Unit 1 Exercises

Question 1.1

Disco Dance Electronics Corporation manufactures a portable music player designed for middle-aged customers. The following list represents some of the different types of costs incurred in the manufacture of these music players:

1) The plant manager's salary. 2) The cost of heating the plant. 3) The cost of heating executive offices. 4) The cost of printed circuit boards used in the music plyers. 5) Depreciation on office equipment used in the executive offices. 6) Depreciation on production equipment used in the plant. 7) Wages of janitorial personnel who clean the plant. 8) The cost of insurance on the plant building. 9) The cost of electricity to light the plant. 10) The cost of electricity to power plant equipment. 11) The cost of maintaining and repairing equipment in the plant. 12) The cost of printing promotional materials for trade shows. 13) The cost of solder used in assembling the music players. 14) The cost of telephone service for the executive offices.

Required:

1. Classify each of the items above as product (inventoriable) cost or period (noninventoriable) costs for the purpose of preparing external financial statements.

Question 1.2

Mr. Gadget has developed a new device that is so exciting he is considering quitting his job to produce and market it on a large-scale basis. Mr. Gadget will rent a garage for $300 per month for production purposes. Utilities will cost $40 per month. Mr. Gadget has already taken an industrial design course at the local community college to help prepare for this venture. The course cost $300. Mr. Gadget will rent production equipment at a monthly cost of $800. He estimates the material cost will be $5 per unit, and the labour cost will be $3 per unit. He will hire workers and spend his time promoting the product. He will quit his job, which pays $3,000 per month. Advertising and promotion will cost $900 per month.

Required:

1. Complete the chart below by placing an "X" under each heading that helps to identify the cost involved. You can place an "X" under more than one heading for a single cost: for example, a cost may be a sunk cost, an overhead cost, and a product cost; you would place an "X" under each of these headings opposite the cost.

*Betweenthealternativesofgoingintobusinesstomakethedeviceornotgoingintobusinesstomakethedeviceandcontinuewithhisjob.Seecolumnheading"DifferentialCost".

	Opportunity Cost	Sunk Cost	Variable Cost	Fixed Cost	Mfg. Overhead	Product Cost	Selling Cost	Differential Cost
Garage rent
Utilities
Cost of the industrial design course
Equipment rented
Material cost
Labour cost
Present salary
Advertising

Question 1.3

Lake Company recorded the following data for the month of January 2023:

Inventories	January 1, 2023	January 31, 2023
Direct Material	$24,000	$23,000
Work in Process	18,000	15,000
Finished Goods	22,000	27,000

AdditionalData:

Net Sales Revenue	$325,000
Direct Labour Costs	40,000
Indirect Labour Costs	45,000
Sales Commissions	15,000
Administrative Expenses	18,000
Direct Materials Purchased during January	30,000
Depreciation, factory	10,000
Factory Maintenance and Supplies	8,000
Utilities, (80% factory, 20% office)	25,000
General Office Salaries	12,000

Required:

1. Compute the amount of direct materials used in January.
2. List and total the Manufacturing Overhead costs for the month of January.
3. Compute the Cost of Goods Manufactured.

Hint:ItmaybehelpfultoprepareaCostofGoodsManufacturedstatementinroughformbutitisnotrequired.YoumayuseshortformsinyouranswersforDM,DLetc.

Question 1.4

The accounts for a manufacturing company for an accounting period are listed below.

Sales	$39,000
Cost of goods sold	?
Cost of goods manufactured	?
Purchases of direct materials	$11,000
Direct labour	$5,000
Finished goods inventory, beginning	$5,000
Work in process, beginning	$800
Work in process, ending	$3,000
Gross margin	$11,700
Finished goods inventory, ending	?
Accounts payable, beginning	$4,000
Accounts payable, ending	$2,800
Direct materials inventory, beginning	$1,000
Direct materials inventory, ending	$3,000
Direct materials used	?
Indirect labour	$2,000
Indirect materials used	$4,000
Utilities expense, factory	$3,000
Depreciation on factory equipment	$7,000

Required:

1. Find the unknown amounts indicated by question marks.