UNIVERSITY OF THE WEST INDIES

Mona School of Business & Management

ACCT 1003 - Intro. to Cost & Management Accounting

Worksheet # I: Cost Classification

Lecture/Tutorial Questions
1. Francis manufacturers, a manufacturer of wood doors and windows, has prepared the
following list of accounts
Advertising $36,000
Assemblers wages 84,200
Production supervisor’s salary 21,400
Depreciation of machinery 9,200
Factory utilities 55,600
Lathe machine (machine for shaping wood) Operators wages 66,400
Machinery repairs 22,600
Office salaries 113,800
Purchase of glue 1,600
Purchase of screws and nails 800
Purchase of pine 99,000
Purchase of oak 250,000
There is no beginning or ending inventory.

Calculate the following:

(a) Direct material used (d) Prime cost
(b) Direct labour cost (e) Conversion cost
(c) Factory overhead (f) Production cost

2. Compute cost of goods manufactured and cost of goods sold from the following
amounts, using the equation method.
Beginning of Year End of Year
Direct materials inventory $22,000 $26,000
Work in process inventory 38,000 30,000
Finished goods inventory 18,000 23,000
Purchases of direct materials 75,000
Direct labour 82,000
Manufacturing overhead 39,000
3. Clyde’s Pets manufactures chewing bones for puppies. At the end of December 2008,
his accounting records showed the following:

Inventories Beginning Ending

Materials $13,500 $9,000
Work in process 0 1,250
Finished goods 0 5,700
Other information:
Direct material purchases $31,000 Utilities for plant $4,500
Plant janitorial service 1,250 Rent on plant 9,000
Sales salaries expense 5,000 Customer service hotline expense 1,000
Delivery expense 1,500 Direct labour 18,000
Sales revenue 105,000
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 Requirements:
i) Prepare a schedule of cost of goods manufactured for the year ended December
31, 2008
ii) Prepare an income statement for Clyde’s Pets for the year ended December 31,
2008
iii) Given that the company manufactured 17,500 units, of its product in 2008,
compute the company’s unit product cost for the year.

4. John Stern operates a retail store. The business is studying order processing costs
behaviour and has gathered the following data for a recent seven-month period.
Month Sales Order Order Processing Costs
June 3,000 $40,000
July 1,500 $28,000
August 4,000 $65,000
September 2,800 $39,000
October 2,300 $32,000
November 1,000 $20,000
December 2,000 $30,000

(i) Determine the variable cost per sales order and the fixed cost using the high-low
method.
(ii) What is the equation of the total mixed cost function?
(iii) Prepare the scatter gram, clearly showing any outliers.
(iv) Using the “line of best fit”, determine Stern’s fixed cost per month and the
variable cost per sales order
(v) In view of Stern’s cost behaviour pattern, which of the two methods appear
more appropriate? Explain your answer.

5. Susan Wesley obtains monthly production cost information from the financial
accounting department of Bikes Unlimited for the last 12 months.

Reporting Period Total Production Costs Level of Activity

(Month) (Units Produced)
July $230,000 3,500
August 250,000 3,750
September 260,000 3,800
October 220,000 3,400
November 340,000 5,800
December 330,000 5,500
January 200,000 2,900
February 210,000 3,300
March 240,000 3,600
April 380,000 5,900
May 350,000 5,600
June 290,000 5,000

i) Determine the equation of the total mixed cost function, using the high-low method.
ii) Prepare the scatter gram, and use the “line of best fit” to determine the company’s
fixed cost per month and the variable cost per unit.
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Practice Questions
(The following questions are to be used for self-study sessions)
1. The following information was extracted from the books of Bass Shoe Company, a
manufacturer of loafers:
Beginning of Year End of Year
Raw materials inventory $700,000 $600,000
Work in process inventory 900,000 1,000,000
Finished goods inventory 400,000 300,000
Raw materials purchased 2,900,000
Direct labour 13,800,000
Manufacturing overhead 4,600,000
Calculate Cost of Goods Manufactured & Cost of Goods Sold using the equation method.

2. Synder Corp., a lamp manufacturer, provide the following information for the year ended
December 2008:

Inventories Beginning Ending

Materials $50,000 $25,000
Work in process 100,000 65,000
Finished goods 40,000 43,000
Other information:
Depreciation: Plant, Building &
$15,000 Repairs & maintenance- plant $5,000
Equipment
155,000 Indirect labour 30,000
Materials purchases
20,000 Direct labour 120,000
Insurance on plant
48,000 Administrative expenses 52,000
Sales salaries expense
Sales revenue 550,700
Requirements:
i) Prepare a schedule of cost of goods manufactured for the year ended December 31,
2008
ii) Prepare an income statement for Synder Corp. for the year ended December 31, 2008
iii) What is the unit product cost if Synder manufactured 3,000 lamps for the year?

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 3. Smooth Sounds manufactures and sells a new line of MP-3 players. Unfortunately,
Smooth Sounds suffered serious fire damage at its home office. As a result, the
accounting record for October were partially destroyed- and completely jumbled.
Smooth Sounds has hired you to help figure out the missing pieces of the accounting
puzzle.

Work in process inventory, October 31. $1,500 Accounts payable, October 1…………….. $3,000
Finished goods inventory, October 1…. 4,300 Direct materials used in October…………. 8,000
Direct labour in October……………… 3,000 Accounts payable, October 31…………… 5,200
Purchase of direct materials in October 9,000 Accounts receivable, October 31………… 6,500
Work in process inventory, October 1... 0 Direct materials inventory, Oct. 31………. 3,000
Revenues in October………………….. 27,000 Manufacturing Overhead in October…….. 6,300
Accounts receivable, October 1………. 2,000
Gross profit in October……………….. 12,000

Required: Compute the following amounts

i) Manufacturing costs
ii) Cost of goods manufactured in October
iii) Cost of goods sold in October
iv) Beginning direct materials inventory
v) Ending finished goods inventory

4. The MTN Company has assembled the following data pertaining to certain costs which
cannot be easily identified as either fixed or variable. MTN has heard about a method
of measuring cost functions called the high-low method and has decided to use it in
this situation

Cost Hours
$100,000 3,500
61,o00 2,000
85,000 2,600
78,200 2,450
91,000 3,000
110,400 3,900
106,000 3,740
93,000 3,380

a) Calculate the variable cost per hour

b) Calculate the total fixed costs
c) Write the equation which measures the cost behaviour of the costs
d) Calculate the operating costs for 3,750 hours.

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