate over classifications of individual items, especially with regard to cost variability. Cost Item A B C D E F G H I D or I D I I I I I D I I V or F V F Va F V F V Vb F a Some students will note that phone call costs are variable when each call has a separate charge. It may be a fixed cost if Market Focus has a flat monthly charge for a line, irrespective of the amount of usage. b Gasoline costs are likely to vary with the number of focus groups. However, vehicles likely serve multiple purposes, and detailed records may be required to examine how costs vary with changes in one of the many purposes served. 2-19 (15-20 min.) Classification of costs, merchandising sector. Band Box Entertainment (BBE) operates a large store in Atlanta, Georgia. The store has both a movie (DVD) section and a music (CD) section. BBE reports revenues for the movie section separately from the music section. Required: Classify each cost item (A-H) as follows: a. Direct or indirect (D or I) costs of the total number of DVDs sold. b. Variable or fixed (V or F) costs of how the total costs of the movie section change as the total number of DVDs sold changes. (If in doubt, select on the basis of whether the total costs will change substantially if there is a large change in the total number of DVDs sold.) You will have two answers (D or I; V or F) for each of the following items: Cost Item D or I V or F A. Annual retainer paid to a video distributor B. Cost of store manager's salary C. Costs of DVDs purchased for sale to customers D. Subscription to DVD Trends magazine E. Leasing of computer software used for financial budgeting at the BBE store F. Cost of popcorn provided free to all customers of the BBE store G. Cost of cleaning the store every night after closing H. Freight-in costs of DVDs purchased by BBE SOLUTION Cost object: DVDs sold in movie section of store Cost variability: With respect to changes in the number of DVDs sold 2-5 There may be some debate over classifications of individual items, especially with regard to cost variability. Cost Item A B C D E F G H 2-20 D or I D I D D I I I D V or F F F V F F V F V (15-20 min.) Classification of costs, manufacturing sector. The Kitakyushu, Japan, plant of Nissan Motor Corporation assembles two types of cars (Teanas and Muranos). Separate assembly lines are used for each type of car. Required: Classify each cost item (A-H) as follows: a. Direct or indirect (D or I) costs for the total number of Teanas assembled. b. Variable or fixed (V or F) costs depending on how total costs change as the total number of Teanas assembled changes. (If in doubt, select on the basis of whether the total costs will change substantially if there is a large change in the total number of Teanas assembled.) You will have two answers (D or I; V or F) for each of the following items: Cost Item D or I V or F A. Cost of tires used on Teanas B. Salary of public relations manager for Kitakyushu plant C. Annual awards dinner for Teana suppliers D. Cost of lubricant used on the Teana assembly line E. Freight costs of Teana engines shipped from Yokohama to Kitakyushu F. Electricity costs for Teana assembly line (single bill covers entire plant) G. Wages paid to temporary assembly-line workers hired in periods of high Teana production (paid on hourly basis) H. Annual fire-insurance policy cost for Kitakyushu plant SOLUTION Cost object: Type of car assembled (Teana or Murano) Cost variability: With respect to changes in the number of Teanas assembled There may be some debate over classifications of individual items, especially with regard to cost variability. Cost Item A B C D or I D I D V or F V F F 2-6 D E F G H 2-21 D D I D I V V V V F (20 min.) Variable costs, fixed costs, total costs. Bridget Ashton is getting ready to open a small restaurant. She is on a tight budget and must choose between the following long-distance phone plans: Plan A: Pay 10 cents per minute of long-distance calling. Plan B: Pay a fixed monthly fee of $15 for up to 240 long-distance minutes and 8 cents per minute thereafter (if she uses fewer than 240 minutes in any month, she still pays $15 for the month). Plan C: Pay a fixed monthly fee of $22 for up to 510 long-distance minutes and 5 cents per minute there- after (if she uses fewer than 510 minutes, she still pays $22 for the month). Required: 1. Draw a graph of the total monthly costs of the three plans for different levels of monthly long-distance calling. 2. Which plan should Ashton choose if she expects to make 100 minutes of long-distance calls? 240 minutes? 