DECISON MAKING

Question 1

Calc the conversion cost?

Answer 1

STEP 1 CALC COGM

BEGIN FG INVENTORY 1200
COGM ????
ENDING FG INVENTORY 1400
COGS 12,000

COGS

12,000 - 1200 + 1400 = 12,200

STEP 2 CALC THE CONVERSION COST

COGM 12200
MATERIAL 500
BEG RAW MATERIAL 6,000
- END RAW MATERIAL 800 = 500+6000-800 = 5700

COGM 12,200 - 6500 = 5700

CONVERSION COST 6500

Question 1

What’s true regarding the relationship between absorption costing net income and variable costing income?

Answer 1

When sales exceed production, absorption cost of goods sold exceeds variable cost of goods sold

Question 2

Calc total cost savings over the product life cycle?

Answer 2

Custom machine 5,000,000

product variable cost 5.50 per unit x 500,000 units of product x 2 years = 5,500,000

0.95 x 500,000 units of production x 2 years = 950,000

= 6,450,000

Total cost savings 1,450,000

Question 3

Calc the prime costs?

Answer 3

Prime costs include Direct material and direct labor

Beginning direct material inventory $45,000

Plus Direct material purchased
$105,000

Less: ending direct material
(37,500)

Direct material cost $112,500

Direct manufacturing labor payroll 75,000

Prime cost - 112,500 + 75,000 = 187,500