Question

The following information has been taken from the accounting records of Klear-Seal Company for last year.

Selling expenses                                               140,000

Raw materials inventory, January 1                      90,000

Raw materials inventory, December 31                60,000

Utilities, factory                                                    36,000

Direct labour cost                                              150,000

Depreciation, factory                                         162,000

Purchases of raw materials                               750,000

Sales                                                               2,500,000

Insurance, factory                                                 40,000

Supplies, factory                                                   15,000

Administrative expenses                                    270,000

Indirect labour                                                   300,000

Maintenance, factory                                            87,000

Work in process inventory, January 1                180,000

Work in process inventory, December 31          100,000

Finished goods inventory, January 1                 260,000

Finished goods inventory, December 31                       210,000

Management wants to organize these data into a better format so that financial statements can be prepared for the year.

Required:

1. Prepare a schedule of cost of goods manufactured.

2. Compute the cost of goods sold.

3. Using data as needed from (1) and (2) above, prepare an income statement.

4. Assuming production of finished and semi-finished goods amounted to 412,500 units for the past year. Calculate the cost components of the ending finished goods inventory of 55,176 units. (Hint: The categories of costs in the ending inventory are the same as the total manufacturing costs; only the amounts are different.)

Answer 1

Particulars	Amount	Amount
Raw Materials Inventory Jan 01	90,000
Add : Purchases of Raw Material	750,000
Raw Materials available for use	840,000
Less: Raw Materials Inventory Dec 31	60,000
Raw Materials Consumed		780,000
Direct Labour		150,000
Factory Overhead
Utilities	36,000
Depreciation	162,000
Insurance	40,000
Supplies	15,000
Indirect Labour	300,000
Maintenance Overhead	87,000
Total Factory Overheads		640,000
Total Manufacturing Costs		1,570,000
Add: Work in Process Inventory January 1		180,000
Total Work in Process		1,750,000
Less: Work in Process Inventory Dec 31		100,000
Cost of Goods Manufactured		1,650,000

Total Manufacturing Costs = Direct Materials Used + Direct Labour Cost + Total Manufacturing Overhead

Cost of Goods Sold Statement

Particulars	Amount	Amount
Cost of Goods Manufactured		1,650,000
Add Finished Goods Inventory Jan 01		260,000
Cost of Goods available for Sale		1,910,000
Less Finished Goods Dec31		210,000
Cos of Goods Sold		1,700,000

Income Statement

Particulars	Amount	Amount
Sales		2,500,000
Less: Cost of Goods Sold		1,700,000
Gross Profit		800,000
Selling and Administrative Expenses
Selling Expenses	140,000
Administrative Expense	270,000
Total Selling and Administrative Expenses		410,000
Operating Income		390,000

Break Down of Finished Goods Inventory of 55,176 Units

Raw Materials Costs = Total Cost of Raw Materials Used / 412,500 Units

Raw Materials Cost per Unit = 780,000 / 412,500 = 1.89 Per Unit

Direct Labour Cost per Unit = 150,000 / 412,500 = $ 0.36 per Unit

Manufacturing Overhead per Unit = 640,000 / 412,500 = $ 1.55 per Unit

Ending Inventory

	A	B	C = A*B
Particulars	Units	Per Unit	Total Cost
Direct Materials	55,176	1.89	104,333
Direct Labour Cost	55,176	0.36	20,064
Manufacturing Overhead	55,176	1.55	85,606
Total Manufacturing Costs			210,003

In Calculation of Decomposition of Ending Inventory onto Various Components Calculation regarding most of the items were in fraction so rounding off has been done.