1. All the Karmichael businesses have inventory: Crooked Creek Wines – raw mater
ID: 2542210 • Letter: 1
Question
1. All the Karmichael businesses have inventory:
Crooked Creek Wines – raw materials such as grapes, work-in-process including wine in vats undergoing fermentation and wine in storage, and finished goods such as bottled wines;
Vine Dining – raw materials such as vegetables, fruit, meats, and spices; and
Rolling in Dough – raw materials including flour, yeast, salt and finished product in the form of bread.
The following information was provided by Crooked Creek Wines regarding their performance for last year.
Income Statement for year ending 2017
Revenue
$ ????
Cost of Goods Sold
Beginning Finished Goods Inventory
$ 312,500
Cost of goods manufactured
$ ????
Cost of goods available for sale
$ ????
Ending finished goods inventory
$ ????
Cost of Goods Sold
$1,016,285
Gross Margin
$ 733,715
Operating Costs
Marketing
$ ???
Distribution
$ 44,250
Salaries
$ 75,000
Total operating costs
$ 251,750
Operating Income
$ ????
Schedule of cost of goods manufactured
Direct Materials
Beginning direct materials inventory
$ 25,000
Purchases of direct materials
$ ????
Cost of direct materials available for use
$ 700,820
Ending direct materials inventory
$ 23,750
Direct materials used
$ 677,070
Direct manufacturing labour
$ 225,000
Manufacturing overheads
Indirect manufacturing labour
$ 53,600
Supplies
$ 13,777
Utilities
$ ????
Depreciation – machinery
$ 4,300
Other expenses
$ 29,875
Total manufacturing overheads
$ 167,352
Manufacturing costs incurred during period
$ 1,069,422
Beginning work-in-process inventory
$ ????
Total manufacturing costs to account for
$ 1,744,347
Ending work—in-process for period
$ ????
Cost of goods manufactured
$ 985,035
Required
a. Using the information above calculate the missing values in the above table
i. Revenue
ii. Cost of goods manufactured
iii. Cost of goods available for sale
iv. Ending finished goods inventory
v. Marketing costs
vi. Operating income
vii. Purchases of direct materials
viii. Utilities
ix. Beginning work-in-process inventory
x. Ending work-in-process inventory
b) Identify the prime cost and conversion cost for Crooked Creek Wines for the period.
c) Assuming the Crooked Creek Wines produced 65,000 bottles during this period, what is the unit cost of production?
d) Assuming the cost structures remain the same, what would be the cost per unit of manufacturing 110,000 bottles?
e) Write a short paragraph to the management of Crooked Creek Wines explaining the differences between the unit costs, if any, calculated in requirement c and d.
2. As the Try It! Questions does not provide specific context in which to analyse and interpret information, consider the following:
a) Direct materials cost is $1.70 per bottle for Crooked Creek Wines – what are the direct materials included in this cost? If the industry average is $1.65 per bottle, what can this comparison tell management of Crooked Creek Wines? Consider this question considering the strategy of either product differentiation or cost leadership
b) Electricity cost for Rolling in Dough is $8000 per month regardless of the number of unit produced – what type of contract does Rolling in Dough have with their electricity provider? How much is the electricity cost per unit using the figures from Topic 1?
c) Transport costs for Crooked Creek Wines includes a flat fee of $80 per day (for leased distribution truck) plus $2 per kilometre driven – If Crooked Creek Wines purchased the truck and then replaced the flat free with depreciation of $2,200 per month and still retain the variable cost of $2 per kilometre driven, should they? If the lease contract includes free servicing, would you change your mind?
d) Machine operating costs for Vine Dining (kitchen appliances etc) includes $1000 of maintenance costs per month, with $12 of other costs for each day the machinery is in operation – estimate the monthly cost for operating the machinery assuming 28 operating days? What other information would Vine Dining need to determine whether any of the machinery should be upgraded?
