CHAPTER 2

Basic Cost Management Concepts and

Accounting for Mass Customization Operations
PROBLEM 2-43 (35 MINUTES)
1.

LAREDO LUGGAGE COMPANY

SCHEDULE OF COST OF GOODS MANUFACTURED
FOR THE YEAR ENDED DECEMBER 31, 20X2
Direct material:
Raw-material inventory, January 1 ...........................................
Add: Purchases of raw material ................................................
Raw material available for use ..................................................
Deduct: Raw-material inventory, December 31........................
Raw material used......................................................................
Direct labor .....................................................................................
Manufacturing overhead:
Indirect material..........................................................................
Indirect labor...............................................................................
Utilities: plant..............................................................................
Depreciation: plant and equipment...........................................
Other............................................................................................
Total manufacturing overhead ..................................................
Total manufacturing costs.............................................................
Add: Work-in-process inventory, January 1 ................................
Subtotal...........................................................................................
Deduct: Work-in-process inventory, December 31......................
Cost of goods manufactured.........................................................

2.

$ 20,000
90,000
$110,000
12,500

$97,500
100,000

$ 5,000
7,500
20,000
30,000
40,000
102,500
$300,000
20,000
$320,000
15,000
$305,000

LAREDO LUGGAGE COMPANY

SCHEDULE OF COST OF GOODS SOLD
FOR THE YEAR ENDED DECEMBER 31, 20X2
Finished goods inventory, January 1 ............................................................
Add: Cost of goods manufactured ................................................................
Cost of goods available for sale ....................................................................
Deduct: Finished-goods inventory, December 31 ........................................
Cost of goods sold..........................................................................................

$ 10,000
305,000
$315,000
25,000
$290,000

PROBLEM 2-43 (CONTINUED)

3.

LAREDO LUGGAGE COMPANY

INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 20X2
Sales revenue ..................................................................................................
Less: Cost of goods sold ...............................................................................
Gross margin...................................................................................................
Selling and administrative expenses.............................................................
Income before taxes........................................................................................
Income tax expense ........................................................................................
Net income.......................................................................................................

$475,000
290,000
$185,000
75,000
$110,000
45,000
$65,000

PROBLEM 2-44 (30 MINUTES)

1.

2.

3.

Manufacturing overhead:
I
nd
i
r
e
c
tl
a
b
or
. $ 218,000
Building depreciation ($160,000 x 75%)..
120,000
Ot
he
rf
a
c
t
o
r
yc
os
t
s
.
.
688,000
To
t
a
l
.
.
. $1,026,000
Cost of goods manufactured:
Direct material:
Raw-ma
t
e
r
i
a
l
i
nv
e
n
t
o
r
y
,
J
a
n.
1
$ 31,600
Add
:Pur
c
h
a
s
e
sofr
a
wma
t
e
r
i
a
l
.
. 350,000
Ra
wma
t
e
r
i
a
l
a
v
a
i
l
a
bl
ef
orus
e
. $381,600
Deduct: Raw-ma
t
e
r
i
a
l
i
nv
e
nt
or
y
,
De
c
.
3
1
. 36,400
Ra
wma
t
e
r
i
a
l
u
s
e
d.
.
Di
r
e
c
tl
a
b
or
.
.
Ma
n
uf
a
c
t
ur
i
ngo
v
e
r
h
e
a
d
.
.
T
ot
a
l
ma
nu
f
a
c
t
ur
i
ngc
os
t
s
.
.
Add: Work-in-pr
oc
e
s
si
n
v
e
n
t
or
y
,
J
a
n
.
1
.
Subt
o
t
a
l
.
.
Deduct: Work-in-p
r
oc
e
s
si
nv
e
nt
or
y
,
De
c
.
3
1
.
Cos
to
fgo
od
sma
n
uf
a
c
t
u
r
e
d.
.
Cost of goods sold:
Finished-goodsi
nv
e
n
t
or
y
,
J
a
n.
1
.
. $ 222,200
Add
:Cos
to
fgo
od
sma
n
uf
a
c
t
u
r
e
d
1,826,400
Cos
to
fgo
od
sa
v
a
i
l
a
b
l
ef
o
rs
a
l
e
. $2,048,600
Deduct: Finished-g
oodsi
nv
e
nt
or
y
,
De
c
.
3
1

195,800
Cos
to
fgo
od
ss
ol
d
. $1,852,800

McGraw-Hill/Irwin
3-2

$ 345,200
508,000
1,026,000
$1,879,200
71,400
$1,950,600
124,200
$1,826,400

2005 The McGraw-Hill Companies, Inc.

Solutions Manual

4.

5.

Net income:
Sa
l
e
sr
e
v
e
nue
.
.
L
e
s
s
:Cos
tofgo
od
ss
ol
d.
Gr
os
sma
r
gi
n.
.
.
Selling and administrative expenses:
Sa
l
a
r
i
e
s
.
.
. $266,000
Bui
l
di
ngd
e
pr
e
c
i
a
t
i
o
n(
$
1
6
0
,
0
0
0x2
5
%)
.
.
.
40,000
Ot
he
r

380,000
I
nc
omeb
e
f
or
et
a
x
e
s
.
.
Income tax expense ($451,
2
0
0x4
0
%)
.
.
Ne
ti
n
c
ome
.
.
.

$2,990,000
1,852,800
$1,137,200

686,000
$ 451,200
180,480
$ 270,720

Surgical Products, Inc. sold 11,500 units during the year ($2,990,000 $260). Since
160 of the units came from finished-goods inventory (1,350 1,190), the company
would have manufactured 11,340 units (11,500 160).

PROBLEM 2-45 (40 MINUTES)

Sales ................................................................................
Beginning inventory, raw material ................................
Ending inventory, raw material......................................
Purchases of raw material .............................................
Direct material used........................................................
Direct labor......................................................................
Manufacturing overhead ................................................
Total manufacturing costs .............................................
Beginning inventory, work in process ..........................
Ending inventory, work in process ...............................
Cost of goods manufactured .........................................
Beginning inventory, finished goods ............................
Cost of goods available for sale ....................................
Ending inventory, finished goods .................................
Cost of goods sold .........................................................
Gross margin ..................................................................
Selling and administrative expenses ............................
Income before taxes .......................................................
Income tax expense........................................................
Net income ......................................................................
*Amount missing in problem.

Case A
Case B
$1,600,000* $1,500,000*
120,000*
60,000
180,000
30,000*
200,000
255,000
140,000
285,000
400,000*
300,000
500,000
450,000*
1,040,000 1,035,000
70,000
60,000
60,000*
105,000
1,050,000
990,000*
100,000
120,000
1,150,000* 1,110,000*
60,000*
120,000*
1,090,000
990,000
510,000
510,000
210,000*
225,000
300,000
285,000*
80,000
135,000
220,000*
150,000*

Case C
$240,000
7,500
15,000
35,000*
27,500*
62,500
80,000
170,000
7,500*
2,500
175,000
10,000*
185,000
12,500
172,500*
67,500*
22,500*
45,000
17,500*
27,500