540 minutes? SOLUTION 1. Minutes/month Plan A ($/month) Plan B ($/month) Plan C ($/month) 0 0 15 22 50 5 15 22 100 10 15 22 150 15 15 22 200 20 15 22 240 24 15 22 300 30 19.80 22 327.5 32.75 22 22 350 35 23.80 22 400 40 27.80 22 450 45 31.80 22 510 540 51 54 36.60 39 22 23.50 600 60 43.80 26.50 650 65 47.80 29 2. In each region, Ashton chooses the plan that has the lowest cost. From the graph (or from calculations)*, we can see that if Ashton expects to use 0-150 minutes of long-distance each month, she should buy Plan A; for 150-327.5 minutes, Plan B; and for more than 327.5 minutes, Plan C. If Ashton plans to make 100 minutes of long-distance calls each month, she should choose Plan A; for 240 minutes, choose Plan B; for 540 minutes, choose Plan C. *Let x be the number of minutes when Plan A and Plan B have equal cost $0.10x = $15 2-7 x = $15 $0.10 per minute = 150 minutes. Let y be the number of minutes when Plan B and Plan C have equal cost $15 + $0.08 (y - 240) = $22 $0.08 (y - 240) = $22 - $15 = $7 $7 87.5 y - 240 = $0.08 y = 87.5 + 240 = 327.5 minutes 2-22 (15-20 min.) Variable costs and fixed costs. Beacher Motors specializes in producing one specialty vehicle. It is called Surfer and is styled to easily fit multiple surfboards in its back area and top-mounted storage racks. Beacher has the following manufacturing costs: Plant management costs, $1,200,000 per year Cost of leasing equipment, $1,800,000 per year Workers' wages, $700 per Surfer vehicle produced Direct materials costs: Steel, $1,500 per Surfer; Tires, $125 per tire, each Surfer takes 5 tires (one spare). City license, which is charged monthly based on the number of tires used in production: 0-500 tires $ 50,000 501-1,000 tires $ 74,500 more than 1,000 tires $200,000 Beacher currently produces 110 vehicles per month. Required: 1. What is the variable manufacturing cost per vehicle? What is the fixed manufacturing cost per month? 2. Plot a graph for the variable manufacturing costs and a second for the fixed manufacturing costs per month. How does the concept of relevant range relate to your graphs? Explain. 3. What is the total manufacturing cost of each vehicle if 100 vehicles are produced each month? 225 vehicles? How do you explain the difference in the manufacturing cost per unit? SOLUTION 1. Variable manufacturing cost per vehicle Steel $1,500 per Surfer Tires 625 per Surfer Direct manufacturing labor 700 per Surfer Total $2,825 per Surfer Fixed manufacturing costs per month Plant management costs ($1,200,000 12) $ 100,000 Cost of leasing equipment ($1,800,000 12) 150,000 City license (for 110 surfers or 550 tires) 74,500 Total fixed manufacturing costs $324,500 Fixed costs per month (1 surfer takes 5 tires) 0 to 100 surfers per month = $100,000 + $150,000 + $50,000 = $300,000 101 to 200 surfers per month = $100,000 + $150,000 + $74,500 = $324,500 2-8 More than 200 surfers per month = $100,000 + $150,000 + $200,000 = $450,000 2. The concept of relevant range is potentially relevant for both graphs. However, the question does not place restrictions on the unit variable costs. The relevant range for the total fixed costs is from 0 to 100 surfers; 101 to 200 surfers; more than 200 surfers. Within these ranges, the total fixed costs do not change in total. 3. Vehicles Produced per Month (1) (a) 100 Tires Produced per Month (2) = (1) 5 500 Fixed Cost per Month (3) $300,000 Unit Fixed Cost per Vehicle (4) = FC (1) $300,000 100 = $3,000 Unit Variable Cost per Vehicle (5) $2,825 Unit Total Cost per Vehicle (6) = (4) + (5) $5,825 (b) 225 1,125 $450,000 $450,000 225 = $2,000 $2,825 $4,825 The unit cost for 100 vehicles produced per month is $5,825, while for 225 vehicles it is only $4,825. This difference is caused by the fixed cost increment of $150,000 (an increase of 50%, $150,000 $300,000 = 50%) being spread over an increment of 125 (225 - 100) vehicles (an increase of 125%, 125 100). The fixed cost per unit is therefore lower. 2-23 (20 min.) Variable costs, fixed costs, relevant range. Dotball Candies manufactures jaw-breaker candies in a fully automated process. The machine that produces candies was purchased recently and can make 4,400 per month. The machine costs $9,500 and is depreciated using straight-line depreciation over 10 years assuming zero residual value. Rent for the factory space and warehouse and other fixed manufacturing overhead costs total $1,300 per month. Dotball currently makes and sells 3,100 jaw-breakers per month. Dotball buys just enough materials each month to make the jaw-breakers it needs to sell. Materials cost 10 cents per jawbreaker. Next year Dotball expects demand to increase by 100%. At this volume of materials purchased, it will get a 10% discount on price. Rent and other fixed manufacturing overhead costs will remain the same. Required: 2-9 1. What is Dotball's current annual relevant range of output? 