CASE 2-27 Missing Data; Income Statement; Schedule of Cost of Goods Manufactured [LO2, LO3, L04, L05] "I was sure that when our battery hit the market it would be an instant success," said Roger Strong, founder and president of Solar Technology, Inc. "But just look at the gusher of red ink for the first quarter. It's obvious that we're better scientists than we are businesspeople. At this rate we'll be out of business within a year." The data to which Roger was referring follow: Solar Technology, Inc. Income Statement For the Quarter Ended March 31 Sales (32,000 batteries) $ 960,000 Less operating expenses: Selling and administrative expenses $290,000 Manufacturing overhead 410,000 Purchases of raw materials 360,000 Direct labor 70,000 1,130,000 Net operating loss $ (170,000 Solar Technology was organized at the beginning of the current year to produce and market a revolutionary new solar battery. The company's accounting system was set up by Roger's brother- in-law who had taken an accounting course about 10 years ago. "We may not last a year if the insurance company doesn't pay the $226,000 it owes us for the 8,000 batteries lost in the warehouse fire last week," said Roger. "The insurance adjuster says our claim is inflated, but he's just trying to pressure us into a lower figure. We have the data to back up our claim, and it will stand up in any court." On April 3, just after the end of the first quarter, the company's finished goods storage area was swept by fire and all 8,000 unsold batteries were destroyed. (These batteries were part of the 40,000 units completed during the first quarter.) The company's insurance policy states that the company will be reimbursed for the "cost" of any finished batteries destroyed or stolen. Roger's brother-in-law has determined this cost as follows: Total costs for the quarter $1,130,000 Batteries produced during the quarter 40,000 units = $28.25 per unit 8,000 batteries X $28.25 per unit = $226,000Total costs for the quarter $1,130.000 Batteries produced during the quarter 40,000 units = $28.25 per unit 8,000 batteries * $28.25 per unit = $226,000 Inventories at the beginning and end of the quarter were as follows: Beginning of End of the Quarter the Quarter Raw materials $0 $10,000 Work in process $0 $50,000 Finished goods $0 ? Managerial Accounting and Cost Concepts 73 Required: 1. What conceptual errors, if any, were made in preparing the income statement above? 2. Prepare a schedule of cost of goods manufactured for the first quarter. 3. Prepare a corrected income statement for the first quarter. Your statement should show in de- tail how the cost of goods sold is computed. 4. Do you agree that the insurance company owes Solar Technology, Inc., $226,000? Explain your answer.PROBLEM 2-25 Working with Incomplete Data from the Income Statement and Schedule of Cost of Goods Manufactured [L04, L05] Supply the missing data in the following cases. Each case is independent of the others. Case 1 2 3 4 Schedule of Cost of Goods Manufactured Direct materials . . . . . . $4,500 $6,000 $5,000 $3,000 Direct labor. . . . . . . ? Manufacturing overhead $3,000 $7,000 $4,000 $5,000 Total manufacturing costs . $4,000 ? $9,000 $18,500 Beginning work in process inventory . ? $20,000 ? $2,500 7 Ending work in process inventory $3,000 7 Cost of goods manufactured . . . . . . . . ? $1,000 $4,000 $3,000 $18,000 $14,000 ? Income Statement Sales . . . . . . . . . . . . .. . $30,000 Beginning finished goods inventory . $21,000 $36,000 $40,000 $1,000 $2.500 Cost of goods manufactured . . . . . ? $2,000 $18,000 $14,000 Goods available for sale. . . . . . . $17,500 Ending finished goods inventory. ? 7 ? ? $1,500 $4,000 Cost of goods sold . . . . . . . $3,500 $17,000 Gross margin . . . . . . . . ? $18,500 $13,000 7 ? Selling and administrative expenses $17,500 ? Net operating income. . $3,500 ? $4,000 ? $5,000 $9,000excel PROBLEM 2-24 Income Statement; Schedule of Cost of Goods Manufactured [L02, L03, L04, L05] Visic Corporation, a manufacturing company, produces a single product. The following information has been taken from the company's production, sales, and cost records for the just completed year. Production in units . 29,000 Sales in units . . . ? Ending finished goods inventory in units . . 7 Sales in dollars . . . . .. $1,300,000 Costs: Direct labor. . . . . $90,000 Raw materials purchased $480,000 Manufacturing overhead . . . . . . . . . . . . $300,000 Selling and administrative expenses . . .... $380,000 Beginning of End of the Year the Year Inventories: Raw materials $20,000 $30,000 Work in process $50,000 $40,000 Finished goods SO ?Managerial Accounting and Cost Concepts 71 The finished goods inventory is being carried at the average unit production cost for the year. The selling price of the product is $50 per unit. Required: 1. Prepare a schedule of cost of goods manufactured for the year. 2. Compute the following: a. The number of units in the finished goods inventory at the end of the year. b. The cost of the units in the finished goods inventory at the end of the year. 3. Prepare an income statement for the year.PROBLEM 2-21 Schedule of Cost of Goods Manufactured; Income Statement; Cost Behavior [L02, L03, L04, L05, L06] Selected account balances for the year ended December 31 are provided below for Superior Company: Selling and administrative salaries . . . . . . . . . . . . $110,000 Purchases of raw materials . . . . . $290,000 Direct labor . . . . .. ? Advertising expense $80,000 Manufacturing overhead $270,000 Sales commissions . . $50,000 Inventory balances at the beginning and end of the year were as follows: Beginning of End of the Year the Year Raw materials . . .. $40,000 $10,000 Work in process . . ? $35,000 Finished goods $50,000 ? The total manufacturing costs for the year were $683,000; the goods available for sale totaled $740,000; and the cost of goods sold totaled $660,000. Required: 1 . Prepare a schedule of cost of goods manufactured and the cost of goods sold section of the company's income statement for the year. 2. Assume that the dollar amounts given above are for the equivalent of 40,000 units produced during the year. Compute the average cost per unit for direct materials used and the average cost per unit for manufacturing overhead. 