Pietro Frozen Foods, Inc., produces frozen pizzas.

Below is the summary of costs it incurred in

producing 50,000 pizzas this year.
Direct materials $120,000
Direct labor 60,000
Variable overhead 25,000
Fixed overhead 220,000
1. Calculate the prime cost per unit.

2. Calculate the conversion cost per unit.

3. Calculate the variable cost per unit.

4. Calculate the total product cost per unit.

Classify each of the following items as either prime cost, conversion cost, or period expenses.

Factory rent
Company advertising
Wages of workers on the assembly line
Depreciation for president’s vehicle
Utilities for factory
Salaries of security guards at the factory
Production supervisor’s salary
President’s salary
Direct materials used
Delivering cost of products to customers
Depreciation on factory equipment      

 
For next year, Pietro predicts the following total manufacturing costs will be incurred.
Direct materials ?
Direct labor $60,000
Variable overhead 25,000
Fixed overhead 220,000
Next year, Pietro expects to purchase $119,300 of direct materials. Projected beginning and
ending inventories for direct materials, work in process, and finished goods are as follows:
Direct materials inventory Work in process inventory Finished goods inventory
Beginning $5,600 $12,500 $42,500
Ending 4,900 14,600 $34,000

Pietro expects to sell 50,000 units at a price of $12.50 each. Total selling expense is projected at
$26,000, and total administrative expense is projected at $134,000.
Compute the projected cost of goods manufactured and cost of goods sold. Also prepare the
forecasted income statement for next year.

 
Norman Company has supplied the following information for the last calendar year. Last year,
Norman sold 90,500 units at $10.50 per unit. Prepare its income statement.

Work in process inventory, January 1 $13,250

Work in process inventory, December 31 28,250
Finished goods inventory, January 1 113,000
Finished goods inventory, December 31 85,000
Direct materials inventory, January 1 3,500
Direct materials inventory, December 31 2,700
Purchase price of direct materials 177,000
Freight-in costs of direct materials 6,700
Direct labor 138,000
Plant depreciation 68,000
Salary, production supervisor 47,000
Factory Supplies (e.g. glue, thread, etc.) 12,000
Utilities, factory 15,000
Sales commissions 42,000
Salary, sales supervisor 75,000
Depreciation, factory equipment 32,000
Administrative expenses 168,000
Office Supplies 20,000
Advertising expense 43,000

 
 Cost Flow 

A distraught employee, Bernie Arson, put a torch to a manufacturing plant on a blustery

February 26. The resulting blaze destroyed the plant and its contents. Fortunately, certain
accounting records were kept in another building. They reveal the following for the period from
January 1, 2009, to February 26, 2009:

Direct materials purchased $160,000

Work-in-process inventory, 1/1/2009 $34,000
Direct materials inventory, 1/1/2009 $16,000
Finished goods inventory, 1/1/2009 $30,000
Manufacturing overhead costs 40% of conversion costs
Revenues $500,000
Direct manufacturing labor $180,000
Prime costs $294,000
Gross margin percentage based on revenues 20%
Cost of goods available for sale $450,000

The loss is fully covered by insurance. The insurance company wants to know the historical cost
of the inventories as a basis for negotiating a settlement, although the settlement is actually to be
based on replacement cost, not historical cost.

Calculate the cost of Direct materials inventory, Work-in-process inventory, and Finished goods
inventory on 2/26/2009.

 
Carefree Camp offers overnight summer camp programs for children ages 10 to 14 every
summer during June and July. Each camp session is one week and can accommodate up to 175
children. While at the camp, participants make crafts, participate in various sports, help care for
the camp’s resident animals, have cookouts and hayrides, and help assemble toys for local under-
privileged children.

The camp provides all food, as well as materials for all craft classes, and the toys to be
assembled. One cabin can accommodate up to 10 children, and one camp counselor is assigned
to each cabin. Three camp managers are on-site regardless of the number of campers enrolled.

Following is the cost information for Carefree Camp’s operations last summer:

Week  Number of Campers Cost to Run Camp

1 80 $7,030
2 115 7,340
3 140 9,750
4 156 10,860
5 165 11,985
6 163 12,400
7 130 9,635
8 145 10,200

1. Identify whether the cost is variable, fixed, mixed, or step cost.

a. Cost of meals for campers.

b. Cost of camp counselor wages.

c. Cost of crafting materials.

d. Depreciation on the cabins.

e. Feed for the camp animals.

f. Electricity for the camp.

g. Camp managers’ salaries.

h. Cost of toys to be assembled by campers.

i. Housekeeping (e.g., cleaning cabins between sessions, laundering bed linens).

2. Using the high-low method, calculate the camp’s operating costs if 160 children attend.

 
 Cost Structure

Tom Jones has recently opened a hamburger restaurant on the corner of Grandview and Cedar
Avenues. He sells a bundled hamburger meal consisting of a third pound hamburger, fries, and a
soft drink for $4.50 per meal. Accounting records indicate the following operating results during
the most recent month.

Revenue: 3,000 meals @ $4.50 $13,500

Costs:

Beef $2,250

Hamburger buns 375

Frozen French fries 1,000

Soft drinks 600

Cooking oil 500

Rent on restaurant space 2,000

Lease on kitchen equipment 1,200

Rental of restaurant furniture 300

Salaries of employees 4,500

Total expenses $12,725

Net Profit $ 775

Tom feels he could make more money working as a waiter in a neighboring restaurant and is
thinking about shutting down his business. Several friendly accounting-major students suggest
that Tom should drop the price. They believe that Tom would increase his sales volume by 50%
if he dropped his price to $4.00. Tom is exasperated with these accounting-major students who
don’t seem to understand the realities of business. He figures that a meal costs him $4.24
($12,725/3,000) and there is no way he can make a profit if he charged $4.00 per meal. Should
Tom drop the meal price to $4 assuming accounting students’ projection of demand is correct?