PE 18-5B Cost of goods sold, cost of goods manufactured

Ebony Company has the following information for July:

Cost of direct materials used in production $67,200
Direct labor88,000
Factory overhead44,800
Work in process inventory, July 1 32,800
Work in process inventory, July 31 29,600
Finished goods inventory, July 1 37,600
Finished goods inventory, July 31 27,200

For July, determine (a) the cost of goods manufactured and (b) the cost of goods sold.

Answer:

a. Work in process inventory, July 1………………………………… $  32,800 
Cost of direct materials used in production………………………   $67,200 
Direct labor………………………………………………………………  88,000 
Factory overhead………………………………………………………     44,800 
Total manufacturing costs incurred during July…………………   200,000 
Total manufacturing costs………………………………………… $232,800 
Less work in process inventory, July 31……………………………     29,600 
Cost of goods manufactured…………………………………………  $203,200 
b. Finished goods inventory, July 1………………………………… $  37,600 
Cost of goods manufactured…………………………………………    203,200 
Cost of finished goods available for sale………………………… $240,800 
Less finished goods inventory, July 31……………………………     27,200 
Cost of goods sold……………………………………………………  $213,600 

PE 18-5A Cost of goods sold, cost of goods manufactured

Hill Company has the following information for January:

Cost of direct materials used in production $16,800
Direct labor 43,400
Factory overhead28,000
Work in process inventory, January 1 70,000
Work in process inventory, January 31 74,200
Finished goods inventory, January 1 29,400
Finished goods inventory, January 31 33,600

For January, determine (a) the cost of goods manufactured and (b) the cost of goods sold.

Answer:

a. Work in process inventory, January 1……………………………… 
Cost of direct materials used in production……………………… 

$16,800 
$  70,000 
 Direct labor……………………………………………………………… 43,400  
 Factory overhead………………………………………………………   28,000  
 Total manufacturing costs incurred during January……………      88,200 
 Total manufacturing costs…………………………………………  $158,200 
 Less work in process inventory, January 31………………………      74,200 
 Cost of goods manufactured…………………………………………  $  84,000 
b. Finished goods inventory, January 1………………………………  $  29,400 
 Cost of goods manufactured…………………………………………      84,000 
 Cost of finished goods available for sale…………………………  $113,400 
 Less finished goods inventory, January 31………………………      33,600 
 Cost of goods sold……………………………………………………  $  79,800 

PE 18-4B Product and period costs

Identify the following costs as a product cost or a period cost for a magazine publisher.

a. Sales salaries
b. Paper used for the magazine
c. Maintenance on printing machines
d. Depreciation expense—corporate headquarters

Answer:
a. Period cost
b. Product cost
c. Product cost
d. Period cost

PE 18-4A Product and period costs

Identify the following costs as a product cost or a period cost for an automobile manufacturer.

a. Steel
b. Wages of employees that operate painting equipment
c. Rent on office building
d. Sales staff salaries

Answer:
a. Product cost
b. Product cost
c. Period cost
d. Period cost

PE 18-3B Prime and conversion costs

Identify the following costs as a prime cost (P), conversion cost (C), or both (B) for a magazine publisher.

a. Paper used for the magazine
b. Wages of printing machine employees
c. Glue used to bind magazine
d. Maintenance on printing machines

Answer:
a.    P
b.    B
c.    C (or P if significant)
d.    C

PE 18-3A Prime and conversion costs

Identify the following costs as a prime cost (P), conversion cost (C), or both (B) for an automobile manufacturer.

a. Wages of employees that operate painting equipment
b. Wages of the plant manager
c. Steel
d. Oil used for assembly line machinery

Answer:
a.    B
b.    C
c.    P
d.    C

PE 18-2B Direct materials, direct labor, and factory overhead

Identify the following costs as direct materials (DM), direct labor (DL), or factory overhead (FO) for a magazine publisher.

a. Staples used to bind magazines
b. Wages of printing machine employees
c. Maintenance on printing machines
d. Paper used in the magazine

Answer:
a.    DM (or FO if the cost is immaterially small)
b.    DL
c.    FO
d.    DM

PE 18-2A Direct materials, direct labor, and factory overhead

Identify the following costs as direct materials (DM), direct labor (DL), or factory overhead (FO) for an automobile manufacturer.

a. Wages of employees that operate painting equipment
b. Wages of the plant supervisor
c. Steel
d. Oil used for assembly line machinery

Answer:
a.    DL
b.    FO
c.    DM
d.    FO

PE 18-1B Management process

Three phases of the management process are planning, directing, and controlling. Match the following descriptions to the proper phase.

Phase of management process | Description

Planning | a.  Developing long-range courses of action to achieve goals.

Directing | b. Isolating significant departures from plans for further investigation and possible remedial action. It may lead to a revision of future  plans.

Controlling | c. Process by which managers, given their assigned levels of responsibilities, run day-to-day operations.

Answer:

Planning (a) 

Directing (c) 

Controlling (b) 

PE 18-1A Management process

Three phases of the management process are controlling, planning, and decision making. Match the following descriptions to the proper phase.

