Chapter 14: Problem Set B

Here’s how to approach each of these problems, based on the instructions: Problem 14-1B: Classifying Costs and Computing Cost per Unit 1. Classify Each Cost as Product or Period: o Product costs include all costs related to manufacturing the Blu-ray discs, such as materials, labor, and factory overhead. o Period costs include selling, administrative, and other nonmanufacturing expenses. 2. Calculate the Average Manufacturing Cost per BD: o Total Manufacturing Cost = Sum of all Product Costs o Average Manufacturing Cost per BD = Total Manufacturing Cost / 18,000 BDs Solution Steps: • • • Step 1: Review each listed cost, and categorize it as a product or period cost. Step 2: Sum up the product costs. Step 3: Divide the total product costs by 18,000 to get the cost per BD. Problem 14-2B: Classifying Costs For Best Bikes’ year-end data: 1. Identify Each Cost as Either Product or Period: o Product costs will fall under Direct Materials, Direct Labor, and Factory Overhead. o Period costs will be either Selling Expenses or General and Administrative Expenses. Solution Steps: • • • Step 1: Go through each cost item. Step 2: If it’s a product cost, specify whether it is direct materials, direct labor, or factory overhead. Step 3: If it’s a period cost, classify it as a selling or general and administrative expense. Problem 14-3B: Schedule of Cost of Goods Manufactured and Income Statement 1. Prepare the Schedule of Cost of Goods Manufactured (COGM): o Direct Materials Used = Beginning Materials Inventory + Purchases - Ending Materials Inventory o Total Manufacturing Costs = Direct Materials Used + Direct Labor + Factory Overhead o COGM = Beginning WIP + Total Manufacturing Costs - Ending WIP 2. Prepare the Income Statement: o Sales Revenue o Cost of Goods Sold (COGS) = Beginning Finished Goods Inventory + COGM - Ending Finished Goods Inventory o Gross Profit = Sales Revenue - COGS o Deduct Operating Expenses (Selling and Administrative) from Gross Profit to get Net Income. Solution Steps: • • • Step 1: Use the additional information to calculate Direct Materials Used. Step 2: Complete the schedule of COGM. Step 3: Prepare the income statement using COGM and the provided sales and expenses. Problem 14-4B: Reporting Cost of Goods Sold 1. Prepare the Cost of Goods Sold (COGS) Section for both the merchandising and manufacturing companies: o For a Merchandiser: COGS = Beginning Inventory + Purchases Ending Inventory o For a Manufacturer: COGS = Beginning Finished Goods Inventory + COGM - Ending Finished Goods Inventory 2. Write a Memorandum: o Identify inventory accounts for each company. o Describe where each inventory type (raw materials, work-in-process, finished goods) appears on the income statement and/or balance sheet. Solution Steps: • • Step 1: Calculate COGS for both companies. Step 2: Draft a memo identifying inventory accounts and describing where they appear. Problem 14-5B: Raw Materials Inventory Turnover 1. Compute Raw Materials Inventory Turnover for each year: o Raw Materials Inventory Turnover = Raw Materials Used / Average Raw Materials Inventory o Average Raw Materials Inventory = (Beginning Inventory + Ending Inventory) / 2 2. Determine Favorability: o Compare turnover ratios for both years to see if the change indicates improved efficiency (higher turnover) or inefficiency (lower turnover). 3. Compute Days’ Sales in Raw Materials Inventory: o Days’ Sales in Inventory = 365 / Raw Materials Inventory Turnover Solution Steps: • • • Step 1: Use given data to find raw materials used and compute turnover for each year. Step 2: Compare ratios to determine favorability. Step 3: Calculate days’ sales in raw materials for the current year. If you have the specific data, I can help calculate these values or draft the memo. Let me know!