Question

Mesa Designs produces a variety of hardware products, primarily for the do-it-yourself (DIY) market. As part of your job interview as a summer intern at Mesa, the cost accountant provides you with the following (fictitious) data for the year (in $000).

  

Inventory information:	1/1/00		12/31/00
Direct materials	$	49	$	56
Work-in-process		77		69
Finished goods		988		1,014

  

Other information:	For the year ’00
Administrative costs	$	2,200
Depreciation (Factory)		2,830
Depreciation (Machines)		4,630
Direct labor		6,600
Direct materials purchased		5,160
Indirect labor (Factory)		1,680
Indirect materials (Factory)		490
Property taxes (Factory)		190
Selling costs		1,080
Sales revenue		30,610
Utilities (Factory)		540

  

Required:

1. Prepare a cost of goods sold statement.

2. Prepare an income statement.

Answer 1

1. The cost of goods sold statement is prepared below:

The below excel sheet shows the calculation of the cost of goods sold:

The below table shows the result:

MESA Company
Cost of goods sold statement
For the year ended…..
Cost	$	$
Raw material:
Opening inventory	49
Add: purchases (net)	5,160
raw material Available for use	5,209
Less: Closing inventory	56
Cost of raw material used		5,153
Direct labor		6,600
Prime cost		11,753
Add: manufacturing overhead
Depreciation (Factory)	2,830
Depreciation (machine)	4,630
Indirect labor (Factory)	1,680
Indirect material (Factory)	490
property taxes (factory)	190
Utilities (Factory)	540	10,360
Gross Factory cot/manufacturing cost		22,113
Add: Beginning work-in-process		77
Less: Ending work-in-process		69
Cost of goods manufactured		22,121
Add: Administrative cost		2,200
Total cost of production		24,321
Add: Beginning finished goods inventory		988
Cost of goods available for sale		25,309
Less: ending finished goods inventory		1,014
Cost of goods sold		24,295

2. The income statement is prepared as follows:

MESA Company
Income Statement
For the year ended…….
Particulars	Amount ($)
Sales	30,610
Less: Cost of goods sold	24,295
Gross profit	6,315
Less: Selling expense	1,080
Net income	5,235

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