Question

Santana Rey, owner of Business Solutions, decides to diversify her business by also manufacturing computer workstation furniture.

Required:
1. Classify the following manufacturing costs of Business Solutions as (a) variable or fixed and (b) direct or indirect.
A. Monthly flat fee to clean workshop
B. Laminate coverings for desktops
C. Taxes on assembly workshop
2. Prepare a schedule of cost of goods manufactured for Business Solutions for the month ended January 31, 2018. Assume the following manufacturing costs:
Direct materials: $2,300
Factory overhead: $550
Direct labor: $1,200
Beginning work in process: none (December 31, 2019)
Ending work in process: $550 (January 31, 2020)
Beginning finished goods inventory: none (December 31, 2019)
Ending finished goods inventory: $320 (January 31, 2020)
3. Prepare the cost of goods sold section of a partial income statement for Business Solutions for the month ended January 31, 2018.

Answer 1

Business Solutions

1. Costs Classification:

A. Monthly flat fee to clean workshop = fixed / indirect

B. Laminate coverings for desktops = variable / direct

C. Taxes on assembly workshop = fixed / indirect

2. A Schedule of Cost of Goods Manufactured:

Direct materials: $2,300

Factory overhead: $550

Direct labor: $1,200

Beginning work in process: 0

Ending work in process: (550)

Cost of goods manufactured $3,500

3. Cost of goods sold:

Beginning finished goods inventory: $0

Cost of goods manufactured $3,500

Ending finished goods inventory: $320

Cost of goods sold = $3,180

Step-by-step explanation:

a) Data and Calculations:

Direct materials: $2,300

Factory overhead: $550

Direct labor: $1,200

Beginning work in process: none (December 31, 2019)

Ending work in process: $550 (January 31, 2020)

Beginning finished goods inventory: none (December 31, 2019)

Ending finished goods inventory: $320 (January 31, 2020)

b) Variable costs are input or direct costs that change with the level of output. Fixed costs are indirect costs that do not change based on the units produced.