Part-1

The following information pertains to the Wong Corporation:

Specific date                                           Year 2013

Work in process, January 1, 2013       $12,000,000   Plant utilities                  $ 6,000,000

Direct Materials, December 31, 2013   $ 6,000,000    Indirect manufacturing labour $24,000,000

Finished Goods, December 31,2013    $14,400,000   Amortization -Plant, Building,                                                                                         & Equipment  $10,800,000  

Accounts payable, December 31,2013 $24,000,000   Revenues                     $420,000,000 

Accounts receivable, January 1, 2013  $60,000,000   Miscellaneous manufacturing                                                                                 overhead             $ 12,000,000

Work in process, December 31, 2013   $ 2,400,000    Marketing, distribution, and                                                                             customer service costs      $108,000,000

Finished goods, January 1, 2013        $48,000,000   Purchases of direct materials  $ 96,000,000

Accounts receivable, Dec. 31, 2013     $36,000,000   Direct manufacturing labour   $ 48,000,000

Accounts payable, January 1, 2013     $48,000,000   Plant supplies used            $ 7,200,000

Direct materials, January 1, 2013       $36,000,000   Property taxes on plant               $ 1,200,000

Wong, manufacturing cost system uses a three-part classification of manufacturing costs. There are two prime costs and one conversion cost: direct materials, direct manufacturing labour, and indirect manufacturing costs.

REQUIRED:

1. Identify the prime costs. Identify the conversion costs.

2. Prepare an income statement and a supporting schedule of cost of goods manufactured.

3. How would your answer to part 2 be modified if you were asked for a schedule of cost of goods manufactured and sold instead of a schedule of cost of goods manufactured? Be specific.

Part-2

The Firestone Company retails two products, a standard and a deluxe version of a luggage carrier. The budgeted income statement is as follows:

Standard      Deluxe                                                                                 Carrier         Carrier         Total

Units sold                                        150,000         50,000        200,000            

Revenues @ $20 and $30 per unit              $3,000,000     $1,500,000     $4,500,000

Variable costs@ $14 and $18 per unit           $2,100,000     $ 900,000     $3,000,000

Contribution margins@ $6 and $12 per unit     $ 900,000     $ 600,000     $1,500,000

Fixed costs                                                                     $1,200,000

Operating income                                                              $ 300,000

REQUIRED:

1. Compute the breakeven point in units, assuming that the planned revenue mix is maintained

2. Compute the breakeven point in units if

a. Only standard carriers are sold

b. Only deluxe carriers are sold

3. Suppose 200,000 units are sold, but only 20,000 are deluxe. Compute the operating income. Compute the breakeven point if these relationships persist in the next period.

Compare your answers with the original plans and the answer in requirement 1. What is the major lesson of this problem?