Understanding Product and Period Costs in Financial Accounting
School
Los Angeles City College**We aren't endorsed by this school
Course
ACCOUNTING 1
Subject
Accounting
Date
Dec 11, 2024
Pages
26
Uploaded by KidMetal9905
Financial Accounting: Product vs PeriodProduct Cost Flow: DM, DL, OHPeriod Costs : Selling &AdministrativeCost Behavior: VC, FCDM, DL, OH are driven by production units.Marketing(selling) costs are driven by sales units.
Chapter 6 d costs
Master Budget (Focus on COST related budgets)
Sales BudgetSales unitsPriceSales RevenueProduction budgetBudgeted sales in Units+Ending finished goodsTotal required-Beginning finished goods= Budgeted production units
DM usage (with FIFO assumed)Usage quantityUsage in $DM purchasePurchase quantityDM usage quantity+RM Ending-RM beginning=DM purchase quantityPurchase in $
Direct laborDL hoursRate DL cost
Ovehead BudgetVariable OverheadFixed OverheadTotal OverheadOverhead rate
TCX2-5B79-EAB0-4350-7EC6ANS: B6-16 Master budget. Which of the following statements is correct regarding the componena.The cash budget is used to create the capital budget. b.Operating budgets are used to create cash budgets. c.The manufacturing overhead budget is used to create the production budget. d.The cost of goods sold budget is used to create the selling and administrative expense budg
nts of the master budget? get.
ANS: A6-17Operating and financial budgets. Which of the following statements is correct regarding the drivers of operating and financial budgets? a.The sales budget will drive the cost of goods sold budget. b.The cost of goods sold budget will drive the units of production budget. c.The production budget will drive the selling and administrative expense budget. d.The cash budget will drive the production and selling and administrative expense budgets.
correct regarding t. nse budgets.
6-18Production budget. Superior Industries sales budget shows quarterly sales for the next year asfollows: Quarter 1–10,000; Quarter 2–8,000; Quarter 3–12,000; Quarter 4–14,000. Company policy is tohave a target finished-goods inventory at the end of each quarter equal to 20% of the next quarter’s sales.Budgeted production for the second quarter of next year would be: 1. 7,200 units; 2. 8,800 units; 3. 12,000 units; 4. 10,400 units SOLUTION Production budget. Choice "2" is correct. 8,800 units are the budgeted production for the second quarter. The calculation proceeds with first determining the beginning inventory for the second quarsecond quarter sales, 8,000 units = 1,600 units) and the ending inventory for the second quathird quarter sales, 12,000 units = 2,400 units). We then use the following equation to calcufor the second quarter: Beginning inventory + Production = Sales + Ending inventory
Beginning inventory + Production = Sales + Ending inventory Production = Sales + Ending inventory –Beginning inventory = 8,000 + 2,400 – 1,600 = 8,800 units Check: Second Quarter Beginning inventory (20% × 8,000) 1,600 units Add Production (plug) 8,800 units 10,400 units Deduct Sales 8,000 units Ending inventory (20% × 12,000) 2,400 units
e next year asny policy is toquarter’s sales.rter (20% × arter (20% × ulate production
6-27Budgeting; direct material usage, manufacturing cost, and gross margin. Xander ManufacturingCompany manufactures blue rugs, using wool and dye as direct materials. One rug is budgeted to use 36skeins of wool at a cost of $2 per skein and 0.8 gallons of dye at a cost of $6 per gallon. All other materialsare indirect. At the beginning of the year Xander has an inventory of 458,000 skeins of wool at a cost of$961,800 and 4,000 gallons of dye at a cost of $23,680. Target ending inventory of wool and dye is zero.Xander uses the FIFO inventory cost-flow method. Xander blue rugs are very popular and demand is high, but because of capacity constraints the firm willproduce only 200,000 blue rugs per year. The budgeted selling price is $2,000 each. There are no rugs inbeginning inventory. Target ending inventory of rugs is also zero. Xander makes rugs by hand, but uses a machine to dye the wool. Thus, overhead costs are accumulatedin two cost pools—one for weaving and the other for dyeing. Weaving overhead is allocated to productsbased on direct manufacturing labor-hours (DMLH). Dyeing overhead is allocated to products based onmachine-hours (MH). There is no direct manufacturing labor cost for dyeing. Xander budgets 62 direct manufacturing labor-hours to weave a rug at a budgeted rate of $13 per hour. It budgets 0.2 machine-hours to dye each skein inthe dyeing process. The following table presents the budgeted overhead costs for the dyeing and weaving cost pools: Required: 1.Prepare a direct materials usage budget in both units and dollars. 2.Calculate the budgeted overhead allocation rates for weaving and dyeing. 3.Calculate the budgeted unit cost of a blue rug for the year. SOLUTION (30 min.)Budgeting: direct material usage, manufacturing cost, and gross margin. 1. Direct Material Usage Budget in Quantity and Dollars Material Wool Dye Total hysical Units Budget rect materials required for lue Rugs (200,000 rugs × 36 skeins and 0.8 gal.) 7,200,000 skeins 160,000 gal.
