Chapter 1 – Introduction to Managerial Accounting

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Exercise 1-8 Classifying and Calculating Costs Exercise 1-8
Exercise 1-12 Calculating Missing Amounts Exercise 1-12

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 Exercise 1-8

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The following information is available for Milky Way, Inc., for Year 1:

Factory rent $60,000

Company advertising 30,000
Wages paid to laborers 92,000
Depreciation for president’s vehicle 12,000
Indirect production labor 2,700
Utilities for factory 54,000
Production supervisor’s salary 45,000
President’s salary 90,000
Direct materials used 51,700
Sales commissions 15,000
Factory insurance 16,000
Depreciation on factory equipment 39,000
Required:

Calculate each of the following costs for Milky Way:

1. Direct labor.
2. Manufacturing overhead.
3. Prime cost.
4. Conversion cost.
5. Total manufacturing cost.
6. Period expenses.

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 Factory rent $60,000
Company advertising 30,000
Wages paid to laborers 92,000
Depreciation for president’s vehicle 12,000
Indirect production labor 2,700
Utilities for factory 54,000
Production supervisor’s salary 45,000
President’s salary 90,000
Direct materials used 51,700
Sales commissions 15,000
Factory insurance 16,000
Depreciation on factory equipment 39,000

Direct Labor = $92,000

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 Factory rent $60,000
Company advertising 30,000
Wages paid to laborers 92,000
Depreciation for president’s vehicle 12,000
Indirect production labor 2,700
Utilities for factory 54,000
Production supervisor’s salary 45,000
President’s salary 90,000
Direct materials used 51,700
Sales commissions 15,000
Factory insurance 16,000
Depreciation on factory equipment 39,000

Manufacturing Overhead = $60,000 + $2,700 + $54,000 + $45,000 + $16,000 + $39,000

= $216,700

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 Factory rent $60,000
Company advertising 30,000
Wages paid to laborers 92,000
Depreciation for president’s vehicle 12,000
Indirect production labor 2,700
Utilities for factory 54,000
Production supervisor’s salary 45,000
President’s salary 90,000
Direct materials used 51,700
Sales commissions 15,000
Factory insurance 16,000
Depreciation on factory equipment 39,000

Prime Cost = $92,000 + $51,700

= $143,700

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 Factory rent $ 60,000
Company advertising 30,000
Wages paid to laborers 92,000
Depreciation for president’s vehicle 12,000
Indirect production labor 2,700
Utilities for factory 54,000
Production supervisor’s salary 45,000
President’s salary 90,000
Direct materials used 51,700
Sales commissions 15,000
Factory insurance 16,000
Depreciation on factory equipment 39,000
Manufacturing Overhead 216,700

Conversion Cost = $92,000 + $216,700

= $308,700

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 Factory rent $ 60,000
Company advertising 30,000
Wages paid to laborers 92,000
Depreciation for president’s vehicle 12,000
Indirect production labor 2,700
Utilities for factory 54,000
Production supervisor’s salary 45,000
President’s salary 90,000
Direct materials used 51,700
Sales commissions 15,000
Factory insurance 16,000
Depreciation on factory equipment 39,000
Manufacturing Overhead 216,700

Total Manufacturing Costs = $92,000 + $51,700 + $216,700

= $360,400

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 Factory rent $60,000
Company advertising 30,000
Wages paid to laborers 92,000
Depreciation for president’s vehicle 12,000
Indirect production labor 2,700
Utilities for factory 54,000
Production supervisor’s salary 45,000
President’s salary 90,000
Direct materials used 51,700
Sales commissions 15,000
Factory insurance 16,000
Depreciation on factory equipment 39,000

Period Expenses = $30,000 + $12,000 + $90,000 + $15,000

= $147,000

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 Exercise 1-12

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For each of the following independent cases (A–E), compute the missing values in the table:

Total
Prime Conversion Direct Direct Manufacturing Manufacturing
Case Cost Cost Materials Labor Overhead Cost
A $14,100 $ 24,150 $ 6,450 ? $ 16,500 ?

B ? ? 18,000 10,950 36,750 65,700

C 82,950 161,250 64,800 ? ? ?

