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Varnish Company makes industrial cleaning solvents. Various chemicals, detergent, and water
are mixed together and then bottled in 10 gallon drums. The company provided the following
information for last year.

Raw material purchases RM 250,000 Administrative salaries RM 150,000

Direct Labor 140,000 Indirect labor salaries 156,000
Depreciation on factory 45,000 Sales Office salaries 90,000
Depreciation on factory 30,000 Beg. balance, Raw
building Material 124,000
Depreciation on 50,000 Beg. balance, Work-in-
Headquarters building Process 124,000
Factory insurance 15,000 Beg. balance Finished
Goods 84,000
Property taxes: End. balance, Raw
Factory 20,000 Material 102,000
Headquarters 18,000 End. balance, Work-in-
process 130,000
Utilities for factory 34,000 End. balance, Finished
Goods 82,000
Utilities for sales office 1,800

Last year Varnish Company completed 100,000 units. Sales revenue equalled RM1,200,000 and
Varnish company paid a sales commission of 5% of sales.


(i) Calculate the direct material used in production for last year
(1 mark)
(ii) Calculate total prime costs and conversion cost.
(2 marks)
(iii) Prepare cost of goods manufactured statement for last year and compute the unit product
(4 marks)
(iv)Prepare cost of goods sold statement for last year.
(2 marks)
(v) Prepare an income statement for last year. Show the percentage of sales that each line items
(5 marks)
(Adapted from BAC1624 T2,2013/2014 supplementary Exam)

Ryan Corporation incurred the following costs while manufacturing its product.
Material used in product $100,000 Advertising expense $45,000
Depreciation on plant 60,000 Property taxes on plant 14,000
Property taxes on store 7,500 Delivery Expenses 21,000
Labor costs of assembly-line Sales Commissions 35,000
Workers 110,000
Factory supplies used 13,000 Salaries paid to sales clerk 50,000
(a) Identify each of the above costs as direct materials, direct labor, manufacturing overhead
or period costs.
(b) Explain the basic difference in accounting for product cost and period costs.

Knight Company reports the following costs and expenses in May
Factory Utilities $15,500 Direct Labor $69,100
Depreciation on factory 12,650 Sales Salaries 46,400
Depreciation on delivery trucks 3,800 Property taxed on factory 2,500
Indirect factory labor 48,900 Repairs to office equipment 1,300
Indirect material 80,800 Factory repairs 2,000
Direct materials used 137,600 Advertising 15,000
Factory managers salary 8,000 Office supplies used 2,640

From the information, determine the total amount of :
(a) Manufacturing overhead
(b) Product Costs
(c) Period Costs
Lott Company specializes in manufacturing a unique model of bicycle helmet. The model is
well accepted by consumers, and the company has enough orders to keep the factory production
at 10,000 helmets per month (80% of its full capacity). Lotts monthly manufacturing cost and
other expense data are as follows.
Rent on factory equipment $9,000
Insurance on factory building 1,500
Raw materials (plastics, polystyrene, etc) 75,000
Utility costs for factory 900
Supplies for general office 300
Wages for assembly line workers 53,000
Depreciation on office equipment 800
Miscellaneous materials (glue, thread, etc) 1,100
Factory managers salary 5,700
Property taxes on factory building 400
Advertising for helmets 14,000
Sales Commissions 10,000
Depreciation on factory building 1,500

(a) Prepare an answer sheet with the following column headings
Product Cost
Cost Item Direct Direct Manufacturing Period Costs
Materials Labor Overhead

Enter each cost item on your answer sheet, placing the dollar amount under the
appropriate headings. Total the dollar amounts in each of the columns.

(b) Compute the cost to produce one helmet

The following data were taken the records of Clarkson Company for the fiscal year ended June
30, 2014.
Raw Materials Inventory, $48,000 Factory Insurance $4,600
Raw Materials Inventory 39,600 Factory Machinery 16,000
6/30/14 Depreciation
Finished Goods 96,000 Factory Utilities 27,600
Inventory 7/1/13
Finished Goods 75,900 Office Utilities Expense 8,650
Inventory 6/30/14
Work in Process 19,800 Sales Revenue 534,000
Inventory 7/1/13
Work in Process 18,600 Sales Discounts 4,200
Inventory 6/30/14
Direct Labor 139,250 Plant Managers Salary 58,000
Indirect Labor 24,460 Factory Property Taxes 9,600
Accounts Receivable 27,000 Factory Repairs 1,400
Raw Materials Purchases 96,400
Cash 32,000

(a) Prepare a cost of goods manufactured schedule (Assume all raw materials used were
direct materials)
(b) Prepare an income statement through gross profit
(c) Prepare the current assets section of the balance sheet at June 30,2014.