Company Facts
Cost of Goods Manufactured
and Sold
On January 30, a manufacturing facility of a
medium-sized company was severely
damaged by an earthquake followed by a fire.
As a direct result, the company’s direct
materials, work-in-process, and finished
goods inventories were destroyed. The
company did have access to certain
incomplete accounting records which follow.
Key Ratios for this Plant
Beginning Inventories,
January 1
„
Direct materials, $32,000
„
Gross Profit = 20 percent of sales
„
Work-in-process, $68,000
„
Prime Costs = 70 percent of manufacturing costs
„
Finished goods, $30,000
„
Ending work-in-progress averages 10 percent of
the monthly manufacturing costs
„
Factory Overhead = 40 percent of conversion
costs
Actual Operations Data for
January
Costs
„
All costs are incurred uniformly in the
manufacturing process
„
Net sales, $900,000
„
Direct materials purchases, $320,000
„
Direct labor incurred, $360,000
1
Required
From the previous data, reconstruct a
schedule of cost of goods manufactured and
sold.
Direct materials, beginning balance
+ Purchases
Available for Use
(1)
- Direct materials, ending balance
(8)
Direct materials used
Direct labor incurred
Factory overhead applied
Current Manufacturing Cost
+Work-in-process, beginning balance
Total Costs in Process
-Work-in-process, ending balance
Cost of Goods Manufactured
+Finished goods, beginning balance
Available for Sale
- Finished goods, ending balance
Cost of Goods Sold
$ 32,000
320,000
352,000
?
(5A) $
(5B)
(6)
(7)
(9)
(10)
(11)
(12)
(4)
?
360,000
?
?
68,000
?
?
?
30,000
?
?
?
2
Sales
Less Cost of Goods Sold
Gross Margin
Sales
Less Cost of Goods Sold
Gross Margin
$ 900,000
(3)
?
(2)
?
$ 900,000
(3)
720,000
(2)
180,000
Gross Margin
where Sales
Gross Margin
= 0.2 Sales
= $900,000
= (0.2)($900,000)
= $180,000
Direct materials, beginning balance
+ Purchases
Available for Use
(1)
- Direct materials, ending balance
(8)
Direct materials used
Direct labor incurred
Factory overhead applied
Current Manufacturing Cost
+Work-in-process, beginning balance
Total Costs in Process
-Work-in-process, ending balance
Cost of Goods Manufactured
+Finished goods, beginning balance
Available for Sale
- Finished goods, ending balance
Cost of Goods Sold
$ 32,000
320,000
352,000
?
(5A) $
(5B)
(6)
(7)
(9)
(10)
(11)
(12)
(4)
?
360,000
?
?
68,000
?
?
?
30,000
?
?
720,000
2
5
5B
Prime Cost = 0.7 Manufacturing Cost
where Prime Cost = DM + DL
Manufacturing Cost = DM + DL + FOH
Direct Labor = $ 360,000
DM + DL = 0.7 (DM + DL + FOH)
DM + DL = 0.7DM + 0.7DL + 0.7FOH
DM + 360,000 = 0.7DM + (0.7)(360,000) + 0.7FOH
DM – 0.7DM – 0.7FOH = 252,000-360000
0.3 DM – 0.7FOH = -108,000
Nothing Possible Yet!
Use in 5A
Direct materials, beginning balance
+ Purchases
Available for Use
(1)
- Direct materials, ending balance
(8)
Direct materials used
Direct labor incurred
Factory overhead applied
Current Manufacturing Cost
+Work-in-process, beginning balance
Total Costs in Process
-Work-in-process, ending balance
Cost of Goods Manufactured
+Finished goods, beginning balance
Available for Sale
- Finished goods, ending balance
Cost of Goods Sold
$ 32,000
320,000
352,000
?
Direct materials, beginning balance
+ Purchases
Available for Use
(1)
- Direct materials, ending balance
(8)
Direct materials used
Direct labor incurred
Factory overhead applied
Current Manufacturing Cost
+Work-in-process, beginning balance
Total Costs in Process
-Work-in-process, ending balance
Cost of Goods Manufactured
+Finished goods, beginning balance
Available for Sale
- Finished goods, ending balance
Cost of Goods Sold
$ 32,000
320,000
352,000
FOH = 0.4 Conversion Cost
where Conversion Cost = DL + FOH
Direct Labor = 360,000
FOH = 0.4 (DL+FOH)
FOH = 0.4 DL + 0.4 FOH
FOH = (0.4)(360,000) + 0.4 FOH
FOH – 0.4 FOH = 144,000
0.6 FOH = 144,000
FOH = 144000/0.6
FOH = 240,000
5A
(5A) $
(5B)
(6)
(7)
(9)
(10)
(11)
(12)
(4)
?
360,000
240,000
?
68,000
?
?
?
30,000
?
?
720,000
DM + 360,000 = 0.7 DM +252000 +0.7FOH
where FOH = 240,000
DM + 360,000 = 0.7 DM +252000 +0.7(240,000)
DM + 360,000 = 0.7 DM +252000 +168,000
DM-0.7DM = 252,000+168,000-360,000
0.3DM = 60,000
DM = 60,000/0.3
DM = 200,000
9
152,000
(5A) $ 200,000
360,000
(5B) 240,000
(6) 800,000
68,000
(7) 868,000
(9)
?
(10)
?
30,000
(11)
?
(12)
?
(4) 720,000
Ending Work-in-process = 0.1 Manufacturing Costs
Where Manufacturing Cost = 800,000
Ending Work-in-process = (0.1)(800,000)
Ending Work-in-process = 80,000
3
Direct materials, beginning balance
+ Purchases
Available for Use
(1)
- Direct materials, ending balance
(8)
Direct materials used
Direct labor incurred
Factory overhead applied
Current Manufacturing Cost
+Work-in-process, beginning balance
Total Costs in Process
-Work-in-process, ending balance
Cost of Goods Manufactured
+Finished goods, beginning balance
Available for Sale
- Finished goods, ending balance
Cost of Goods Sold
Sales
Less Cost of Goods Sold
Gross Margin
$ 32,000
320,000
352,000
152,000
(5A) $ 200,000
360,000
(5B) 240,000
(6) 800,000
68,000
(7) 868,000
(9)
80,000
(10) 788,000
30,000
(11) 818,000
(12)
98,000
(4) 720,000
Direct materials, beginning balance
+ Purchases
Available for Use
- Direct materials, ending balance
Direct materials used
Direct labor incurred
Factory overhead applied
Current Manufacturing Cost
+Work-in-process, beginning balance
Total Costs in Process
-Work-in-process, ending balance
Cost of Goods Manufactured
+Finished goods, beginning balance
Available for Sale
- Finished goods, ending balance
Cost of Goods Sold
$ 32,000
320,000
352,000
152,000
$200,000
360,000
240,000
800,000
68,000
868,000
80,000
788,000
30,000
818,000
98,000
720,000
$ 900,000
(720,000)
180,000
4