Chapter 14: Problem Set A

Here’s a breakdown to solve each problem based on the instructions and accounting principles involved. Problem 14-1A: Classifying Costs and Computing Cost per Unit 1. Classify each cost as either a Product or Period cost. o Product costs are associated with the manufacturing process and include direct materials, direct labor, and manufacturing overhead. o Period costs are selling, administrative, and other costs not directly tied to the manufacturing process. 2. Calculate the average manufacturing cost per drum set. o Total Manufacturing Cost = Sum of all product costs o Average Manufacturing Cost per Unit = Total Manufacturing Cost / Number of Units (1,000 drum sets) Solution Steps: • • • Step 1: List each cost item and determine if it is a product or period cost. Step 2: For product costs, total the amount. Step 3: Divide the total product costs by 1,000 to find the cost per unit. Problem 14-2A: Classifying Costs For each listed cost in Leone Company’s year-end information: 1. Identify whether each is a product or period cost. o Product costs include Direct Materials, Direct Labor, and Factory Overhead. o Period costs include Selling Expenses and General & Administrative Expenses. Solution Steps: • • • Step 1: Go through each cost line item. Step 2: Identify if it is a product cost (Direct Materials, Direct Labor, or Factory Overhead) or a period cost (Selling or Administrative). Step 3: Classify it under the appropriate subcategory. Problem 14-3A: Schedule of Cost of Goods Manufactured and Income Statement 1. Prepare the Schedule of Cost of Goods Manufactured: o Direct Materials Used = Beginning Materials Inventory + Purchases - Ending Materials Inventory o Total Manufacturing Costs = Direct Materials Used + Direct Labor + Factory Overhead o Cost of Goods Manufactured (COGM) = Beginning WIP + Total Manufacturing Costs - Ending WIP 2. Prepare the Income Statement: o Sales Revenue o 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: Calculate Direct Materials Used. Step 2: Sum up Total Manufacturing Costs. Step 3: Use COGM to find Gross Profit and complete the Income Statement. Problem 14-4A: Reporting Cost of Goods Sold 1. Prepare the Cost of Goods Sold (COGS) Section of the Income Statement for both the merchandising and manufacturing company: o For a Merchandiser: COGS = Beginning Inventory + Purchases Ending Inventory o For a Manufacturer: COGS = Beginning Finished Goods Inventory + Cost of Goods Manufactured - Ending Finished Goods Inventory Solution Steps: • • Step 1: For each company, apply the COGS formula according to its nature (merchandiser or manufacturer). Step 2: Calculate and complete the COGS section. Problem 14-5A: 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 Average Raw Materials Inventory = (Beginning Inventory + Ending Inventory) / 2 2. Determine whether the change is favorable or unfavorable by comparing turnover ratios between the two years. o Higher turnover generally indicates efficiency (favorable), while lower turnover may indicate inefficiency (unfavorable). 3. Compute Days’ Sales in Raw Materials Inventory: o Days’ Sales in Inventory = 365 / Inventory Turnover o Solution Steps: • • • Step 1: Calculate raw materials used (from the given data). Step 2: Compute inventory turnover for each year and compare them. Step 3: Calculate days' sales in raw materials for the current year using the turnover ratio. Let me know if you’d like to see any detailed calculations or have specific data for each item.