COST AND MANAGEMENT ACCOUNTING PROBLEM

The Howell Corporation has the following 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 December 31, 2009.

2. Prepare an Income Statement for the year ended December 31, 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, distribution, and customer-service 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 usually regarded as overhead costs. When might some of these costs be regarded as direct manufacturing costs? Give an example.

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

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

f. As a Management Accountant, explain concisely to the CEO why the units costs differed in requirement "d" and "e".