Little Things Manufacturers Toys For Each Item Listed

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EA1 LO 4.1 Little Things manufactures toys. For each item listed, identify whether it is a product cost, a period cost, or not an expense. A. internet provider services B. material expense C. raw materials inventory D. production equipment rental E. showroom rental F. factory employee salary G. Human Resource Director salary.

EA 2 . LO 4.2 Table 4.3 shows a list of expenses involved in the production of custom, professional lacrosse sticks. A. For each item listed, state whether the cost should be applied to manufacturing or sales and administration. B. If the cost is a manufacturing cost, state whether it is direct materials, direct labor, or manufacturing overhead. C. If the cost is a manufacturing overhead cost, state whether it is indirect materials, indirect labor, or another type of manufacturing overhead. Expenses Involved in Lacrosse Stick Production Lacrosse Stick Production Costs Manufacturing or Sales & Administration Cost? If Manufacturing: Direct Materials, Direct Labor, or Overhead? If Overhead: Indirect Materials, Indirect Labor, or Other?

EA 5 . LO 4.3 Sterling’s records show the work in process inventory had a beginning balance of $4,000 and an ending balance of $3,000. How much direct labor was incurred if the records also show:

EA 6 . LO 4.3 Logo Gear purchased $2,250 worth of merchandise during the month, and its monthly income statement shows cost of goods sold of $2,000. What was the beginning inventory if the ending inventory was $1,000?

EA 7 . LO 4.4 A company estimates its manufacturing overhead will be $750,000 for the next year. What is the predetermined overhead rate given the following independent allocation bases? A. Budgeted direct labor hours: 60,000 B. Budgeted direct labor expense: $1,500,000 C. Estimated machine hours: 100,000.

EA 9 . LO 4.4 A new company started production. Job 10 was completed, and Job 20 remains in production. Here is the information from job cost sheets from their first and only jobs so far: Using the information provided, A. What is the balance in work in process? B. What is the balance in the finished goods inventory? C. If manufacturing overhead is applied on the basis of direct labor hours, what is the predetermined overhead rate?

EA 14 . LO 4.7 A company’s individual job sheets show these costs: Overhead is applied at 1.25 times the direct labor cost. Use the data on the cost sheets to perform these tasks: A. Apply overhead to each of the jobs. B. Prepare an entry to record the assignment of direct materials to work in process. C. Prepare an entry to record the assignment of direct labor to work in process. D. Prepare an entry to record the assignment of manufacturing overhead to work in process.

Paper For Above instruction

In the context of manufacturing companies such as Little Things and others involved in custom production, understanding the distinction between various costs is crucial for effective financial management. Costs are generally categorized into product costs and period costs. Product costs include all costs directly associated with manufacturing a product, whereas period costs are expensed in the period incurred and relate to selling and administrative functions.

Classification of Costs for Little Things

For Little Things, which manufactures toys, the classification of specific expenses is as follows:

• Internet provider services: Not an expense attributable directly to manufacturing or selling. It is a general operating expense.
• Material expense: A product cost since it relates directly to materials used in toy production.
• Raw materials inventory: A product cost; it represents the value of materials on hand for production.
• Production equipment rental: A manufacturing overhead cost, as it pertains to factory operations.
• Showroom rental: A period cost, associated with selling activities.
• Factory employee salary: A product cost classified as direct labor if the employees work directly on manufacturing, else manufacturing overhead if indirect.
• Human Resource Director salary: Not a product or period cost; it is a general administrative expense.

Expenses in Lacrosse Stick Production

The expenses involved in the lacrosse stick manufacturing process can be classified as follows:

• Carbon, fiberglass: Manufacturing overhead; classified as indirect materials.
• Administrative building rent: Period cost; sales and administrative expense.
• Accountant salary: Period cost, focus on administration.
• Factory building depreciation: Manufacturing overhead, classified as other manufacturing overhead.
• Strings for the pocket: Manufacturing overhead; potentially direct materials or indirect materials depending on control and usage.
• Advertising: Period cost, related to sales and marketing efforts.
• Production supervisor salary: Manufacturing overhead, as it relates to factory supervision.
• Paint for sticks: Manufacturing overhead, being an indirect material unless directly traceable.
• Research and development costs: Period costs; they do not directly relate to current manufacturing but future product development.
• Wages of person who strings the sticks: Direct labor if their work is directly involved in production.
• Cutting machine depreciation: Manufacturing overhead, as it pertains to factory machinery.
• Human resources salaries: Period cost, administrative expense.
• Factory maintenance: Manufacturing overhead, attributable to factory upkeep.

Work in Process and Cost Analysis

Calculating direct labor incurred involves analyzing the work in process inventory. Given beginning WIP of $4,000 and ending WIP of $3,000, and knowing total manufacturing costs include direct materials, direct labor, and manufacturing overhead, the direct labor incurred can be determined by examining the change in work in process and the costs added during the period. For instance, if total manufacturing costs added during the period are known, subtracting raw materials used and manufacturing overhead applied will yield direct labor costs.

Similarly, for Logo Gear, with beginning inventory unknown, purchase of $2,250, cost of goods sold at $2,000, and ending inventory at $1,000, beginning inventory can be calculated using the formula:

Beginning Inventory = (Cost of Goods Sold + Ending Inventory) - Purchases

which equates to ($2,000 + $1,000) - $2,250 = $750.

Overhead Rate Calculation

To determine the predetermined overhead rate, divide the estimated manufacturing overhead by the chosen allocation basis:

• Using direct labor hours: $750,000 / 60,000 hours = $12.50 per direct labor hour.
• Using direct labor expense: $750,000 / $1,500,000 = 0.5 or 50% of direct labor costs.
• Using machine hours: $750,000 / 100,000 hours = $7.50 per machine hour.

Work in Process and Finished Goods Inventory Calculation

For the new company's jobs, the work in process (WIP) inventory can be derived from the total costs accumulated for incomplete jobs. If Job 10 is completed, and Job 20 remains in production, summing the costs associated with Job 20 gives the WIP inventory.

Similarly, the finished goods inventory consists of the total costs of completed jobs not yet sold, which is the cost of Job 10 in this scenario.

Applying overhead based on direct labor hours involves calculating the predetermined rate as shown earlier, considering the total direct labor hours recorded for each job.

Applying Overhead and Journal Entries

Using the overhead application rate of 1.25 times the direct labor cost for each job, the overhead applied can be calculated for individual jobs. For example, if Job X incurred direct labor costs of $1,000, then overhead applied = $1,000 x 1.25 = $1,250.

To record allocations of direct materials, direct labor, and manufacturing overhead, journal entries are as follows:

• Direct materials: Dr. Work in Process Inventory; Cr. Raw Materials Inventory
• Direct labor: Dr. Work in Process Inventory; Cr. Wages Payable
• Manufacturing overhead: Dr. Manufacturing Overhead; Cr. Various accounts

These entries ensure accurate costing and inventory management within the manufacturing process.

Conclusion

Proper classification and allocation of costs are fundamental to managerial accounting, impacting pricing, budgeting, and financial analysis. Understanding the specifics of product versus period costs, overhead application, and inventory management enhances operational efficiency and financial accuracy in manufacturing companies such as Little Things and others.

References

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