Farrar Inc.
Manufacturing Costs
For the Quarter Ended June 30, 2014
Materials used in production (including
$62,500 of indirect materials) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 675,000
Direct labor (including $93,750 maintenance salaries) . . . . . . . 625,000
Factory overhead:
Supervisor salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 575,000
Heat, light, and power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156,250
Sales salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387,500
Promotional expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350,000
Insurance and property taxes—plant . . . . . . . . . . . . . . . . . . . . . 168,750
Insurance and property taxes—corporate offices . . . . . . . . . 243,750
Depreciation—plant and equipment . . . . . . . . . . . . . . . . . . . . . 137,500
Depreciation—corporate offices . . . . . . . . . . . . . . . . . . . . . . . . . 100,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,418,750
Answer:
1. The maintenance salaries and indirect materials should be included as factory overhead.
2. The factory overhead incorrectly includes the following items: sales salaries, promotional expenses, corporate office insurance and property taxes, and corporate office depreciation. These items should not be included as factory overhead. The corrected report is as follows:
FARRAR INC.
Manufacturing Costs
For the Quarter Ended June 30, 2014
Cost of direct materials used in production $ 612,500
Direct labor 531,250
Factory overhead:
Maintenance salaries $ 93,750
Indirect materials 62,500
Supervisor salaries 575,000
Heat, light, and power 156,250
Insurance and property taxes—plant 168,750
Depreciation—plant and equipment 137,500 1,193,750
Total $2,337,500