Phase of management process | Description

Controlling | a.  Monitoring the operating results of implemented plans and comparing the actual results with expected results.

Planning | b. Inherent in planning, directing, controlling, and improving.

Decision making | c. Long-range courses of action.

Answer:
Controlling (a)
Planning (c)
Decision making (b)

EX 18-17 Cost flow relationships

The following information is available for the first month of operations of Bahadir Company, a manufacturer of mechanical pencils:


Sales $792,000
Gross profit 462,000
Cost of goods manufactured 396,000
Indirect labor 171,600
Factory depreciation 26,400
Materials purchased 244,200
Total manufacturing costs for the period 455,400
Materials inventory, ending 33,000



Using the above information, determine the following missing amounts:
a. Cost of goods sold
b. Finished goods inventory at the end of the month
c. Direct materials cost
d. Direct labor cost
e. Work in process inventory at the end of the month


Answer:

a. Sales……………………………………………………………………… $792,000
Less gross profit………………………………………………………… 462,000
Cost of goods sold……………………………………………………… $330,000
b. Cost of goods manufactured………………………………………… $396,000
Less cost of goods sold……………………………………………… 330,000
Finished goods inventory…………………………………………… $ 66,000
c. Purchased materials………………………………………………… $244,200
Less materials inventory……………………………………………… 33,000
Direct materials cost…………………………………………………… $211,200
d. Total manufacturing costs…………………………………………… $455,400
Less: Direct materials……………………………………………… $211,200
Factory overhead costs (indirect labor
and factory depreciation)*………………………………… 198,000 409,200
Direct labor cost……………………………………………………… $ 46,200
* $171,600 + $26,400
e. Total manufacturing costs…………………………………………… $455,400
Less cost of goods manufactured…………………………………… 396,000
Work in process inventory…………………………………………… $ 59,400

EX 18-16 Cost of goods sold, profit margin, and net income for a manufacturing company

The following information is available for Vogt Manufacturing Company for the month ending July 31, 2014:


Cost of goods manufactured $360,000
Selling expenses 114,750
Administrative expenses 60,750
Sales 729,000
Finished goods inventory, July 1 81,000
Finished goods inventory, July 31 75,000




For the month ended July 31, 2014, determine Vogt’s (a) cost of goods sold, (b) gross profit, and (c) net income.


Answer:

a. Finished goods inventory, July 1, 2014…………………………… $ 81,000
Cost of goods manufactured………………………………………… 360,000
Cost of finished goods available for sale………………………… $441,000
Less finished goods inventory, July 31, 2014…………………… 75,000
Cost of goods sold……………………………………………………… $366,000
b. Sales……………………………………………………………………… $729,000
Cost of goods sold……………………………………………………… 366,000
Gross profit……………………………………………………………… $363,000
c. Gross profit…………………………………………………………… $363,000
Operating expenses:
Selling expenses…………………………………………………… $114,750
Administrative expenses………………………………………… 60,750
Total operating expenses……………………………………… 175,500
Net income……………………………………………………………… $187,500

EX 18-15 Statement of cost of goods manufactured for a manufacturing company

Cost data for Tiwana Manufacturing Company for the month ended May 31, 2014, are as follows:


Inventories May 1 May 31
Materials $210,000 $184,800
Work in process 142,800 159,600
Finished goods 109,200 126,000
Direct labor $378,000
Materials purchased during May 403,200
Factory overhead incurred during May:
Indirect labor 40,320
Machinery depreciation 24,000
Heat, light, and power 8,400
Supplies 6,720
Property taxes 5,880
Miscellaneous costs 10,920





a. Prepare a cost of goods manufactured statement for May 2014.
b. Determine the cost of goods sold for May 2014.


Answer:

a.
 TIWANA MANUFACTURING COMPANY
Statement of Cost of Goods Manufactured
For the Month Ended May 31, 2014
Work in process inventory, May 1, 2014 $ 142,800
Direct materials:
Materials inventory, May 1, 2014 $210,000
Purchases 403,200
Cost of materials available for use $613,200
Less materials inventory, May 31, 2014 184,800
Cost of direct materials used in
production $428,400
Direct labor 378,000
Factory overhead:
Indirect labor $ 40,320
Machinery depreciation 24,000
Heat, light, and power 8,400
Supplies 6,720
Property taxes 5,880
Miscellaneous cost 10,920
Total factory overhead 96,240
Total manufacturing costs incurred during May 902,640
Total manufacturing costs $1,045,440
Less work in process inventory, May 31, 2014 159,600
Cost of goods manufactured $ 885,840

b. Finished goods inventory, May 1, 2014………………………………………… $109,200
Cost of goods manufactured……………………………………………………… 885,840
Cost of finished goods available for sale………………………………………… $995,040
Less finished goods inventory, May 31, 2014………………………………… 126,000
Cost of goods sold………………………………………………………………… $869,040

EX 18-14 Income statement for a manufacturing company

Two items are omitted from each of the following three lists of cost of goods sold data from a manufacturing company income statement. Determine the amounts of the missing items, identifying them by letter.


