Question

The objective is for the student to become familiar with thevarious types of transactions that will impact the inventoriableand manufacturing overhead costs of the organization. In Hershey’s2007 annual report,http://library.corporate-ir.net/library/11/115/115590/items/283950/10K_Hershey[1].pdf,the management made this claim, “A decrease in inventories in 2007reflecting lower raw material and goods in process inventoriesresulting from reduced manufacturing requirements and the globalsupply chain transformation program, in addition to lower finishedgoods inventories as a result of working capital improvementinitiatives, partially offset by an inventory build in anticipationof the relocation of certain manufacturing processes under theglobal supply chain transformation program” The following itemswill be assessed in particular: 1. Using Hershey’s inventory costdisclosed in the 2007 annual report, analyze and discuss the effectof the below economic events (a through j) on the financialstatements: assume Hershey is a manufacturing firm that usesjob-order costing. At the end of the 2007 year, the company'sinventory balances were as follows: Raw Materials $199,460,000 Work(goods) in process $ 80,282,000 Finished goods $407,058,000 2. Thecompany applies overhead to jobs using a predetermined overheadrate based on machine-hours. At the beginning of the year, thecompany estimated that it would work 27,000 machine-hours and incur$189,000 in manufacturing overhead cost. The following transactionswere recorded for the 2008 year: a. Raw materials were purchased,$412,000. b. Raw materials were requisitioned for use inproduction, $418,000 ($390,000 direct and $28,000 indirect). c. Thefollowing employee costs were incurred: direct labor, $157,000;indirect labor, $70,000; and administrative salaries, $207,000 d.Selling costs, $99,000. e. Factory utility costs, $13,000. f.Depreciation for the year was $103,000 of which $95,000 is relatedto factory operations and $8,000 is related to selling andadministrative activities g. Manufacturing overhead was applied tojobs. The actual level of activity for the year was 26,000machine-hours. h. The cost of goods manufactured for the year was$747,000. i. Sales for the year totaled $1,097,000 and the costs onthe job cost sheets of the goods that were sold totaled $732,000.j. The balance in the Manufacturing Overhead account was closed outto Cost of Goods Sold. You can assume that all transactions withemployees, customers, and suppliers were conducted in cash.