Question
Scribble Incorporated is a small company in Western Maryland that manufactures pencils and pens. At the end of 2018, the company had the following inventory:
Scribble Incorporated is a small company in Western Maryland that manufactures pencils and pens. At the end of 2018, the company had the following inventory:
| Work-in-Process Inventory, 12/31/18 | $6,000 |
| Finished Goods Inventory, 12/31/18 | $2,000 |
They have provided the following per unit information regarding revenue and direct material costs for the fiscal year 2019:
| Pencil Revenue | $1.50 |
| Pen Revenue | $2.00 |
| Graphite for Pencils | $0.10 |
| Ink for Pens | $0.30 |
| Plastic for Pens | $0.12 |
| Wood for Pencils | $0.06 |
| Rubber for Pencil Erasers | $0.03 |
The company has also provided the following information related to 2019:
| Wages for Pencil Assembly Line Workers ($10/hour) | $100,000 |
| Wages for Pen Assembly Line Workers ($10/hour) | $100,000 |
| Salary for Assembly Stage Manager | $40,000 |
| Salary for Preparation Stage Manager | $40,000 |
| Salaries for 2 Office Employees | $40,000 |
| Salary for CEO | $40,000 |
| Depreciation on Assembly Plant Assets | $12,000 |
| Depreciation on Preparation Plant Assets | $8,000 |
| Depreciation on Office Building | $6,000 |
| Utilities for Office Building | $1,000 |
| Utilities for Assembly Stage | $1,200 |
| Utilities for Preparation Stage | $800 |
| Work in Process Inventory, 12/31/19 | $4,000 |
| Finished Goods Inventory, 12/31/19 | $3,000 |
The process of creating pencils and pens consists of two stages. The first stage of production is preparation. During this stage, the assembly line workers prepare the graphite, wood, ink, and plastic for the second stage of production assembly. The company has determined that direct labor hours and number of units sold (200,000 pencils and 100,000 pens) are the most accurate cost allocation bases in the preparation and assembly stages, respectively. Below is the amount of time that each product spends in the two different stages:
| Stage | Pencils | Pens |
| Preparation | 0.02 direct labor hours | 0.06 direct labor hours |
| Assembly | 0.03 direct labor hours | 0.04 direct labor hours |
The end goal is to calculate the operating income!
- What is the manufacturing overhead rate for the assembly stage?
- Calculate the cost per unit for a pencil using actual costing.
- Calculate the total cost for a pen using actual costing.
- Calculate the gross profit for each pencil.
- Calculate the gross profit for each pen.
- Calculate the Cost of Goods Manufactured for Scribble Inc. for 2019.
- Calculate the Cost of Goods Sold for Scribble Inc. for 2019.
- Calculate the Gross Profit for Scribble Inc. for 2019.
- Calculate the Operating Income for Scribble Inc. for 2019
Thank you so much!
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The ASQ Auditing Handbook
Authors: J. P. Russell
3rd Edition
0873896661, 978-0873896665
