Question

PART A Pat Fike, accountant for Nozama Company, prepared the following amounts to include on the financial statements for the period ending August 31, 20XX. Sales S1,200,000 Purchases of materials 250,000 Manufacturing labor 270,000 Advertising 37.000 Administrative travel 27,000 Manufacturing utilities 49,000 Facility rental 90,000 Depreciation 60,000 Sales commissions 31,000 Insurance 40,000 Office utilities 25,000 Management salaries 380,000 • The purchase of materials included 20% indirect materials. • 40% of the manufacturing labor was for indirect manufacturing labor • The facility was used partly for the sales and administrative team (20%) • 30% of the depreciation expense was related to delivery trucks .60% of the insurance relates to manufacturing activities • 40% of the management salaries relate to manufacturing activities Furthermore, Fike compiled the following information with respect to inventories for the period (note that the company does not maintain inventories of indirect materials). Beginning Ending Direct materials $ 6,000 $8,000 Work-in-progress 9,000 10,000 Finished goods 11,000 7,000 Required: 1. Prepare a cost of goods manufactured statement for the period. 2. Prepare an income statement for the period

Answer 1

Part 1:

NOZAMA COMPANY

COST OF GOODS MANUFACTURED STATEMENT FOR THE PERIOD ENDING AUGUST 31, 20XX

$ $ $ 6,0001 200,000 206,000 8,000 198,000 162,000 Particulars Direct Materials Beginning materials Inventory Materials purchases Materials avaialble Less: Ending materials inventory Direct materials used Direct labor-wages Factory Overhead Indirect Material Indirect labor-wages Manufacturing Utilites Facility Rental Depreciation expense Insurance Management salaries Total factory overhead Total Manufacturing costs Add: Beginning Work in process inventory Total manufacturing costs to account for Less: Ending Work in process inventory Cost of goods manufactured 50,000 108,000 49,000 72,000 42,000 24,000 152,000 497,000 857,000 9,000 866,000 10,000 856,000

PART 2:

NOZAMA COMPANY

INCOME STATEMENT FOR THE PERIOD ENDING AUGUST 31, 20XX

$ $ $ 1,200,000 11,000 856,000 867,000 7,000 860,000 340,000 Particulars Sales Revenue Cost of goods sold Beginning Finished goods inventory Cost of goods manufactured Cost of goods available for sale Less: Ending Finished goods inventory Cost of goods sold Gross Margin Operating Expenses Selling and administrative cost Advertising Administrative travel Facility Rental Depreciation expense Sales Commission Insurance Office Utilities Management salaries Total selling & administrative expenses Net Operating Income (Loss) 37,000 27,000 18,000 18,000 31,000 16,000 25,000 228,000 400,000 (60,000)

Working Notes:

1. Materials = $250,000

Direct Material = $250,000 * 80% = $200,000

Indirect Material = $250,000 * 20% = $50,000

2. Manufacturing Labor = $270,000

Direct Labor = $270,000 * 60% = $162,000

Indirect Labor = $270,000 * 40% = $108,000

3. Facility Rental = $90,000

Facility Rental's Manufacturing overhead cost = $90,000 * 80% = $72,000

Facility Rental's selling and administrative cost = $90,000 * 20% = $18,000

4. Depreciation expense = $60,000

Depreciation- Manufacturing overhead cost = $60,000 * 70% = $42,000

Depreciation- Selling and administrative cost = $60,000 * 30% = $18,000

5. Insurance = $40,000

Insurance- Manufacturing overhead cost = $40,000 * 60% = $24,000

Insurance- Selling and administrative cost = $40,000 * 40% = $16,000

6. Management salaries = $380,000

Management salaries- Manufacturing overhead cost = $380,000 * 40% = $152,000

Management salaries- Selling and administrative cost = $380,000 * 60% = $228,000

All the best...