Celestin Manufacturing Company incurred $23,000 of depreciation on its manufacturing equipment during its first year of operation. During this year the company made 11,500 units of product and sold 3,800 units of product. Based on this information alone the company would show

Celestin Manufacturing Company incurred $23,000 of depreciation on its manufacturing equipment during its first year of operation. During this year the company made 11,500 units of product and sold 3,800 units of product. Based on this information alone the company would show

Multiple Choice

• $23,000 of depreciation expense on its income statement.
• $7,600 of cost of goods sold expense on its income statement.

  Correct
• $23,000 of inventory on its balance sheet.
• $7,600 of inventory on its balance sheet.

Explanation

The cost of depreciation on manufacturing equipment is an overhead cost which is a product cost. The amount of the depreciation is first placed in the Inventory account and then transferred to the Cost of Goods Sold account when the units are sold. Since the company made 11,500 units of product and sold 3,800 of them, the amount of cost transferred to the Cost of Goods Sold account is $7,600 (23,000 depreciation / 11,500 units = $2 per unit; $2 per unit × 3,800 units sold = $7,600 cost of goods sold. The remaining $15,400 of depreciation would remain in the inventory account until the time the remaining goods are sold.

Brock Company makes candy. During the most recent accounting period Brock paid $7,500 for raw materials, $8,500 for labor, and $11,000 for overhead costs that were incurred to make candy. Brock started and completed 25,000 units of candy of which 17,000 were sold. Based on this information the balance in the inventory account on Brock’s balance sheet would be (Do not round intermediate calculations.)

Multiple Choice

• $8,640.

  Correct
• $8,000.
• $27,000.
• None of the above.

Explanation

Materials	$	7,500
Labor		8,500
Overhead		11,000		Units
Total product cost	$	27,000	÷	25,000	= 1.08 cost per unit

1.08 × 8,000 units in inventory = $8,640 inventory

Brock Company makes candy. During the most recent accounting period Brock paid $7,500 for raw materials, $8,500 for labor, and $11,000 for overhead costs that were incurred to make candy. Brock started and completed 25,000 units of candy of which 17,000 were sold. Based on this information Brock would recognize which of the following amounts of expense on its income statement? (Do not round intermediate calculations.)

Multiple Choice

• $8,500.
• $27,000.
• $18,360.

  Correct
• None of the above.

Explanation

Materials	$	7,500
Labor		8,500
Overhead		11,000		Units
Total product cost	$	27,000	÷	25,000	= 1.08 cost per unit

1.08 × 17,000 units sold = $18,360 cost of goods sold expense