3. Cost estimation – utilities
The Karmichaels’ property has single connections and metres for gas and water. The following information is provided regarding these utilities for the past year.
Using the high-low method, determine the liner cost function for both the gas and water costs.
Express the combined costs in a single linear cost equation.
Write an explanation of the procedure and the information it produces, as well as how this information is useful for cost management, to the Karmichaels.
Gas
Water
Units
Cost $
Units
Cost $
January
375
343.75
3,500
1,530.00
February
425
356.25
3,750
1,612.50
March
550
387.50
2,250
1,117.50
April
350
337.50
2,000
1,035.00
May
345
336.25
1,800
969.00
June
420
355.00
2,100
1,068.00
July
425
356.25
2,750
1,282.50
August
476
369.00
2,615
1,237.95
September
510
377.50
2,800
1,299.00
October
445
361.25
2,975
1,356.75
November
375
343.75
3,100
1,398.00
December
315
328.75
3,255
1,449.15
Income Statement for year ending 2017
Revenue
$ ????
Cost of Goods Sold
Beginning Finished Goods Inventory
$ 312,500
Cost of goods manufactured
$ ????
Cost of goods available for sale
$ ????
Ending finished goods inventory
$ ????
Cost of Goods Sold
$1,016,285
Gross Margin
$ 733,715
Operating Costs
Marketing
$ ???
Distribution
$ 44,250
Salaries
$ 75,000
Total operating costs
$ 251,750
Operating Income
$ ????
Schedule of cost of goods manufactured
Direct Materials
Beginning direct materials inventory
$ 25,000
Purchases of direct materials
$ ????
Cost of direct materials available for use
$ 700,820
Ending direct materials inventory
$ 23,750
Direct materials used
$ 677,070
Direct manufacturing labour
$ 225,000
Manufacturing overheads
Indirect manufacturing labour
$ 53,600
Supplies
$ 13,777
Utilities
$ ????
Depreciation – machinery
$ 4,300
Other expenses
$ 29,875
Total manufacturing overheads
$ 167,352
Manufacturing costs incurred during period
$ 1,069,422
Beginning work-in-process inventory
$ ????
Total manufacturing costs to account for
$ 1,744,347
Ending work—in-process for period
$ ????
Cost of goods manufactured
$ 985,035
Explanation / Answer
c.
d.
Income Statement for year ending 2017 $ $ Working Step No Revenue 1750000 Cost of goods sold+Gross Margin 1 Cost of Goods Sold Beginning Finished Goods Inventory 312500 Cost of goods manufactured 985035 Cost of goods manu schedule (Last point) 8 Cost of goods available for sale 1297535 Beginning+cost of goods manu 9 Ending finished goods inventory 281250 Cost of goods available for sale-Cost of goods sold 10 Cost of Goods Sold 1016285 Gross Margin 733715 Operating Costs Marketing 132500 Total Operating Cost-Distribution-Salaries 2 Distribution 44250 Salaries 75000 Total operating costs 251750 Operating Income 481965 Gross Margin-Total Operating Cost 3 Schedule of cost of goods manufactured Direct Materials Beginning direct materials inventory 25000 Purchases of direct materials 675820 Direct Material Used+Ending-Beginning 4 Cost of direct materials available for use 700820 Ending direct materials inventory 23750 Direct materials used 677070 Direct manufacturing labour 225000 Manufacturing overheads Indirect manufacturing labour 53600 Supplies 13777 Utilities 65800 Total Manu Ovh-Indirect-Supplies-Dep-other exp 5 Depreciation – machinery 4300 Other expenses 29875 Total manufacturing overheads 167352 Manufacturing costs incurred during period 1069422 Beginning work-in-process inventory 674925 Total Manu cost to account For-Manu cost incurred 6 Total manufacturing costs to account for 1744347 Ending work—in-process for period 759312 Total Manu cost to account For-Cost of goods manu 7 Cost of goods manufactured 985035Related Questions
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