Question

Information about Morton Company for the month ending December 31, 2018, is as follows:
Sales	$650,000
Cost of goods sold	452,000
Net operating income	35,000
Beginning inventories:
Direct materials	50,000
Work in process	42,000
Finished goods	70,000

Ending direct materials is 20 percent smaller than beginning direct materials. Ending work in process is 10 percent more than the beginning work in process. Ending finished goods increased by $11,000 during the year. Prime costs and conversion costs are 70 percent and 60 percent of total manufacturing costs added, respectively.

Assume no income taxes or indirect materials. Required:

1. Prepare a statement of cost of goods manufactured for December.
2. Prepare an absorption income statement for December.
3. Calculate conversion costs.
4. Calculate prime costs.

Answer 1

Answer with working is given below

Statement of cost of goods manufactured for December Opening inventory of Raw Material $50,000 Add: purchases $176,880 $226,880 Less: Closing inventory of RM $40,000 Raw material consumed $186,880 Working note Cost of Goods manufactured Cost of Goods sold Add: Closing Finished Goods Cost of Goods available Less: Opening Finished Goods Cost of Goods manufactured $452,000 $81,000 $533,000 $70,000 $463,000 $140,160 $327,040 $140,160 Direct Labor PRIME COST Manufacturing Overhead Total Total Manufacturing Cost Add: Opening work in progress $467,200 $42,000 $509,200 $46,200 $463,000 Less: Closing work in progress Cost of Goods manufactured b Absorption Income Statement For December Sales $650,000 Less: Cost of Goods Sold $452,000 GROSS PROFIT $198,000 Less: Operating Expenses $163,000 Net Operating Income $35,000 $467,200 Total Manufacturing cost Conversion cost Conversion cost 60% $280,320 d Total Manufacturing cost Prime cost Prime Cost $467,200 70% $327,040