Question

Consider the following information for Carrington Alantic Inc. for the year ended December 31, 2019:

                        Accumulated depreciation                                                     $ 400,000

                        Depreciation expense (90%-Plant)                                         200,000

                        Direct labor – Wages                                                               600,000

                        Direct materials inventory, Dec. 31, 2019                                  50,000

                        Direct materials inventory, Jan. 1, 2019                                     30,000

                        Direct material purchases                                                        200,000

                        Finished goods inventory, Dec. 31, 2019                                   20,000

                        Finished goods inventory, Jan. 1, 2019                                      40,000

                        Heat, light & power (90%-Plant)                                               60,000

                        Indirect labor                                                                               40,000

                        Property taxes (90%-Plant)                                                         60,000

                        Sales representatives’ salaries                                                   800,000

                        Sales revenue                                                                         4,000,000

                        Plant supervisor’s salary                                                           100,000

                        Accounts receivable                                                                  600,000

                        Supplies (80%-Plant)                                                                  80,000

                        Accounts payable                                                                      500,000

                        Work-in-Progress inventory, Dec. 31, 2019                               50,000

                        Work-in-Progress inventory, Jan. 1, 2019                                  30,000

                               Determine:

1. The cost of goods manufactured.
2. The gross profit.
3. The operating income (loss).

Answer 1

$180,000 $600,000 Carrington Alantic Inc. Schedule of Cost of Goods Manufactured For the Year Ended December 31, 2019 Direct Materials used: Direct Materials, January 1 $30,000 Add: Purchases of direct materials $200,000 Total Direct Materials available $230,000 Less: Direct Materials, December 31 -$50,000 Direct Materials used in the production Direct labor - Wages Indirect manufacturing costs: Indirect labor $40,000 Heat, light & power (Plant) $54,000 Depreciation expense (Plant) $180,000 Property taxes (Plant) $54,000 Plant supervisor's salary $100,000 Supplies (Plant) $64,000 Total indirect manufacturing costs Total Manufacturing Cost incurred during the year Add: Work in Process, January 1 Total Manufacturing Cost to Account for Less: Work in Process, December 31 Cost of Goods Manufactured [$60,000 x 90%] ($200,000 x 90%] [$60,000 x 90%] ($80,000 x 80%] $492,000 $1,272,000 $30,000 $1,302,000 -$50,000 $1,252,000

b) $4,000,000 Carrington Alantic Inc. Income Statement (Partial) For the Year Ended December 31, 2019 Sales Revenue Cost of Goods Sold: Finished Goods, January 1 $40,000 Add: Cost of Goods Manufactured $1,252,000 Cost of Goods Available for Sale $1,292,000 Less: Finished Goods, December 31 -$20,000 Cost of Goods Sold Gross Profit [Ref: Requirement-1] $1,272,000 $2,728,000

Carrington Alantic Inc. Income Statement (Operating Activities) For the Year Ended December 31, 2019 Gross Profit $2,728,000 (Ref: Requirement-2] Operating Expenses: Sales representatives' salaries $800,000 Heat, light & power $6,000 ($60,000 x 10%] Depreciation expense $20,000 ($200,000 x 10%] Property taxes $6,000 ($60,000 x 10%] Supplies $16,000 [$80,000 x 20%] Total Operating costs $848,000 Operating income (Loss) $1,880,000