During The Year, Coronado Boat Yard Has Incurred Manufacturi
161during The Year Coronado Boat Yard Has Incurred Manufacturing Cos
During the year, Coronado Boat Yard has incurred manufacturing costs of $420,000 in building three large sailboats. At year-end, each boat is about 70 percent complete. How much of these manufacturing costs should be recognized as expense in Coronado Boat Yard’s income statement for the current year? Explain.
During the current year, the cost of direct materials purchased by a manufacturing firm was $325,000, and the direct materials inventory increased by $65,000. What was the cost of direct materials used during the year?
A company that assembles trucks produces 60 trucks during the current year and incurs $3 million of material, labor, and overhead costs. Fifty-three trucks were sold during the year and each is allocated the same amount of costs. How much of the $3 million assembly costs should appear on the company’s income statement for the current year?
During the current year, CF Manufacturing Co. incurred $370,000 of indirect labor costs, $15,000 of indirect materials costs, $125,000 of rent costs, and $163,000 of other overhead costs. How much did CF Manufacturing assign to the Work in Process Inventory account from the Manufacturing Overhead account?
Star Repairs Co. does all the repair work for a medium-sized manufacturer of handheld computer games. The games are sent directly to Star, and after the games are repaired, Star bills the game manufacturer for cost plus a 20 percent markup. In the month of February, purchases of parts (replacement parts) by Star amounted to $97,000, the beginning inventory of parts was $38,500, and the ending inventory of parts was $15,250. Payments to repair technicians during the month of February totaled $52,500. Overhead incurred was $121,000. a. What was the cost of materials used for repair work during the month of February? b. What was the prime cost for February? c. What was the conversion cost for February? d. What was the total repair cost for February?
Paper For Above instruction
The provided scenarios encompass various aspects of manufacturing costs and accounting practices within different companies. This paper analyzes each scenario to determine relevant costs, their recognition, and allocation according to accounting standards, emphasizing the significance of proper expense recognition, cost calculation, and inventory management in manufacturing operations.
Analysis of Manufacturing Costs and Expense Recognition
1. Coronado Boat Yard Manufacturing Costs
During the year, Coronado Boat Yard incurred total manufacturing costs of $420,000 in constructing three sailboats. Each boat was approximately 70% complete at year-end. To determine the expense recognition, we must consider the matching principle in accounting, which dictates that expenses be matched with revenues when they are incurred, regardless of when cash flows happen. The costs related to incomplete products, which have not yet been sold, are typically recorded as inventory—a current asset—rather than expenses.
Since the boats are only partially completed, only the costs associated with the completed portion of the boats should be recognized as expense in the current period. The costs attributable to the 70% completion are calculated as follows:
Manufacturing costs applicable to the completed 30% (since 70% remains incomplete):
$420,000 × 30% = $126,000
This amount ($126,000) represents the costs associated with the work already performed on the partial products. As per accounting standards, this cost remains in Work in Process Inventory, not recognized as an expense until the sale of the completed product. The remaining $294,000 (i.e., $420,000 – $126,000) is carried as inventory until the sale occurs, at which point it will be recognized as cost of goods sold.
2. Direct Materials Cost
The company purchased $325,000 of direct materials during the year. The direct materials inventory increased by $65,000. The calculation of direct materials used during the year is based on the inventory flow:
- Beginning inventory of materials (unknown, but can be derived)
- Purchases: $325,000
- Ending inventory: $65,000
Using the formula:
Direct Materials Used = Purchases + Beginning Inventory – Ending Inventory
If inventory increased, it implies that purchases exceeded the usage, but without explicit beginning inventory, the excluded value is unknown. However, given the increase in inventory, the usage can be derived if initial inventory is known. Assuming the beginning inventory is B:
Direct Materials Used = $325,000 + B – $65,000
Without initial inventory figures, the best approximation relies on the inventory change indicating net materials consumed:
Materials Used = $325,000 – $65,000 = $260,000
This suggests that the company used $260,000 worth of direct materials during the period, considering the increase in inventory was an accumulation of unused purchases.
3. Cost Allocation for Truck Assembly
The truck manufacturer incurred $3 million in material, labor, and overhead costs, producing 60 trucks, with 53 trucks sold. Costs per truck are equally allocated:
Cost per truck = Total costs / Total trucks produced = $3,000,000 / 60 = $50,000 per truck
The cost of the 53 trucks sold is:
$50,000 × 53 = $2,650,000
Hence, $2,650,000 of assembly costs would be reflected on the income statement as cost of goods sold for the year. The remaining cost, associated with the unsold trucks, remains in inventory valuation as work in process or finished goods inventory, depending on the company's accounting policies.
4. Manufacturing Overhead Allocation
CF Manufacturing incurred various overhead costs: $370,000 of indirect labor, $15,000 of indirect materials, $125,000 of rent, and $163,000 of other overheads. Manufacturing overhead costs are accumulated in a control account and then allocated to Work in Process (WIP) based on predetermined overhead rates.
The total manufacturing overhead (MOH) incurred equals:
$370,000 + $15,000 + $125,000 + $163,000 = $673,000
This total amount is then assigned to WIP inventory based on the company’s overhead application rate. Assuming the rate is calculated as a percentage of direct labor costs or using a typical plant-wide rate, the specific amount assigned depends on the predetermined rate. If the overhead rate is, for example, 100% of direct labor, and if direct labor costs are known, the assigned overhead can be calculated accordingly. Without explicit base data, the total overhead incurred ($673,000) is generally the amount allocated to WIP in the absence of other specific details.
5. Star Repairs Co.: Materials, Costs, and Pricing
Star Repairs processed repairs for handheld computer games, purchasing parts totaling $97,000 with beginning and ending inventories at $38,500 and $15,250, respectively. Technicians’ payments totaled $52,500, and overhead costs were $121,000. The questions below analyze the cost components:
a. Materials Used
Materials used are calculated as:
Beginning Inventory + Purchases – Ending Inventory = $38,500 + $97,000 – $15,250 = $120,250
This signifies that $120,250 worth of parts were used during February.
b. Prime Cost
Prime cost includes direct materials and direct labor:
Materials used: $120,250
Labor costs: $52,500
Total prime cost = $120,250 + $52,500 = $172,750
c. Conversion Cost
Conversion costs comprise direct labor and manufacturing overhead (excluding materials):
Labor: $52,500
Overhead: $121,000
Total conversion costs = $52,500 + $121,000 = $173,500
d. Total Repair Cost
The total repair cost is the sum of prime costs and overhead:
Total repair cost = Prime cost + Overhead = $172,750 + $121,000 = $293,750
Star's billing to the manufacturer includes cost plus 20% markup, thus the billing amount for February would be:
$293,750 × 1.20 = $352,500
This comprehensive analysis underscores the importance of detailed cost tracking for accurate financial reporting and pricing strategies in manufacturing and repair operations.
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