Unit Product Cost Analysis

The Hershey Corporation:
http://library.corporate-ir.net/library/11/115/115590/items/283950/10K_Hershey[1].pdf

In Hershey's 2007 annual report, the management made this claim: a decrease in inventories in 2007 reflecting lower raw material and goods in process inventories resulting from reduced manufacturing requirements and the global supply chain transformation program, in addition to lower finished goods inventories as a result of working capital improvement initiatives, partially offset by an inventory build in anticipation of the relocation of certain manufacturing processes under the global supply chain transformation program.

The following items will be assessed in particular:

Using Hershey's inventory cost disclosed in the 2007 annual report, analyze and discuss the affect of the below economic events (a through j) on the financial statements: assume Hershey is a manufacturing firm that uses job-order costing. At the end of the 2007 year, the company's inventory balances were as follows:

Raw materials
$199,460,000

Work (goods) in process
$ 80,282,000

Finished goods
$407,058,000

The company applies overhead to jobs using a predetermined overhead rate based on machine-hours. At the beginning of the year, the company estimated that it would work 27,000 machine-hours and incur $189,000 in manufacturing overhead cost. The following transactions were recorded for the 2008 year:
a)
Raw materials were purchased, $412,000.

b)
Raw materials were requisitioned for use in production, $418,000 ($390,000 direct and $28,000 indirect).

c)
The following 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 related to factory operations and $8,000 is related to selling and administrative activities

g)
Manufacturing overhead was applied to jobs. The actual level of activity for the year was 26,000 machine-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 on the job cost sheets of the goods that were sold totaled $732,000.

j)
The balance in the Manufacturing Overhead account was closed out to Cost of Goods Sold.

You can assume that all transactions with employees, customers, and suppliers were conducted in cash.