1. Direct Material Usage Budget in Quantity and Dollars Material Wool Dye Total hysical Units Budget rect materials required for lue Rugs (200,000 rugs × 36 skeins and 0.8 gal.) 7,200,000 skeins 160,000 gal. ost Budget vailable from beginning direct materials inventory: ) Wool: 458,000 skeins $ 961,800 ye: 4,000 gallons $ 23,680 o be purchased this period: (b) Wool: (7,200,000 – 458,000) skeins × $2 per skein 13,484,000 ye: (160,000 – 4,000) gal. × $6 per gal. 936,000 rect materials to be used this period: (a) + (b) $14,445,800 $ 959,680 $15,405,480 2. Weaving budgetedoverhead rate= $31,620,00012,400,000 DMLH= $2.55 per DMLH Dyeing budgetedoverhead rate= $17,280,0001,440,000 MH= $12 per MH 3. Budgeted Unit Cost of Blue RugCost per Unit of Input Input per Unit of OutputTotalWool $ 2 36 skeins $ 72.00 Dye 6 0.8 gal. 4.80 Direct manufacturing labor 13 62 hrs. 806.00 Dyeing overhead 12 7.21mach-hrs. 86.40 Weaving overhead 2.55 62 DMLH 158.10 Total $1,127.30
DM usagage in # and in $WoolDye#7200000160000$FIFO#unit cost$#unit cost$Beginning458000$2.10$961,800.004000$5.92$23,680.00From new6742000$2.00 $13,484,000.00156000$6.00 $936,000.00Total$14,445,800.00$959,680.00Overhead budgetDyeingWeavingTotal Cost driverOH rateBugeted Cost per rugDMDLOHTotal Cost per unitManufacturinggeted to use 36other materialsool at a cost ofand dye is zero.nts the firm wille are no rugs inare accumulatedted to productsducts based onfacturing labor-ye each skein int pools: ss ye Total 000 gal.
ye Total 000 gal. 680 000 680 $15,405,480 l0 0 0 0 0 0
DM usagage in # and in $#Wool10450000$FIFO#unit cost$Beginning456000 $ 2.30 $ 1,048,800.00 From new9994000 $ 7.00 $ 69,958,000.00 Total$ 71,006,800.00 Overhead budgetDyeingWeavingTotal 1755600031680000Cost driver313500013200000OH rate5.602.40Bugeted Cost per rugDMDyeingCost per unit of inputInput per unit of output438152DLOHTotal Cost per unit71,974,060224400000
49236000345,610,06025290800320,319,260
Dye192500#unit cost$3400$ 6.40 $ 21,760.00 189100$ 5.00 $ 945,500.00 $ 967,260.00 $ 71,974,060.00 WeavingCost per unit of inputInput per unit of output70.74.9
4200087002500482000.85$40,970Coles Company, Inc. makes and sells a single product, Product R. Three yards of Material K are neone unit of Product R. Budgeted production of Product R (expressed in units) for the next five monAugust 14,000 September 14,500 October 15,500 November 12,600 December 11,900 The company wants to maintain monthly ending inventories of Material K equal to 20% of the folloproduction needs. On July 31, this requirement was not met since only 2,500 yards of Material K wecost of Material K is $.85 per yard. The company wants to prepare a Direct Materials Purchase Budgthe year. The total cost of Material K to be purchased in August is: A) $40,970. B) $48,200. C) $33,840. D) $42,300.
DM used in production42000+RM Ending8700-RM Beginning2500= RM purchases48200 yards$40,970eeded to make nths is as follows: owing month's ere on hand. The get for the rest of