3. Assume that in the following year the company expects to produce 50,000 units and manufac turing overhead is fixed. What average cost per unit and total cost would you expect to be in- curred for direct materials? For manufacturing overhead? (Assume that direct materials is a variable cost.) 4. As the manager in charge of production costs, explain to the president the reason for any dif- ference in average cost per unit between (2) and (3) above.PROBLEM 2-18 Schedule of Cost of Goods Manufactured; Income Statement; Cost Behavior [L02, L03, L04, L05, LOG] Various cost and sales data for Meriwell Company for the just completed year appear in the work- excel sheet below: 2 Microsoft Excel File Edit Wew Insert Format Tools Date Window Help 12 - B / 1 = = = % : 1.4. E17 A B CA 1 Finished goods inventory, beginning $20,000 2 Finished goods inventory, ending $40,000 3 Administrative expenses $110,000 4 Manufacturing overhead $105,000 5 Purchases of raw materials $125,000 6 Raw materials inventory, beginning $9,000 7 Raw materials inventory, ending $6,000 8 Direct labor $70,000 9 Work in process inventory, beginning $17,000 10 Work in process inventory, ending $30,000 11 Sales $500,000 12 Selling expenses $80,000 13 14 4 * * \\Sheetl ( Sheetz / Sheet3 / Of the $105,000 of manufacturing overhead, $15,000 is variable and $90,000 is fixed. Required: Prepare a schedule of cost of goods manufactured. 2. 3. Prepare an income statement. Assume that the company produced the equivalent of 10,000 units of product during the year just completed. What was the average cost per unit for direct materials? What was the average cost per unit for fixed manufacturing overhead? 4. Assume that the company expects to produce 15,000 units of product during the coming year. What average cost per unit and what total cost would you expect the company to incur for direct materials at this level of activity? For fixed manufacturing overhead? Assume that direct materials is a variable cost. 5. As the manager responsible for production costs, explain to the president any difference in the average costs per unit between (3) and (4) above.PROBLEM 2-16 Schedule of Cost of Goods Manufactured; Income Statement [102, L03, L04, LO5] excel Swift Company was organized on March 1 of the current year. After five months of start-up losses, management had expected to earn a profit during August. Management was disappointed, however, when the income statement for August also showed a loss. August's income statement follows: Swift Company Income Statement For the Month Ended August 31 Sales . . . . . . . $450,000 Less operating expenses: Direct labor cost . . . . . . . $ 70,000 Raw materials purchased 165,000 Manufacturing overhead 85,000 Selling and administrative expenses 142,000 462 000 Net operating loss. $ (12,000) After seeing the $12,000 loss for August, Swift's president stated, "I was sure we'd be profitable within six months, but our six months are up and this loss for August is even worse than July's. I think it's time to start looking for someone to buy out the company's assets-if we don't, within a few months there won't be any assets to sell. By the way, I don't see any reason to look for a new controller. We'll just limp along with Sam for the time being." The company's controller resigned a month ago. Sam, a new assistant in the controller's office, prepared the income statement above. Sam has had little experience in manufacturing operations. Inventory balances at the beginning and end of August were: August 1 August 31 Raw materials $8,000 $13,000 Work in process $16,000 $21,000 Finished goods . . . $40,000 $60,000 The president has asked you to check over the income statement and make a recommendation as to whether the company should look for a buyer for its assets. Required: 1. As one step in gathering data for a recommendation to the president, prepare a schedule of cost of goods manufactured for August. 2. 3. As a second step, prepare a new income statement for August. Based on your statements prepared in (1) and (2) above, would you recommend that the com- pany look for a buyer?EXERCISE 2-12 Product Cost Flows; Product versus Period Costs [L03, L04] The Devon Motor Company produces motorcycles. During April, the company purchased 8,000 batteries at a cost of $10 per battery. Devon withdrew 7,600 batteries from the storeroom during the month Of these, 100 were used to replace batteries in motorcycles used by the company's traveling sales staff. The remaining 7,500 batteries withdrawn from the storeroom were placed in motorcycles being produced by the company. Of the motorcycles in production during April, 90% were completed and transferred from work in process to finished goods. Of the motorcycles com- pleted during the month, 30% were unsold at April 30. There were no inventories of any type on April 1. Required: 1. Determine the cost of batteries that would appear in each of the following accounts at April 30: a. Raw Materials. b. Work in Process. Finished Goods. d. Cost of Goods Sold Selling Expense. 2. Specify whether each of the above accounts would appear on the balance sheet or on the in- come statement at April 30.EXERCISE 2-11 Preparing a Schedule of Costs of Goods Manufactured and Cost of Goods Sold [LO2, L04, L05] The following cost and inventory data are taken from the accounting records of Mason Company for the year just completed: Costs incurred: Direct labor cost . . .. $70,000 Purchases of raw materials . . $118,000 Manufacturing overhead $80,000 Advertising expense. . . . $90,000 Sales salaries . . . . .. $50,000 Depreciation, office equipment . . . $3,000 Beginning of End of the Year the Year Inventories: Raw materials . . . . .. $7,000 $15,000 Work in process . . . . . . . .. $10,000 $5,000 Finished goods. . - . . $20,000 $35,000 Required: 1. Prepare a schedule of cost of goods manufactured. 2. Prepare the cost of goods sold section of Mason Company's income statement for the year