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The foregoing is the trial balance of the National Shale Brick Company, Inc., manufacturers of shale bricks. The operations consist of (1) blasting, digging and conveying the shale to the machines, called quarrying; (2) grinding, mixing and moulding the wet bricks, called pans and machines; (3) drying; (4) building the bricks in the kiln and preparing the kiln for firing, called setting; (5) burning or kiln firing; (6) opening the kiln and unloading and stocking the burnt bricks, called unloading.

The kilns are equipped with gas burners, the gas being produced on the premises. Some coke is obtained from the gas producer, which is sold. The production reports for the year ended October 31, 1920, are:

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Bricks sold during the year were 14,500,000.

The inventories of bricks on hand November 1, 1919, were as follows:

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The candidate is required to calculate the number of bricks on hand October 31st, but is advised that, of the total, 100,000 are in the kiln completely burned, 250,000 are in process of burning, 100,000 green bricks are in the kiln. Bricks in process of burning and drying are taken as averaging half the process. Shale and wet bricks from the machine are used as produced and no inventory is taken into account.

The inventories are priced at cost. In the case of burnt bricks work overhead is included; in other cases it is excluded.

The shale bed is rented, rental being payable at the end of each year on the tonnage used. This is calculated at the rate of 31⁄2 tons per thousand wet brick, and the rate is 10 cents per ton. The agreement provides for a minimum rental of $4,000.00 per annum. In case the quantity of shale used is not sufficient to make the $4,000.00, the company is allowed to retain the difference out of subsequent years in which the quantity used may amount to more than $4,000.00.

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Power is divided 10% to kiln firing, 90% to pans and machines. Prepare statements showing cost of manufacture, cost per thousand bricks for each operation, profit and loss account and balance sheet.

Answer to Question 1:

The first step is to determine the quantities passed through or half through each process and the quantities in the inventories at each stage of production.

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......

Good bricks dried and in process of drying.............
Deduct inventory of half dried bricks, Oct. 31, 1920

Bricks set in kilns

Add bricks in kilns, November 1, 1919:

16,800,000

*800,000

16,000,000

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Bricks burned, half burned, and green in kiln.....

Deduct bricks in kilns at October 31, 1920:

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Burned

Half burned

100,000

250,000

Green

Good bricks taken from kilns.....

Add burned bricks in yard, November 1, 1919....

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Total good bricks available for sale....

15,155,000

Deduct bricks sold during the year.

14,500,000

Inventory of bricks in yard, October 31, 1920......

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The next step is to compute the cost of each process in total and per thousand bricks, and the accumulated cost of the bricks passed through each process.

Labor

Material and supplies

Steam coal used....

QUARRYING

Quarry rentals: 18,000,000 @ $.35 per M. Depreciation-machinery and equipment (10% of $10,000)

Total quarrying cost

Exhibit B $12,000.00

3,000.00

2,000.00

6,300.00

1,000.00

$24,300.00

* Assumed in order to reduce 16,800,000 to 16,000,000.

Although 18,000,000 wet bricks were produced, only 17,600,000 were good and put into the dryers.

$24,300.00

18,000 = $1.35, cost per M of wet bricks produced.

$24,300.00 17,600 $1.38, cost per M of bricks put into dryers.

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$74,275.00 17,600 = $4.22, cost per M of 17,600,000 bricks for P. and M.

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$98,575.00 17,600 $5.60, cost of 17,600,000 bricks through P. and M.

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750.00

Depreciation-dryer tunnels-(72% of $10,000)..

Total drying cost

$15,250.00

The computation of the drying cost per M is not as simple as in the cases of quarrying and pans and machines, because of the fact that some of the bricks have been fully dried during the year while others have been only half dried, and because of the further fact that some of the bricks were spoiled in drying. This spoilage cost should be charged against the dried bricks removed from the dryers, and no portion of it should be charged against the half-dried bricks still in the dryers. This is because the spoilage is determined when the bricks are taken out of the dryers and is applicable only to those taken out. Presumably, when the bricks still in process of drying are taken out, more spoilage will be discovered, and this additional spoilage will be chargeable to the bricks now in process.

With some bricks fully dried and others half dried, it is necessary to compute the equivalent in terms of fully dried bricks in order to compute the rate per M for full drying. At November 1, 1919, there were 50,000 bricks in the dryers, which the problem states are to be taken as averaging half dried. Completing the drying of these bricks was, therefore, equivalent

to drying fully

During the year 17,600,000 bricks were put into the dryers; of this number 800,000 are half dried, which is the equivalent of drying

25,000

......

400,000

The remaining 16,800,000 were fully dried. Adding these....

16,800,000

makes the total dry for the year (including bricks spoiled) equivalent to

17,225,000

Then $15,250 17,225 = $.8853, drying cost per M of all bricks, good and spoiled. This rate is applied to the 800,000 bricks still in process of drying at October 31, 1920, with the result that no spoilage expense is inIcluded in their cost.

The cost of the bricks in process of drying is:

Cost through P. and M. process:

5.60 X 800 =

Cost of half drying:

$.8853 X 400 =

Total

$4,480.00

354.00

$4,834.00

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