Finished goods inventory, November 1 $ 52,800 $ 39,600 (e)
Cost of goods manufactured 282,000 (c) 323,200
Cost of finished goods available for sale (a) $223,200 $360,000
Finished goods inventory, November 30 62,400 52,800 (f)
Cost of goods sold (b) (d) $342,400


Answer:
a. $334,800 ($52,800 + $282,000)
b. $272,400 ($334,800 – $62,400)
c. $183,600 ($223,200 – $39,600)
d. $170,400 ($223,200 – $52,800)
e. $36,800 ($360,000 – $323,200)
f. $17,600 ($360,000 – $342,400)

EX 18-13 Cost of goods manufactured for a manufacturing company

The following information is available for Rubleske Manufacturing Company for the month ending January 31, 2014:


Cost of direct materials used in production $325,000
Direct labor 280,000
Work in process inventory, January 1 135,000
Work in process inventory, January 31 142,000
Total factory overhead 195,000

Determine Rubleske’s cost of goods manufactured for the month ended January 31, 2014.


Answer:

Work in process inventory, January 1, 2014……………………… $135,000
Add manufacturing costs incurred during January:
Cost of direct materials used in production…………………… $325,000
Direct labor…………………………………………………………… 280,000
Factory overhead…………………………………………………… 195,000
Total manufacturing costs incurred……………………………… 800,000
Total manufacturing costs…………………………………………… $935,000
Less work in process inventory, January 31, 2014………………… 142,000
Cost of goods manufactured………………………………………… $793,000

EX 18-12 Cost of goods manufactured for a manufacturing company

Two items are omitted from each of the following three lists of cost of goods manufactured statement data. Determine the amounts of the missing items, identifying them by letter.



Work in process inventory, July 1 $ 19,200 $ 43,200 (e)
Total manufacturing costs incurred during July 134,400 (c) 50,400
Total manufacturing costs (a) $252,000 $58,800
Work in process inventory, July 31 28,800 57,600 (f)
Cost of goods manufactured (b) (d) $51,600


Answer:
a. $153,600 ($19,200 + $134,400)
b. $124,800 ($153,600 – $28,800)
c. $208,800 ($252,000 – $43,200)
d. $194,400 ($252,000 – $57,600)
e. $8,400 ($58,800 – $50,400)
f. $7,200 ($58,800 – $51,600)

EX 18-11 Cost of direct materials used in production for a manufacturing company

Dewald Manufacturing Company reported the following materials data for the month ending April 30, 2014:

Materials purchased $920,000
Materials inventory, April 1 310,000
Materials inventory, April 30 280,000

Determine the cost of direct materials used in production by Dewald during the month ended April 30, 2014.


Answer:

Materials inventory, April 1, 2014……………………………………………………… $ 310,000
Add materials purchased during April……………………………………………… 920,000
Cost of materials available for use…………………………………………………… $1,230,000
Less materials inventory, April 30, 2014……………………………………………… 280,000
Cost of direct materials used in production…………………………………… $ 950,000

EX 18-9 Financial statements of a manufacturing firm

The following events took place for Chaterjee Manufacturing Company during January 2014, the first month of its operations as a producer of digital thermometers:

a. Purchased $95,200 of materials.
b. Used $67,200 of direct materials in production.
c. Incurred $128,800 of direct labor wages.
d. Incurred $151,200 of factory overhead.
e. Transferred $303,800 of work in process to finished goods.
f. Sold goods with a cost of $280,000.
g. Earned revenues of $450,000.
h. Incurred $65,400 of selling expense.
i. Incurred $54,600 of administrative expense.

Using the above information, complete the following:
a. Prepare the January 2014 income statement for Chaterjee Manufacturing Company.
b. Determine the inventory balances at the end of the first month of operations.


Answer:

a.
 CHATERJEE MANUFACTURING COMPANY
Income Statement
For the Month Ended January 31, 2014
Revenues $450,000
Cost of goods sold 280,000
Gross profit $170,000
Operating expenses:
Selling expenses $65,400
Administrative expenses 54,600
Total operating expenses 120,000
Net income $ 50,000
b. Inventory balances on January 31, 2014:
Materials ($95,200 – $67,200)……………………………………………………… $28,000
Work in Process ($67,200 + $128,800 + $151,200 – $303,800)………………… $43,400
Finished Goods ($303,800 – $280,000)…………………………………………… $23,800

EX 18-10 Manufacturing company balance sheet

Partial balance sheet data for Berente Company at December 31, 2014, are as follows:


Finished goods inventory $32,200 Supplies $57,040
Prepaid insurance 22,000 Materials inventory 70,000
Accounts receivable 84,000 Cash 89,600
Work in process inventory 126,000

Prepare the Current Assets section of Berente Company’s balance sheet at December 31, 2014.


Answer:

BERENTE COMPANY
Balance Sheet
December 31, 2014
Current assets:
Cash $ 89,600
Accounts receivable 84,000
Inventories:
Finished goods $ 32,200
Work in process 126,000
Materials 70,000 228,200
Supplies 57,040
Prepaid insurance 22,000
Total current assets $480,840

EX 18-8 Classifying costs

The following report was prepared for evaluating the performance of the plant manager of Farrar Inc. Evaluate and correct this report.


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