Go the Hershey website to learn how to make Hershey chocolate. Review the process and take a look at some of the videos. Pay particular attention to the process steps of milling and pressing, mixing the ingredients, and refining.
In at least one paragraph, describe the costing system that you would recommend Hershey use to account for its cost of goods sold and why. Include a few product costs you think would be traceable, which costs should be allocated and how Hershey should account and apply the manufacturing overhead costs
Carefully review the Grading Rubric for the criteria that will be used to evaluate your journal entry.
Week Four Problems
1. Comprehensive budgeting
The balance sheet of Watson Company as of December 31, 20X1, follows.
|December 31, 12X1|
|Finished goods (575 units x $7.00)||4,025|
|Direct materials (2,760 units x $0.50)||1,380|
|Plant & equipment||$50,000|
|Less: Accumulated depreciation||10,000||40,000|
|Liabilities & Stockholders’ Equity|
|Accounts payable to suppliers||$14,000|
|Total liabilities &. stockholders’ equity||$60,000|
The following information has been extracted from the firm’s accounting records:
1. All sales are made on account at $20 per unit. Sixty percent of the sales are collected in the month of sale; the remaining 40% are collected in the following month. Forecasted sales for the first five months of 20X2 are: January, 1,500 units,- February, 1,600 units; March, 1,800 units; April, 2,000 units; May, 2,100 units.
2. Management wants to maintain the finished goods inventory at 30% of the following month’s sales.
3. Watson uses four units of direct material in each finished unit. The direct material price has been stable and is expected to remain so over the next six months. Management wants to maintain the ending direct materials inventory at 60% of the following month’s production needs.
4. Seventy percent of all purchases are paid in the month of purchase; the remaining 30% are paid in the subsequent month.
5. Watson’s product requires 30 minutes of direct labor time. Each hour of direct labor costs $7.
a. Rounding computations to the nearest dollar, prepare the following for January through March:
1) Sales budget
2) Schedule of cash collections
3) Production budget
4) Direct material purchases budget
5) Schedule of cash disbursements for material purchases
6) Direct labor budget
b. Determine the balances in the following accounts as of March 31:
1) Accounts Receivable
2) Direct Materials
3) Accounts Payable
2. Basic flexible budgeting Centron, Inc., has the following budgeted production costs:
|Direct materials||$0.40 per unit|
|Direct labor||1.80 per unit|
|Variable factory overhead||2.20 per unit|
|Fixed factory overhead|
The company normally manufactures between 20,000 and 25,000 units each quarter. Should output exceed 25,000 units, maintenance and other fixed costs are expected to increase by $6,000 and $4,500, respectively.
During the recent quarter ended March 31, Centron produced 25,500 units and incurred the following costs:
|Variable factory overhead||51,940|
|Fixed factory overhead|
|Total production costs||$174,825|
a. Prepare a flexible budget for 20,000, 22,500, and 25,000 units of activity.
b. Was Centron’s experience in the quarter cited better or worse than anticipated? Prepare an appropriate performance report and explain your answer.
c. Explain the benefit of using flexible budgets (as opposed to static budgets) in the measurement of performance.
3. Straightforward variance analysis
Arrow Enterprises uses a standard costing system. The standard cost sheet for product no. 549 follows.
|Direct materials: 4 units @ $6.50||$26.00|
|Direct labor: 8 hours @ $8.50||68|
|Variable factory overhead: 8 hours||@ $7.00||56|
|Fixed factory overhead: 8 hours||@ 2.5||20|
|Total standard cost per unit||$170.00|
The following information pertains to activity for December:
1. Direct materials acquired during the month amounted to 26,350 units at $6.40 per unit. All materials were consumed in operations.
2. Arrow incurred an average wage rate of $8.75 for 51,400 hours of activity.
3. Total overhead incurred amounted to $508,400. Budgeted fixed overhead totals $1.8 million and is spread evenly throughout the year.
4. Actual production amounted to 6,500 completed units.
a. Compute Arrow’s direct material variances.
b. Compute Arrow’s direct labor variances.
c. Compute Arrow’s variances for factory overhead.