2. What is Dotball's current annual fixed manufacturing cost within the relevant range? What is the annual variable manufacturing cost? 3. What will Dotball's relevant range of output be next year? How, if at all, will total annual fixed and variable manufacturing costs change next year? Assume that if it needs to Dotball could buy an identical machine at the same cost as the one it already has. SOLUTION 1. The production capacity is 4,400 jaw breakers per month. Therefore, the current annual relevant range of output is 0 to 4,400 jaw breakers 12 months = 0 to 52,800 jaw breakers. 2. Current annual fixed manufacturing costs within the relevant range are $1,300 12 = $15,600 for rent and other overhead costs, plus $9,500 10 = $950 for depreciation, totaling $16,550. The variable costs, the materials, are 10 cents per jaw breaker, or $3,720 ($0.10 per jaw breaker 3,100 jaw breakers per month 12 months) for the year. 3. If demand changes from 3,100 to 6,200 jaw breakers per month, or from 3,100 12 = 37,200 to 6,200 12 = 74,400 jaw breakers per year, Sweetum will need a second machine. Assuming Sweetum buys a second machine identical to the first machine, it will increase capacity from 4,400 jaw breakers per month to 8,800. The annual relevant range will be between 4,400 12 = 52,800 and 8,800 12 = 105,600 jaw breakers. Assume the second machine costs $9,500 and is depreciated using straight-line depreciation over 10 years and zero residual value, just like the first machine. This will add $950 of depreciation per year. Fixed costs for next year will increase to $17,500 from $16,550 for the current year + $950 (because rent and other fixed overhead costs will remain the same at $15,600). That is, total fixed costs for next year equal $950 (depreciation on first machine) + $950 (depreciation on second machine) + $15,600 (rent and other fixed overhead costs). The variable cost per jaw breaker next year will be 90% $0.10 = $0.09. Total variable costs equal $0.09 per jaw breaker 74,400 jaw breakers = $6,696. If Sweetum decides not to increase capacity and meet only that amount of demand for which it has available capacity (4,400 jaw breakers per month or 4,400 12 = 52,800 jaw breakers per year), the variable cost per unit will be the same at $0.10 per jaw breaker. Annual total variable manufacturing costs will increase to $0.10 4,400 jaw breakers per month 12 months = $5,280. Annual total fixed manufacturing costs will remain the same, $16,550. 2-10 2-25 (10-15 min.) Cost drivers and functions. The representative cost drivers in the right column of this table are randomized so they do not match the list of functions in the left column. Function Representative Cost Driver 1. 2. 3. 4. 5. 6. 7. A. Number of invoices sent B. Number of purchase orders C. Number of research scientists D. Hours of computer processing unit (CPU) E. Number of employees hired F. Number of payments processed G. Number of pallets moved Accounts payable Recruiting Data processing Research and development Purchasing Warehousing Billing Required: 1. Match each function with its representative cost driver. 2. Give a second example of a cost driver for each function. SOLUTION 1. Function 1. Accounts payable 2. Recruiting 3. Data processing 4. Research and development 5. Purchasing 6. Warehousing 7. Billing Representative Cost Driver Number of payments processed Number of employees hired Hours of computer processing unit (CPU) Number of research scientists Number of purchase orders Number of pallets moved Number of invoices sent Function 1. Accounts payable 2. Recruiting 3. Data Processing 4. Research and Development 5. Purchasing 6. Warehousing 7. Billing Representative Cost Driver Number of supplier invoices received Number of interviews conducted Number of computer transactions Number of new products being developed Number of different types of materials purchased Distance of deliveries made Number of credit sales transactions 2. 