Question 1

The following data refer to Green Food Technology Ltd for the current year:

Sales

$3,200,000

Raw material inventory, 1 January

80,000

Purchases of raw material

1,000,000

Direct labour cost incurred

700,000

Other selling and administrative expenses

120,000

Indirect labour cost (60% for factory; 40% for selling & admin)

400,000

Other manufacturing expenses

150,000

Depreciation of building (80% for factory; 20% for selling & admin)

200,000

Depreciation of equipment (90% for factory; 10% for selling & admin)

160,000

Income tax expense

40,000

Indirect material used (all for factory)

30,000

Insurance on factory & equipment (70% for factory; 30% for selling & admin)

50,000

Electricity (75% for factory; 25% for selling & admin)

100,000

Work in process, 1 January

20,000

Finished goods inventory, 1 January

50,000

The company uses normal costing and manufacturing overhead is applied at the rate of 120% of direct labour cost.

During the year, the company has adopted the just-in-time inventory management. As a result, the company carry no inventories at the end of the year.

Required:

(a) Compute the manufacturing costs incurred for the current year.

(3 marks)

(b) Compute the cost of goods manufactured (COGM) for the current year.

(1 mark)

(c) Calculate the manufacturing overhead variance.

(5 marks)

(d) Compute the cost of goods sold (COGS) if the company closes overapplied or underapplied overhead cost into the cost of goods sold.

(3 marks)

(e) Calculate Green Food Technology Ltd's net profit for the year.

(6 marks)

(f) It has also been established that raw materials and direct labour are variable costs while the rest of the costs are fixed costs. Use your answer obtained from (a) above, compute the cost of goods manufactured and the cost of goods sold assuming that Green Food Technology Ltd had decreased its production and sales in the current year by 10%.

(7 marks)

(g) Use the results computed in (f), analyse the impact on the COGS.

(5 marks)