1-16A Problem 1.
Variable Fixed Cost Cost
X X X X X X X X X X X X X X X X X X X X X
Name of the Cost
Yuko's present salary, $3,000 per month ............................... Loft rent, $400 per month ........... Seeds, earth, pots and fertilizer, $7 per tree ................ Wages of gardener, $12 per hour........................................ Advertising, $550 per month ....... Sales commission, $8 per trees .... Rent of production equipment, $250 per month ....................... Legal and filing fees, $300 .......... Rent of sales office, $200 per month ..................................... Phone for taking orders, $30 per month ............................... Interest lost on savings account, $3,000 per year .........
Product Cost Direct Direct Mfg. Materials Labor Overhead
Period (Selling and Admin.) Cost
Opportunity Cost
X
Sunk Cost
X
2. The $300 cost of incorporating the business is not a differential cost. Even though the cost was incurred to start the business, it is a sunk cost. Whether Yuko produces bonsai trees or stays in her present job, she will have incurred this cost.
Problem 1-21A 1. Madlinx Company Schedule of Cost of Goods Manufactured For the Month Ended September 30 Direct materials: Raw materials inventory, September 1 ............ Add: Purchases of raw materials .................... Raw materials available for use ...................... Deduct: Raw materials inventory, September 30............................................................. Raw materials used in production ................... Direct labor ..................................................... Manufacturing overhead: Indirect labor cost ......................................... Utilities (65% $9,100) ................................ Depreciation, factory equipment ..................... Insurance (70% $2,500) ............................ Rent on facilities (90% $27,000) ................. overhead Total costs ....................................... Total manufacturing costs ................................ Add: Work in process inventory, September 1 .... Deduct: Work in process inventory, September 30 ............................................................... Cost of goods manufactured ............................. $ 4,600 95,000 99,600 7,000 $ 92,600 47,000 7,200 5,915 10,000 1,750 24,300 49,165 188,765 9,000 197,765 12,000 $185,765
Problem 1-21A (continued) 2. Madlinx Company Income Statement For the Month Ended September 30 Sales .............................................................. Less cost of goods sold: Finished goods inventory, September 1 ........... $ 24,000 Add: Cost of goods manufactured................... 185,765 Goods available for sale ................................. 209,765 Deduct: Finished goods inventory, September 30............................................................. 30,000 Gross margin .................................................. Selling and administrative expenses: Utilities (35% $9,100) ................................ 3,185 Depreciation, sales equipment........................ 10,400 Insurance (30% $2,500) ............................ 750 Rent on facilities (10% $27,000) ................. 2,700 Selling and administrative salaries .................. 23,000 Advertising ................................................... 39,000 Net operating income ...................................... $266,000
179,765 86,235
79,035 $ 7,200
3. In preparing the income statement shown in the text, the accountant failed to distinguish between product costs and period costs, and also failed to recognize the changes in inventories between the beginning and end of the month. Once these errors have been corrected, the financial condition of the company looks much better and selling the company may not be advisable.