2-11 2-28 (20-30 min.) Inventoriable costs versus period costs. Each of the following cost items pertains to one of these companies: Star Market (a merchandising-sector company), Maytag (a manufacturing-sector company), and Yahoo! (a service-sector company): a. Cost of lettuce and tomatoes on sale in Star Market's produce department b. Electricity used to provide lighting for assembly-line workers at a Maytag refrigeratorassembly plant c. Depreciation on Yahoo!'s computer equipment used to update its Website d. Electricity used to provide lighting for Star Market's store aisles e. Depreciation on Maytag's computer equipment used for quality testing of refrigerator components during the assembly process f. Salaries of Star Market's marketing personnel planning local-newspaper advertising campaigns g. Perrier mineral water purchased by Yahoo! for consumption by its software engineers h. Salaries of Yahoo!'s marketing personnel selling advertising i. Depreciation on vehicles used to transport Maytag refrigerators to retail stores Required: 1. Distinguish between manufacturing-, merchandising-, and service-sector companies. 2. Distinguish between inventoriable costs and period costs. 3. Classify each of the cost items (a-h) as an inventoriable cost or a period cost. Explain your answers. SOLUTION 1. Manufacturing-sector companies purchase materials and components and convert them into different finished goods. Merchandising-sector companies purchase and then sell tangible products without changing their basic form. Service-sector companies provide services or intangible products to their customersfor example, legal advice or audits. Only manufacturing and merchandising companies have inventories of goods for sale. 2. Inventoriable costs are all costs of a product that are regarded as an asset when they are incurred and then become cost of goods sold when the product is sold. These costs for a manufacturing company are included in work-in-process and finished goods inventory (they are \"inventoried\") to build up the costs of creating these assets. Period costs are all costs in the income statement other than cost of goods sold. These costs are treated as expenses of the period in which they are incurred because they are presumed not to benefit future periods (or because there is not sufficient evidence to conclude that such benefit exists). Expensing these costs immediately best matches expenses to revenues. 3. (a) Lettuce and tomatoes purchased for resale by Star marketinventoriable cost of a merchandising company. It becomes part of cost of goods sold when the lettuce and tomatoes are sold. 2-12 (b) Electricity used for lighting at Maytag refrigerator assembly plantinventoriable cost of a manufacturing company. It is part of the manufacturing overhead that is included in the manufacturing cost of a refrigerator finished good. (c) Depreciation on Yahoo!'s computer equipment used to update directories of websites period cost of a service company. Yahoo! has no inventory of goods for sale and, hence, no inventoriable cost. (d) Electricity used to provide lighting for Star Market's store aislesperiod cost of a merchandising company. It is a cost that benefits the current period, and it is not traceable to goods purchased for resale. (e) Depreciation on Maytag's assembly testing equipmentinventoriable cost of a manufacturing company. It is part of the manufacturing overhead that is included in the manufacturing cost of a refrigerator finished good. (f) Salaries of Star Market's marketing personnelperiod cost of a merchandising company. It is a cost that is not traceable to goods purchased for resale. It is presumed not to benefit future periods (or at least not to have sufficiently reliable evidence to estimate such future benefits). (g) Perrier mineral water consumed by Yahoo!'s software engineersperiod cost of a service company. Yahoo! has no inventory of goods for sale and, hence, no inventoriable cost. (h) Salaries of Yahoo!'s marketing personnelperiod cost of a service company. Yahoo! has no inventory of goods for sale and, hence, no inventoriable cost. 2-29 (20 min.) Computing cost of goods purchased and cost of goods sold. The following data are for Marvin Department Store. The account balances (in thousands) are for 2014. Marketing, distribution, and customer-service costs Merchandise inventory, January 1, 2014 Utilities General and administrative costs Merchandise inventory, December 31, 2014 Purchases Miscellaneous costs Transportation-in Purchase returns and allowances Purchase discounts Revenues $ 37,000 27,000 17,000 43,000 34,000 155,000 4,000 7,000 4,000 6,000 280,000 Required: 1. Compute (a) the cost of goods purchased and (b) the cost of goods sold. 2. Prepare the income statement for 2014. 