Question 1: Schedules of cost of goods manufactured and sold; income statement
The following data refer to Flintoff Fashions for the current year:
Sales revenue $570 000
Work in process inventory, 31 December 18 000
Work in process inventory, 1 January 24 000
Selling and administrative expenses 90 000
Income tax expense 54 000
Purchases of raw materials 108 000
Raw material inventory, 31 December 15 000
Raw material inventory, 1 January 24 000
Direct labour 120 000
Electricity: plant 24 000
Depreciation: plant and equipment 36 000
Finished goods inventory, 31 December 30 000
Finished goods inventory, 1 January 12 000
Indirect material 6 000
Indirect labour 9 000
Other manufacturing overhead 48 000
1. Prepare the schedule of cost of goods manufactured for Flintoff Fashions.
2. Prepare the schedule of cost of goods sold for Flintoff Fashions.
3. Prepare the income statement for Flintoff Fashions.
4. Construct an Excel® spreadsheet to solve all the preceding requirements. Include formulas in your spreadsheet wherever possible. Show how both cost schedules and the income statement will change if:
(a) raw material purchases amounted to $110 400.
(b) indirect labour was $9600.
Question 2: Cost of goods manufactured; overapplied or underapplied overhead; journal entries
Cool Cooking Tools Ltd, manufacturer of gourmet cooking utensils, uses job costing. Manufacturing overhead is applied to production at a predetermined overhead rate of 150 per cent of direct labour cost. Any overapplied or underapplied manufacturing overhead is closed to cost of goods sold at the end of each month. Additional information:
Job SR22, consisting of ceramic spoon rests, was the only job in process on 31 January, with accumulated costs as follows:
Direct material $4000
Direct labour 2000
Applied manufacturing overhead 3000
Jobs BS67, TR29 and GT108 were started during February.
Direct materials requisitions during February totalled $26 000.
Direct labour cost of $20 000 was incurred during February.
Manufacturing overhead incurred in February was $32 000.
The only job still in process on 28 February was job number GT108, with costs of $2800 for direct material and $1800 for direct labour.
1. Calculate the cost of goods manufactured for February.
2. Calculate the amount of overapplied or underapplied overhead to be closed to cost of goods sold on 28 February.
3. Prepare journal entries to record the events described in requirements 1 and 2.
Question 3: Hines (1991) argues that conceptual frameworks ‘presume, legitimize and reproduce the assumption of an objective world and as such they play a part in constituting the social world … conceptual frameworks provide social legitimacy to the accounting profession’. Try to explain what she means.
Question 4: On 1 July 2011 Sprintfast Couriers, which has a year-end of 30 June, purchased a delivery truck for use in its courier operations at a cost of $65 000. At the end of the truck’s useful life it is expected to have a residual value of $5000. During its six-year useful life, Sprintfast Couriers Limited expected the truck to be driven 246 000 kilometres
Calculate the annual depreciation charge for each of the six years of the truck’s life using the following methods:
(a) the straight-line method
(b) the sum-of-digits method
(c) the declining-balance method
(d) the units-of-production method using kilometres as the basis of use and assuming the following usage:
Question 4: Star City Limited commences construction of a multi-purpose water park on 1 July 2015 for Pretoria Limited. Star City Limited signs a fixed-price contract for total revenues of $50 million. The project is expected to be completed by the end of 2018 and Pretoria Limited controls the asset throughout the period of construction. The expected cost as at the commencement of construction is $38 million. The estimated costs of a construction project might change throughout the project—in this example, they do change. The following data relates to the project (the financial years end on 30 June):
Costs for the year
Costs incurred to date
Estimated costs to complete
Progress billings during the year
Cash collected during the year
(a) Using the above data, compute the gross profit to be recognised for each of the three years, assuming that the outcome of the contract can be reliably estimated.
(b) Prepare the journal entries for the 2016 financial year using the percentage-of-completion method.
(c) Prepare the journal entries for the 2016 financial year, assuming the stage of completion cannot be reliably assessed.