The Howell Corporation has the following account balances (in millions):
For Specific Date
Direct materials inventory, Jan. 1, 2014 $15
Work- in- process inventory, Jan. 1, 2014 10
Finished goods inventory, Jan. 1, 2014 70
Direct materials inventory, Dec. 31, 2014 20
Work- in- process inventory, Dec. 31, 2014 5
Finished goods inventory, Dec. 31, 2014 55
For Year 2014
Purchases of direct materials $325
Direct manufacturing labor 100
Depreciation— plant and equipment 80
Plant supervisory salaries 5
Miscellaneous plant overhead 35
Revenues 950
Marketing, distribution, and customer- service costs 240
Plant supplies used 10
Plant utilities 30
Indirect manufacturing labor 60
REQUIREMENTS: Prepare an income statement and a supporting schedule of cost of goods manufactured for the year ended December 31, 2014.
1. How would the answer be modified if you were asked for a schedule of cost of goods manufactured and sold instead of a schedule of cost of goods manufactured? Be specific.
2. Would the sales manager’s salary (included in marketing, distribution, and customer- service costs) be accounted for any differently if the Howell Corporation were a merchandising-sector company instead of a manufacturing-sector company? Describe how the wages of an assembler in the plant would be accounted for in this manufacturing company.
3. Plant supervisory salaries are usually regarded as manufacturing overhead costs. When might some of these costs be regarded as direct manufacturing costs? Give an example.
4. Suppose that both the direct materials used and the plant and equipment depreciation are related to the manufacture of 1 million units of product. What is the unit cost for the direct materials assigned to those units? What is the unit cost for plant and equipment depreciation? Assume that yearly plant and equipment depreciation is computed on a straight-line basis.
5. Assume that the implied cost-behavior patterns in requirement 4 persist. That is, direct material costs behave as a variable cost and plant and equipment depreciation behaves as a fixed cost. Repeat the computations in requirement 4, assuming that the costs are being predicted for the manufacture of 1.2 million units of product. How would the total costs be affected?
6. As a management accountant, explain concisely to the president why the unit costs differed in requirements 4 and 5.