Question

The following selected information was extracted from the 20x1 accounting records of Lone Oak Products:

Raw material purchases	$	176,000
Direct labor		256,000
Indirect labor		108,000
Selling and administrative salaries		133,000
Building depreciation*		80,000
Other selling and administrative expenses		195,000
Other factory costs		343,000
Sales revenue ($130 per unit)		1,495,000

*Seventy-five percent of the company's building was devoted to production activities; the remaining 25 percent was used for selling and administrative functions.

Inventory data:

	January 1			December 31
Raw material	$	15,900		$	18,200
Work in process		35,800			62,100
Finished goods*		113,100			97,900

*The January 1 and December 31 finished-goods inventory consisted of 1,350 units and 1,190 units, respectively.

a. Calculate Lone Oak’s manufacturing overhead for the year.

b. Calculate Lone Oak’s cost of goods manufactured.

c. Compute the company’s cost of goods sold.     

d. Determine net income for 20x1, assuming a 30% income tax rate.

e. Determine the number of completed units manufactured during the year.

Answer 1

a.	Calculation of Lone Oak's Manufacturing Overhead for the year:
	Indirect labor	$      108,000
	Building Depreciation = 80000*75% =	$        60,000
	Other Factory Costs	$      346,000
	Lone Oak's Manufacturing Overhead for the year =		$ 511,000
b.	Calculation of Lone Oak's Cost of Goods Manufactured for the year:
	Direct Material :
	Raw Material Purchase for the year	$      176,000
	Add: Raw Material Inventory Jan. 1, 20x1	$        15,900
	Less: Raw Material Inventory Dec. 31, 20x1	$      (18,200)
	Total Direct Material used		$ 173,700
	Direct Labor		$ 256,000
	Manufacturing Overhead		$ 511,000
	Total Manufacturing Costs		$ 940,700
	Add: Work in Process inventory, Jan 1, 20x1		$    35,800
	Less: Work in Process inventory, Dec 31, 20x1		$ (62,100)
	Total Cost of Goods Manufactured		$ 914,400
c.	Calculation of Lone Oak's Cost of Goods sold for the year:
	Total Cost of Goods Manufactured		$ 914,400
	Add: Finished Goods inventory, Jan 1, 20x1		$ 113,100
	Less: Finished Goods inventory, Dec 31, 20x1		$ (97,900)
	Lone Oak's Cost of Goods sold for the year =		$ 929,600
d	Calculation of Net income:
	Sales Revenue	$ 1,495,000
	Less: Cost of Goods sold	$   (929,600)
	Gross Revenue		$ 565,400
	Less: Selling and administrative Expenses:
	Selling and administrative Salaries	$      133,000
	Building Depreciation = 80000*25% =	$        20,000
	Other Selling and administrative expenses	$      195,000
	Total Selling and administrative Expenses		$ 348,000
	Income before tax		$ 217,400
	Less: Tax @ 30%		$ (65220)
	Net Income		$ 152,180
e.	Number of units manufactured during the year:
	Sales [1,495,000/130]		11500
	Add: ending inventory		1190
	Less: beginning inventory		(1350)
	Number of units manufactured		11340