Reference no: EM134017

Question :

The Howell Corporation has the subsequent account balance (in millions, 000.000):

• For Specific Date

 Direct materials inventory, Jan. 1, 2009                        $15

 Work-in-process inventory, Jan. 1, 2009                        $10

 Finished goods inventory, Jan. 1, 2009                           $70

 Direct Materials inventory, Dec. 31, 2009                      $20

 Work-in-process inventory, Dec. 31, 2009                      $5

 Finished goods inventory, Dec. 31, 2009                         $55

• For Year 2009

Purchases of direct materials            $325

Direct manufacturing labor                $100

Depreciation-plant and equipment      $80

Plant supervisory salaries                   $5

Miscellaneous plant over head             $35

Revenues                                           $ 950

Marketing, distribution, and customer-service costs   $240

Plant supplies used                                  $10

Plant utilities                                           $30

Indirect manufacturing labor                     $60

Required

1. Prepare a Supporting Schedule of Costs of Goods Manufacturing for the year ended 31^st December, 2009.

2. Prepare an Income Statement for the year ended 31^st December, 2009.

3. Interpretation of statement:

a. How would the answer be modified if you were asked for a schedule of costs of goods manufactured and sold instead of a schedule of costs of goods manufactured? Be specific.

b. Would the sales manager's salary (included in marketing, customer-service and distribution costs) be accounted for any differently if the Howell Corporation were a merchandising-sector company instead of a manufacturing-sector company?

c. Plant supervisory salaries are generally regarded as overhead costs. When might some of these costs be regarded as direct manufacturing costs? Give an illustration.

d. Consider that the direct material used and the equipment and plant depreciation are related to the manufacture of one million (1.000.000) units of product. Evaluate the unit cost for the direct materials assigned to those units? What are the unit costs for equipment and plant depreciation? Suppose that yearly plant and equipment depreciation in computed on straight-line basis.

e. Suppose that the implied cost-behavior patterns in requirement "d" persist. That is, direct material costs behave as a variable cost, and equipment and plant depreciation behaves as a fixed cost. Repeat the computation in requirement "d", considering that the costs are being predicted for the manufacture of 1.200.000 units of product. How would the total cost be affected?

f. As a Management Accountant, describe concisely to the CEO why the unit's costs differed in requirement "d" and "e".