D ? 71,025 32,100 19,875 ? 103,125

E ? ? ? 22,650 34,350 83,550

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 Total
Prime Conversion Direct Direct Manufacturing Manufacturing
Case Cost Cost Materials Labor Overhead Cost
A $14,100 $ 24,150 $ 6,450 $7,650
? $ 16,500 $30,600

B ? ? 18,000 10,950 36,750 65,700

C 82,950 161,250 64,800 ? ? ?

D ? 71,025 32,100 19,875 ? 103,125

E ? ? ? 22,650 34,350 83,550

Prime Cost = Direct Materials + Direct Labor

Direct Labor = Prime Cost − Direct Materials
= $14,100 − $6,450

= $7,650

Total Manufacturing Cost = Direct Materials + Direct Labor + Manufacturing Overhead

= $6,450 + $7,650 + $16,500
= $30,600
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 Total
Prime Conversion Direct Direct Manufacturing Manufacturing
Case Cost Cost Materials Labor Overhead Cost
A $14,100 $ 24,150 $ 6,450 $7,650 $ 16,500 $30,600

B $28,950 $47,700 18,000 10,950 36,750 65,700

C 82,950 161,250 64,800 ? ? ?

D ? 71,025 32,100 19,875 ? 103,125

E ? ? ? 22,650 34,350 83,550

Prime Cost = Direct Materials + Direct Labor

= $18,000 + $10,950
= $28,950

Conversion Cost = Direct Labor + Manufacturing Overhead

= $10,950 + $36,750
= $47,700
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 Total
Prime Conversion Direct Direct Manufacturing Manufacturing
Case Cost Cost Materials Labor Overhead Cost
A $14,100 $ 24,150 $ 6,450 $7,650 $ 16,500 $30,600

B $28,950 $47,700 18,000 10,950 36,750 65,700

C 82,950 161,250 64,800 18,150

? $143,100 ?

D ? 71,025 32,100 19,875 ? 103,125

E ? ? ? 22,650 34,350 83,550

Prime Cost = Direct Materials + Direct Labor

Direct Labor = Prime Cost − Direct Materials
= $82,950 − $64,800

= $18,150

Conversion Cost = Direct Labor + Manufacturing Overhead

Manufacturing Overhead = Conversion Cost − Direct Labor
= $161,250 − $18,150
= $143,100
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 Total
Prime Conversion Direct Direct Manufacturing Manufacturing
Case Cost Cost Materials Labor Overhead Cost
A $14,100 $ 24,150 $ 6,450 $7,650 $ 16,500 $30,600

B $28,950 $47,700 18,000 10,950 36,750 65,700

C 82,950 161,250 64,800 18,150

? $143,100 $226,050

D ? 71,025 32,100 19,875 ? 103,125

E ? ? ? 22,650 34,350 83,550

Total Manufacturing Cost = Direct Materials + Direct Labor + Manufacturing Overhead

= $64,800 + $18,150 + $143,100
= $226,050

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 Total
Prime Conversion Direct Direct Manufacturing Manufacturing
Case Cost Cost Materials Labor Overhead Cost
A $14,100 $ 24,150 $ 6,450 $7,650 $ 16,500 $30,600

B $28,950 $47,700 18,000 10,950 36,750 65,700

C 82,950 161,250 64,800 18,150 $143,100 $226,050

D $51,975 71,025 32,100 19,875 $51,150 103,125

E ? ? ? 22,650 34,350 83,550

Prime Cost = Direct Materials + Direct Labor

= $32,100 + $19,875
= $51,975

Conversion Cost = Direct Labor + Manufacturing Overhead

Manufacturing Overhead = Conversion Cost − Direct Labor
= $71,025 − $19,875
= $51,150
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 Total
Prime Conversion Direct Direct Manufacturing Manufacturing
Case Cost Cost Materials Labor Overhead Cost
A $14,100 $ 24,150 $ 6,450 $7,650 $ 16,500 $30,600

B $28,950 $47,700 18,000 10,950 36,750 65,700

C 82,950 161,250 64,800 18,150 $143,100 $226,050

D $51,975 71,025 32,100 19,875 $51,150 103,125

E ? $57,000 $26,550 22,650 34,350 83,550

Conversion Cost = Direct Labor + Manufacturing Overhead

= $22,650 + $34,350
= $57,000

Total Manufacturing Cost = Direct Materials + Direct Labor + Manufacturing Overhead

Direct Materials = Total Manufacturing Cost − Direct Labor − Manufacturing Overhead

= $83,550 − $22,650 − $34,350

= $26,550

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