Question

The following information was extracted from the accounting records of​ Pickin’ and​ Grinnin’, LLC, a manufacturer of​ guitars:

Beginning Raw Materials Inventory	​$375,000
Ending Raw Materials Inventory	​$435,000
Direct Factory Labor	​$185,000
Indirect Factory Labor	​$ ​ 35,000
Factory Utilities	​$ ​ 44,000
​Selling, General, and Administrative Expenses	​$125,000
Building​ Depreciation*	​$300,000

​*​70% of the building is devoted to​ production, 30% of the building is devoted to selling and administrative functions.

​$451,199 in direct materials were purchased during the period. Raw Materials Inventory consists solely of direct material. There was a ​$47,035 net increase in the ​company’s Work in Process inventories during the year. The​company's beginning and ending finished goods inventories were​ $475,000 and​ $450,000, respectively.Based solely on the above​ information, what is the​ company's gross profit for the period assuming sales revenue totaled ​$1,448,345​?

A. 1,635,579

B. 605,181

C. 2,455,579

D. 1,631,509

E. 390,181

Answer 1

Beginning raw materials inventory	$375,000
(+) Raw materials purchased during the year	$451,199
(-) Ending Raw Materials Inventory	( $435,000 )
Direct materials used		$391,199
Direct factory labor		$185,000
Factory overhead :
Indirect Factory Labor	​$35,000
Factory utilities	$44,000
Building depreciation ( Devoted to production ) [ 70% * $300,000 ]	$210,000
Total Factory overheads		$289,000
Total manufacturing cost		$865,199
(-) Net increase in work in process inventories		( $47,035 )
Cost of goods manufactured		$818,164

Cost of goods sold =Beginning finished goods inventory + Cost of goods manufactured - Ending finished goods inventory = $475,000 + $818,164 - $450,000 = $843,164

Gross profit = Sales revenue - Cost of good sold = $1,448,345 - $843,164 = $605,181 [ Option B ]