W. W. Phillips Company produced 4,000 leather recliners during the year. These recliners sell for $400 each. Phillips had 500 recliners in finished goods inventory at the beginning of the year. At the end of the year, there were 700 recliners in finished goods inventory. Phillips’ accounting records provide the following information: Purchases of raw materials $320,000 Beginning materials inventory 46,800 Ending materials inventory 66,800 Direct labor 200,000 Indirect labor 40,000 Rent, factory building 42,000 Depreciation, factory equipment 60,000 Utilities, factory 11,900 Salary, sales supervisor 90,000 Commissions, salespersons 180,000 General administration 300,000 Beginning work-in-process inventory 13,040 Ending work-in-process inventory 14,940 Beginning finished goods inventory 80,000 Ending finished goods inventory 114,100 Required: 1. Prepare a statement of cost of goods manufactured. 2. Compute the average cost of producing one unit of product in the year. 3. Prepare an income statement for external users
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
| Purchases of raw materials | $320,000 |
| Beginning materials inventory | 46,800 |
| Ending materials inventory | 66,800 |
| Direct labor | 200,000 |
| Indirect labor | 40,000 |
| Rent, factory building | 42,000 |
| Depreciation, factory equipment | 60,000 |
| Utilities, factory | 11,900 |
| Salary, sales supervisor | 90,000 |
| Commissions, salespersons | 180,000 |
| General administration | 300,000 |
| Beginning work-in-process inventory | 13,040 |
| Ending work-in-process inventory | 14,940 |
| Beginning finished goods inventory | 80,000 |
| Ending finished goods inventory | 114,100 |
| Required: | |
| 1. | Prepare a statement of cost of goods manufactured. |
| 2. | Compute the average cost of producing one unit of product in the year. |
| 3. | Prepare an income statement for external users. |
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