2-13 SOLUTION 1a. Marvin Department Store Schedule of Cost of Goods Purchased For the Year Ended December 31, 2014 (in thousands) Purchases Add transportation-in Deduct: Purchase returns and allowances Purchase discounts $155,000 7,000 162,000 $4,000 6,000 Cost of goods purchased 10,000 $152,000 1b. Marvin Department Store Schedule of Cost of Goods Sold For the Year Ended December 31, 2014 (in thousands) Beginning merchandise inventory 1/1/2014 Cost of goods purchased (see above) Cost of goods available for sale Ending merchandise inventory 12/31/2014 Cost of goods sold $ 27,000 152,000 179,000 34,000 $145,000 2. Marvin Department Store Income Statement Year Ended December 31, 2014 (in thousands) Revenues Cost of goods sold (see above) Gross margin Operating costs Marketing, distribution, and customer service costs Utilities General and administrative costs Miscellaneous costs Total operating costs Operating income $280,000 145,000 135,000 $37,000 17,000 43,000 4,000 101,000 $ 34,000 2-14 2-15 2-30 (20 min.) Cost of goods purchased, cost of goods sold, and income statement. The following data are for Montgomery Retail Outlet Stores. The account balances (in thousands) are for 2014. Marketing and advertising costs Merchandise inventory, January 1, 2014 Shipping of merchandise to customers Building depreciation Purchases General and administrative costs Merchandise inventory, December 31, 2014 Merchandise freight-in Purchase returns and allowances Purchase discounts Revenues $ 48,000 90,000 4,000 8,400 520,000 64,000 104,000 20,000 22,000 18,000 640,000 Required: 1. Compute (a) the cost of goods purchased and (b) the cost of goods sold. 2. Prepare the income statement for 2014. SOLUTION 1a. Montgomery Retail Outlet Stores Schedule of Cost of Goods Purchased For the Year Ended December 31, 2014 (in thousands) Purchases Add freightin Deduct: Purchase returns and allowances Purchase discounts $520,000 20,000 540,000 $22,000 18,000 Cost of goods purchased 40,000 $500,000 1b. Montgomery Retail Outlet Stores Schedule of Cost of Goods Sold For the Year Ended December 31, 2014 (in thousands) Beginning merchandise inventory 1/1/2014 Cost of goods purchased (see above) Cost of goods available for sale Ending merchandise inventory 12/31/2014 Cost of goods sold $ 90,000 500,000 590,000 104,000 $486,000 2-16 2. Montgomery Retail Outlet Stores Income Statement Year Ended December 31, 2014 (in thousands) Revenues Cost of goods sold (see above) Gross margin Operating costs Marketing and advertising costs Building depreciation Shipping of merchandise to customers General and administrative costs Total operating costs Operating income 2-31 $640,000 486,000 154,000 $48,000 8,400 4,000 64,000 124,400 $ 29,600 (20 min.) Flow of Inventoriable Costs. Renka's Heaters selected data for October 2014 are presented here (in millions): Direct materials inventory 10/1/2014 Direct materials purchased Direct materials used Total manufacturing overhead costs Variable manufacturing overhead costs Total manufacturing costs incurred during October 2014 Work-in-process inventory 10/1/2014 Cost of goods manufactured Finished goods inventory 10/1/2014 Cost of goods sold $ 105 365 385 450 265 1,610 230 1,660 130 1,770 Required: Calculate the following costs: 1. Direct materials inventory 10/31/2014 2. Fixed manufacturing overhead costs for October 2014 3. Direct manufacturing labor costs for October 2014 4. Work-in-process inventory 10/31/2014 5. Cost of finished goods available for sale in October 2014 6. Finished goods inventory 10/31/2014 SOLUTION (All numbers below are in millions). 1. Direct materials inventory 10/1/2014 Direct materials purchased Direct materials available for production Direct materials used $ 2-17 105 365 470 (385) Direct materials inventory 10/31/2014 2. Total manufacturing overhead costs Subtract: Variable manufacturing overhead costs Fixed manufacturing overhead costs for October 2014 3. Total manufacturing costs Subtract: Direct materials used (from requirement 1) Total manufacturing overhead costs Direct manufacturing labor costs for October 2014 4. Work-in-process inventory 10/1/2014 Total manufacturing costs Work-in-process available for production Subtract: Cost of goods manufactured (moved into FG) Work-in-process inventory 10/31/2014 5. Finished goods inventory 10/1/2014 Cost of goods manufactured (moved from WIP) Cost of finished goods available for sale in October 2014 6. Finished goods available for sale in October 2014 (from requirement 5) Subtract: Cost of goods sold Finished goods inventory 10/31/2014 2-18 $ 85 $ 450 (265) 185 $ $ 1,610 (385) (450) $ 775 $ 230 1,610 1,840 (1,660) $ 180 $ 130 1,660 $ 1,790 $ 1,790 (1,770) $ 20 2-19