Question

Cost Flow Relationships

The following information is available for the first month of operations of Lane Inc., a manufacturer of mechanical pencils:

Sales	$486,480
Gross profit	283,620
Indirect labor	105,570
Indirect materials	52,790
Other factory overhead	16,050
Materials purchased	149,840
Total manufacturing costs for the period	279,730
Materials inventory, end of period	19,950

Using the above information, determine the following:

a. Cost of goods sold:	$
b. Direct materials cost:	$
c. Direct labor cost:	$

Answer 1

Ans. A	Cost of goods sold = Sales - Gross profit
	$486,480 - $283,620
	$202,860
Ans. B	Direct materials cost = Materials purchased - Materials inventory, end of period - Indirect materials
	$149,840 - $19,950 - $52,790
	$77,100
Ans. C	*To calculate direct labor cost, first we need to calculate the total manufacturing overhead cost.
	Particulars	Amount
	Indirect labor	$105,570
	Indirect materials	$52,790
	Other factory overhead	$16,050
	Total manufacturing overhead	$174,410
	Now we can easily calculate the total direct labor cost.
	Particulars	Amount
	Total manufacturing cost	$279,730
	Less: Direct materials cost	-$77,100
	Less: Total manufacturing overhead	-$174,410
	Direct labor cost	$28,220