The Howell Corporation has the following account balances (in millions):

For Specific Date

Direct materials inventory, Jan. 1, 2014 $15

Work- in- process inventory, Jan. 1, 2014 10

Finished goods inventory, Jan. 1, 2014 70

Direct materials inventory, Dec. 31, 2014 20

Work- in- process inventory, Dec. 31, 2014 5

Finished goods inventory, Dec. 31, 2014 55

For Year 2014

Purchases of direct materials $325

Direct manufacturing labor 100

Depreciation— plant and equipment 80

Plant supervisory salaries 5

Miscellaneous plant overhead 35

Revenues 950

Marketing, distribution, and ­customer- service costs 240

Plant supplies used 10

Plant utilities 30

Indirect manufacturing labor 60

REQUIREMENTS: Prepare an income statement and a supporting schedule of the cost of goods manufactured for the year ended December 31, 2014.

1. How would the answer be modified if you were asked for a schedule of cost of goods manufactured and sold instead of a schedule of cost of goods manufactured? Be specific.

2. Would the sales manager’s salary (included in marketing, distribution, and customer-service costs) be accounted for any difference if the Howell Corporation were a merchandising-sector company instead of a manufacturing-sector company? Describe how the wages of an assembler in the plant would be accounted for in this manufacturing company.

3. Plant supervisory salaries are usually regarded as manufacturing overhead costs. When might some of these costs be regarded as direct manufacturing costs? Give an example.

4. Suppose that both the direct materials used and the plant and equipment depreciation are related to the manufacture of 1 million units of product. What is the unit cost for the direct materials assigned to those units? What is the unit cost for plant and equipment depreciation? Assume that yearly plant and equipment depreciation is computed on a straight-line basis.

5. Assume that the implied cost-behavior patterns in requirement 4 persist. That is, direct material costs behave as a variable cost and plant and equipment depreciation behaves as a fixed cost. Repeat the computations in requirement 4, assuming that the costs are being predicted for the manufacture of 1.2 million units of product. How would the total costs be affected?

6. As a management accountant, explain concisely to the president why the unit costs differed in requirements 4 and 5.

Answer rating: 100% (QA)

Schedules Answer to Requirement 1 The answer would not be modified as the cost of goods sold is the primary requirement in order to draw income statement Cost of goods sold is also derived by cost of ... View the full answer