Question

The following information is available for Aikman Company. January 1, 2017 2017 December 31, 2017 Raw materials inventory $21,000 $30,000 Work in process inventory 13,500 17,200 Finished goods inventory 27,000 21,000 Materials purchased $150,000 Direct labor 220,000 Manufacturing overhead 180,000 Sales revenue 910,000

Compute cost of goods manufactured. Aikman Company Cost of Goods Manufactured Schedule Prepare an income statement through gross profit. AIKMAN COMPANY Income Statement (Partial) Show the presentation of the ending inventories on the December 31, 2017, balance sheet. AIKMAN COMPANY (Partial) Balance Sheet

Answer 1

Concepts and reason

Financial statements: The financial statement includes the statement which describes financial position and performance of the business. It includes a statement of income or loss, balance sheet and statement of cash flows.

Fundamentals

Cost of goods manufactured: The expenses incurred to produce the merchandise is considered as a cost of goods manufactured. It includes the cost of direct material, cost of direct labor and direct expenses, overheads related to production.

Partial Income statement: All companies to calculate net profit or net loss prepare income statement. The partial income statement is the extract of income statement which is one of the important financial statements. It is prepared by deducting losses from discontinued operations from income through continued operations.

Partial balance sheet: The portion of the balance sheet is prepared to represent some important items. Generally, balance sheet includes a list of assets and liabilities of various categories. In the partial balance sheet, few items of assets or liabilities or both are presented.

Raw material inventory: It is the main requirement of the production process. The goods are purchased from the supplier and processed further to make them suitable for sale. The cost incurred in the procurement of raw material is a direct cost of production because production is not possible without raw material.

Work-in-progress inventory: The inventory which is not completed and not ready for sale is categorized into work-in-progress inventory. Such inventory balances are required to be adjusted while manufacturing the finished goods.

Finished goods inventory: The inventory which is ready for sale is finished goods. The entire cost of production has been incurred in manufacturing this inventory. Cost of finished goods includes direct material cost, direct labor cost and direct expenses, manufacturing overheads, administration overheads and adjustment of direct material and work-in-progress at beginning and end of the period.

Direct labor: The cost incurred in payment of wages to workers who are held in production is direct labor cost. The payment made to workers is directly related to production because the labor force is required to do the manufacturing process. It is also known as one of the elements of conversion cost.

Manufacturing overhead: The indirect expenses incurred to complete the process of production is manufacturing overhead. It cannot be measured directly with the units of production because such expenses indirectly support the production process. It includes the cost of indirect material, cost of indirect labor and indirect expenses.

Sales revenue: It is the main source of income for an organization. All expenses such as variable expenses, fixed expenses will be deducted from sales revenue. It is determined by multiplying the units sold with sales price per unit.

Compute the cost of goods manufactured for company A as given below:

Compute the cost of goods manufactured for company A using spreadsheet formulas as given below:

Prepare the income statement of company A as given below:

Prepare the income statement of company A using spreadsheet formulas as given below:

Prepare partial balance sheet of company A as on December 31, 2017, as given below:

Prepare partial balance sheet of company A as on December 31, 2017, using spreadsheet formulas as given below:

Ans:

Cost of goods manufactured by company A for the year ended on December 31, 2017, is $537,300.

Gross profit of company A for the year ended on December 31, 2017, is $366,700.

Total of inventories in the partial balance sheet as on December 31, 2017, is $68,200.