Cost Of Goods Management

Cost Of Goods M

The provided assignment involves multiple components related to cost accounting, including calculations of cost of goods manufactured, income statement preparation, overhead application analysis, inventory costing, and activity-based costing estimations. This comprehensive analysis is vital for understanding cost behavior, inventory valuation, and performance measurement within manufacturing operations.

Paper For Above instruction

Introduction

Cost accounting plays a fundamental role in manufacturing firms by providing detailed insights into the costs associated with production and operations. Key components include calculating the cost of goods manufactured (COGM), preparing income statements for profitability analysis, assessing overhead application, valuing work-in-process and finished goods inventory, and employing activity-based costing (ABC) for more precise cost attribution. This paper systematically addresses each aspect of the given assignment, offering detailed calculations and interpretative insights.

Part A: Cost of Goods Manufactured and Income Statement Analysis

The first segment involves calculating the Cost of Goods Manufactured (COGM) and preparing an income statement based on provided data. COGM is derived by summarizing direct materials, direct labor, manufacturing overhead, and adjusting for beginning and ending inventories of raw materials, work-in-process, and finished goods.

Given data include raw materials purchases ($50,000), direct labor costs ($23,000), manufacturing overhead costs ($59,000), and initial inventories. Beginning raw materials inventory is $26,000, while ending raw materials inventory reduces raw materials used, indicating a purchase of $50,000 was made during the period. Following similar adjustments for work-in-process and finished goods inventories, the total COGM is calculated at $193,000, aligning with the provided figure.

The income statement presents total revenue of $220,000 against total expenses totaling $193,000, resulting in a net income of $27,000. Expenses include raw materials, direct labor, manufacturing overhead, and other operational costs, emphasizing the importance of accurate cost allocation and inventory management in assessing profitability.

Part B: Overhead Application and Variance Analysis

In analyzing overhead costs, the predetermined overhead rate is computed as $18 per machine hour, based on estimated overhead divided by estimated machine hours (95,000 hours). Actual machine hours used were 75,000, incurring actual overhead costs of $1,687,500, slightly below estimated overhead of $1,710,000.

The applied overhead in inventories was $337,500 in work-in-process and $253,125 in finished goods, totaling $590,625. The total overhead applied ($1,350,000) exceeds actual overhead costs, resulting in overapplied overhead. The variance indicates an over-applied amount of $506,250, which impacts operating income. Such analysis highlights the importance of variance analysis in managerial decision-making and controlling manufacturing costs.

Part C: Process Costing and Equivalent Units

For process costing, calculations involve determining equivalent units of production, costs per equivalent unit, and valuing ending inventory and units transferred out. Beginning inventory comprises 2,400 units, with partial completion levels of 75% for materials and 50% for conversion. During the period, 20,800 units are started, and 22,200 units are completed, with ending work-in-process inventory of 1,000 units at 80% materials and 60% conversion completion.

The total equivalent units for materials are 17,240, with a cost per equivalent unit of $13.17. The ending work-in-process inventory is valued at $18,434, and the cost of units transferred reflects total production costs of $292,308. These calculations demonstrate how process costing allocates costs based on the degree of completion, which is essential in process manufacturing industries.

Part D: Job Costing and Inventory Valuation

This section involves analyzing costs related to beginning work-in-process inventory, units started and completed, and ending inventory. Beginning inventory had a cost of $1,920, with 3,130 units started and completed during the period. The equivalent units required to complete the beginning inventory are 360,140, with ending inventory of 330,264 units. The cost of ending work-in-process inventory is $3,137,508; the cost of units transferred out is $673,322.40.

This exemplifies job costing techniques, where costs are accumulated based on direct material, direct labor, and overhead, apportioned according to the degree of completion. Proper inventory valuation ensures accurate financial reporting and cost control.

Part E: Activity-Based Costing and Overhead Allocation

The company produces two products, H16Z and P25P, with different direct material and labor costs per unit and distinct activity measures. Traditional costing allocates manufacturing overhead at $13.56 per unit for H16Z and $80.74 per unit for P25P based on direct labor hours (DLHs). Activity-Based Costing (ABC), however, assigns overhead by analyzing specific activities: supporting direct labor, setup machine activities, and parts administration.

The ABC method yields higher overhead costs per unit—$22.66 for H16Z and $859.68 for P25P—reflecting the closer alignment of costs with activities involved. This demonstrates how ABC improves cost accuracy, facilitating better pricing, budgeting, and strategic decisions.

Conclusion

The comprehensive analysis undertaken illustrates the significance of accurate costing methods in manufacturing. From calculating COGM and preparing income statements to applying overhead and employing ABC techniques, each component enhances managerial control and financial decision-making. Implementing precise cost measurement tools supports operational efficiency and profitability, especially in increasingly complex production environments.

References

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