Chapter 2-
Cost Cost Object Cost Cost
Ex: Catered food served to patients a particular patient
1The wages of pediatric nurses the pediatric department
2Prescription drugs a particular patient
3Heating the hospital the pediatric department
4The salary of the head of pediatrics the pediatric department
5The salary of the head of pediatrics a particular pediatric patient
Chapter 2-
Activity 2: Product vs Period
Identify with a "X" the following costs as either a manufacturing (product) or nonmanufacturing (period) cost. If it
is a manufacturing cost, further identify it as either direct material (DM), direct labor (DL), or overhead (OH).
Assume an individual product as the cost object.
Manufacturing Cost
(Product Cost)
Nonmanufacturing
Cost (Operating
Expenses)
(Period Cost)
Direct Indirect
DM DL OH
Factory supervisor
Factory supplies
Material easily traced to
product
Administrative salaries
Factory rent
Indirect materials
Shipping costs-to customer
Administrative building
utilities
Factory equipment
depreciation
Activity 3: Continued:
Activity 1: Identifying Direct and Indirect Costs
Good Sam Hospital is a full-service hospital that provides everything from major surgery and emergency room care
to outpatient clinics. For each cost incurred at Good Sam Hospital, indicate whether it would most likely be a
direct cost or an indirect cost of the specified cost object by placing an X in the appropriate column.
Direct Indirect
Selected financial information for Monika Manufacturing for the month of July is presented in the following table (000s
omitted).
Sales revenue $ 4,000
Purchases of direct materials $ 500
Direct labor $ 450
Manufacturing overhead $ 620
Operating expenses $ 700
Beginning raw materials inventory $ 150
Ending raw materials inventory $ 170
Beginning work in process inventory $ 320
Ending work in process inventory $ 310
Beginning finished goods inventory $ 250
Ending finished goods inventory $ 200
a. What was direct materials used?
Beginning Balance
+ Purchases
-Ending Balance
=Materials Used
b. What was cost of goods manufactured?
Beginning Balance
+ Direct Materials Used
+ Direct Labor
+ MOH
-Ending Balance
= COGM
c. What was cost of goods sold?
Beginning Balance
+ COGM
-Ending Balance
= Cost of Goods Sold
d. What was operating income?
Sales
-COGS
= GP/GM
-OE
= OI
Raw Materials
BB DM Used
Purch IM Used 0
EB
WIP
BB COGM
RM used
DL
MOH
EB
FG
BB COGS
COGM
EB
e. What is the remaining costs on the balance sheet on July 31st? (inventory balance)
Activity 4: Manufacturing Inventory Flow: – COGM & COGS – Income Statement – Work backwards to
find missing amounts:
Andrew Electronics manufactures and sells smartphones. Unfortunately, the company recently suffered serious fire damage at
its home office. As a result, the accounting records for July were partially destroyed and completely jumbled. Andrew has
hired you to help figure out the missing pieces of the accounting puzzle. Assume that Andrew Electronics’ raw Materials
inventory contains only direct materials.
Work in process inventory, July 31 $ 1,600
Finished goods inventory, July 1 $ 4,900
Direct Labor incurred in July $ 3,500
Purchases of direct materials in July $ 9,700
Work in process inventory, July 1 $ 0
Revenues in July $ 27,200
Direct materials used in July $ 8,200
Raw materials inventory, July 31 $ 3,600
Manufacturing overhead for July $ 6,300
Gross profit percentage 45%
Inventory Flow: T’Accouts:
Raw Materials WIP FG Inventory
Beg Inv
DM used in
Production
Beg Inv Beg Inv COGS
COGM
Purchases DM COGM
End Inv
DL End Inv
MOH
End Inv
COGS
COGS
Find the following:
a. Cost of Goods Sold in July
b. Beginning Raw Materials Inventory
Beginning raw materials inventory
Plus: Purchases of direct materials (Given)
= Available for use
Less: Ending raw materials inventory (Given)
Direct materials used (Given)
c. Ending Finished Goods Inventory
Beginning work in process inventory
Plus: Manufacturing costs incurred:
Direct materials used
Direct labor
Manufacturing overhead
=Total manufacturing costs to account for
Less: Ending work in process inventory
=Cost of goods manufactured
Beginning finished goods inventory
Plus: Cost of goods manufactured
Cost of goods available for sale
Less: Ending finished goods
inventory
Cost of goods sold (from part A)
d. Prepare an income statement for Andrew Electronics for July. Assume that the company incurred marketing expenses
of $3,240 and $6,000 and general and administrative expenses.
Sales
Less: Cost of Goods Sold
Gross Profit
Less: Operating Expenses
Operating Income
e. Andrew Electronics’ cost of goods manufactured is greater than cost of goods sold. What does this mean?
a. finished goods inventory increased during the period
b. finished goods inventory decreased during the period
c. work in process increased during the period
d. gross margin increased from last period
Raw Materials
BB RM Used
Purch
EB
WIP
BB COGM
DM used
DL
MOH
EB
FG
BB COGS
COGM
EB
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