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FINANCIAL STATEMENTS
Key Topics to Know
Cost of good sold statement is prepared from the finished goods inventory account. Cost of goods sold statement has the same format as in financial accounting. Cost of goods manufactured schedule is prepared from both the raw materials inventory and work in process inventory accounts. Cost of goods manufactured schedule has a similar format to two cost of goods sold schedules stacked one on top of the other. In other words, the cost of goods manufactured schedule first analyses the raw materials inventory account and second the work in process inventory account. For all three inventory accounts being analyzed, the amount being determined is the outflow or deduction being credited to the inventory account.
Problems
Problem #
Cost of Goods Manufactured Case 1 Case 2 Direct materials 8,000 6, Direct labor 3,000 5, Manufacturing overhead _______ 7, Total manufacturing costs 32,000 _______ Beginning work in process inventory _______ 2, Ending work in process inventory 2,000 _______ Cost of goods manufactured _______ _______
Income Statement Sales 50,000 30, Beginning finished goods inventory 9,000 7, Cost of goods manufactured 31,500 _______ Goods available for sale _______ 23, Ending finished goods inventory 7,000 5, Cost of goods sold ______ ______ Gross margin ______ 12, Operating expenses 10,000 ______ Net income 6,500 3,
Required: Fill in the missing information given above.
Problem #
Bakerston Company is a manufacturing firm that uses job-order costing. The company's inventory balances were as follows at the beginning and end of the year:
Beginning balance
Ending balance Raw materials $14,000 $22, Work in process $27,000 $9, Finished goods $62,000 $77,
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 33,000 machine-hours and incur $231,000 in manufacturing overhead cost. The following transactions were recorded for the year:
Raw materials were purchased, $315,000. Raw materials were requisitioned for use in production, $307,000 ($281,000 direct and $26,000 indirect). The following employee costs were incurred: direct labor, $377,000; indirect labor, $96,000; and administrative salaries, $172,000. Selling costs, $147,000. Factory utility costs, $10,000. Depreciation for the year was $127,000 of which $120,000 is related to factory operations and $7,000 is related to selling, general, and administrative activities. Manufacturing overhead was applied to jobs. The actual level of activity for the year was 34,000 machine-hours. Sales for the year totaled $1,253,000.
Required: a) Prepare a schedule of cost of goods manufactured. b) Was the overhead underapplied or overapplied? By how much? c) Prepare an income statement for the year. The company closes any underapplied or overapplied overhead to Cost of Goods Sold.
Problem #
Hacken Company has a job-order costing system. The company applies manufacturing overhead to jobs using a predetermined overhead rate based on direct labor cost. The information below has been taken from the cost records of Hacken Company for the past year:
Direct materials used $1, Total manufacturing costs 6, Overhead applied 2, Selling expenses 1, Direct materials inventory, January 1 130 Direct materials inventory, December 31 80 Work in process, January 1 250 Work in process, December 31 400 Finished goods, January 1 300 Finished goods, December 31 200
Required:
a. Compute the cost of direct materials purchased during the year. b. Compute the predetermined overhead rate that was used during the past year. c. Compute the Cost of Goods Manufactured for the past year. d. Compute the unadjusted Cost of Goods Sold for the past year.
4. Mathews Woodworking manufactures baseball bats and wooden tops.
Currently, Mathews makes 5,000 baseball bats each month. Each bat uses $1.00 in direct materials and $0.50 in direct labor. There are two activities in manufacturing the baseball bats: Cutting and Finishing. The cost associated with Cutting is $7,500 a month, allocated on the basis of direct labor hours. The cost associated with Finishing is $12,000 a month, allocated on the basis of batches. Usage of the activity drivers are as follows:
Bats Tops Direct labor hours 100 200 Batches 4 6
What is the total manufacturing cost for one baseball bat? a) $1. b) $1. c) $2. d) $19,501.
5. Nieman Inc., a local retailer, has provided the following^ data for^ March:
Merchandise inventory, beginning balance $30, Merchandise inventory, ending balance $34, Sales $280, Purchases of merchandise inventory $146, Selling expense $27, Administrative expense $64,
The cost of goods sold for March was: a) $146, b) $150, c) $1422, d) $237,
6. On the Schedule of Cost of Goods Manufactured,^ the final Cost of Goods
Manufactured figure represents: a) the amount of cost charged to Work in Process during the period. b) the amount of cost transferred from Finished Goods to Cost of Goods Sold during the period. c) the amount of cost placed into production during the period d) the amount of cost of goods completed during the current year whether they were started before or during the current year.
7. Nieman Inc., a local retailer, has provided the^ following data for^ March:
Merchandise inventory, beginning balance $30, Merchandise inventory, ending balance $34, Sales $280, Purchases of merchandise inventory $146, Selling expense $27, Administrative expense $64,
The net operating income for March was: a) $130, b) $134, c) $43, d) $47,
8. On the contribution margin income statement, variable selling costs are
included in: a) Selling and administrative expenses b) Cost of goods sold c) Total variable expenses d) Total fixed expenses
9. Gross margin is^ synonymous with:
a) Contribution margin b) Segment margin c) Operating income d) Gross profit
10. The two amounts that are the same on both the traditional and contribution
margin income statements are: a) Revenue and cost of goods sold b) Revenue and Operating income c) Cost of goods sold and variable expenses d) Selling and administrative expenses and fixed expenses
11. Contribution margin contributes toward:
a) Covering fixed expenses and perhaps operating income b) Covering fixed expenses c) Covering variable expenses d) The Red Cross
a) Schedule of Cost of Goods Manufactured
b)
Schedule of Cost of Goods Manufactured
c)
Solutions to Multiple Choice Questions
1. C
2. B
3. D
4. C
5. C
6. D
7. D
8. C
9. C
10. D
11. A
