Question

Foxwood Company is a metal- and wood-cutting manufacturer selling products to the home construction market. Consider the following data for the year 2013:
Sandpaper ................... $ 2,000
Materials-handling costs ............ 70,000
Lubricants-handling costs ............. 5,000
Miscellaneous indirect manufacturing labour ....... 40,000
Direct manufacturing labour ............. 300,000
Direct materials, January 1, 2013 .......... 40,000
Direct materials, December 31, 2013.......... 50,000
Finished goods January 1, 2013 .......... 100,000
Finished goods December 31, 2013 .......... 150,000
Work in process, January 1, 2013 .......... 10,000
Work in process, December 31, 2013 .......... 14,000
Plant leasing costs ................ 54,000
Amortization—plant equipment .......... 36,000
Property taxes on plant equipment .......... 4,000
Fire and casualty insurance on plant equipment .... 3,000
Direct materials purchased in 2013 .......... 460,000
Revenue .................... 1,360,000
Marketing and promotion ............. 60,000
Marketing salaries ................ 100,000
Shipping costs ..................... 70,000
Customer-service costs ............. 100,000
REQUIRED
1. Prepare an income statement with a separate supporting schedule of cost of goods manufactured. For all manufacturing items, indicate by V or F whether each is basically a variable cost or a fixed cost (where the cost object is a product unit). If in doubt, decide on the basis of whether the total cost will change substantially over a wide range of production output.
2. Suppose that both the direct materials and plant leasing costs are tied to the production of 900,000 units. What is the direct materials cost assigned to each output unit produced?
Assume that the plant leasing costs are a fixed cost. What is the unit cost of the plant leasing costs?
3. Repeat the computation in requirement 2 for direct materials and plant leasing costs assuming that the costs are being predicted for the manufacturing of 1 million units next year. Assume no changes in the historical or actual cost behaviour patterns.
4. As a management consultant, explain concisely to the president why the direct materials cost per output unit did not change in requirements 2 and 3 but the plant leasing costs per output unit did change.
5. Calculate what direct manufacturing labour (DML) cost is as a percentage of total cost of goods sold (COGS). In your opinion is this a material cost? Provide your reason(s).
Consistent with your opinion, would you classify DML as a prime or a conversion cost?


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  • CreatedJuly 31, 2015
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