Question

Question:Preparing a schedule of cost of goods manufactured and an income statement for a manufacturing company

Gourmet Bones manufactures its own brand of pet chew bones. At the end of December 2018, the accounting records showed the following:

Balances: Beginning Ending

Direct Materials \( 13,500 \) 7,500

Work-in-Process Inventory 0 3,500

Finished Goods Inventory 0 5,200

Other information:

Direct materials purchases$ 36,000

Plant janitorial services 700

Sales salaries 6,000

Delivery costs1,300

Net sales revenue 107,000

Utilities for plant 1,300

Rent on plant 17,000

Customer service hotline costs 1,200

Direct labor23,000

Requirements

1. Prepare a schedule of cost of goods manufactured for Gourmet Bones for the year ended December 31, 2018.

2. Prepare an income statement for Gourmet Bones for the year ended December 31, 2018.

3. How does the format of the income statement for Gourmet Bones differ from the income statement of a merchandiser?

4. Gourmet Bones manufactured 17,900 units of its product in 2018. Compute the company’s unit product cost for the year, rounded to the nearest cent.

Short answer

The COGM is $80,500, net operating income is $23,200. Manufacturing company’s income statement COGS includes COGM and change in finished goods inventory and COGS on income statement of merchandise inventory includes purchases and change in merchandise inventory. The unit product cost is $4.50

Step-by-step solution

Step-by-Step SolutionStep 1: Preparation of schedule of cost goods manufactured

Gourmet Bones
Schedule of cost goods manufactured
The year ended December 31, 2018
	Amount ($)	Amount ($)	Amount ($)
Beginning WIP Inventory
Direct Materials Used
Beginning Direct material	$13,500
Purchases of direct material	$36,000
Direct Materials available for use	$49,500
Ending direct materials	-$7,500
Direct Materials used		$42,000
Direct Labor		$23,000
Manufacturing overhead
Plant Janitorial services	$700
Utilities for plant	$1,300
Rent on Plant	$17,000
Total Manufacturing Overhead		$19,000
Total manufacturing cost incurred during the year			$84,000
Total manufacturing cost to account for			$84,000
Ending WIP Inventory			-$3,500
Cost of goods manufactured			$80,500

Preparation of Income statement

Gourmet Bones
Income Statement
The year ended December 31, 2018
	Amount ($)	Amount ($)
Revenues:
Net Sales Revenue		$107,000
Cost of goods sold
Beginning finished goods inventory	0
Cost of goods manufactured	$80,500
Cost of goods available for sale	$80,500
Ending finished goods inventory	-$5,200
Cost of goods sold		$75,300
Gross Profit		$31,700
Selling and administrative Expenses
Sales Salaries Expense	$6,000
Delivery Expense	$1,300
Customer service hotline Expense	$1,200
Total Selling and administrative Expenses		$8,500
Operating Income (loss)		$23,200

Difference in income statement format between Gourmet and merchandiser company

In an income statement of the manufacturing company, the cost of goods sold is based on the cost of goods manufactured, and for a merchandising company, the cost of goods sold is based on the cost of merchandise purchased including freight in and the change in merchandise inventory.

Computation of unit product cost

$$\begin{gathered} \mathbf{Unitproductcost}\mathbf{=}\frac{\mathbf{Costofgoodsmanufactured}}{\mathbf{Totalunitsproduced}} \\ \mathbf{=}\frac{\mathbf{\$}\mathbf{80}\mathbf{,}\mathbf{500}}{\mathbf{17}\mathbf{,}\mathbf{900}} \\ \mathbf{=}\mathbf{\$}\mathbf{4}\mathbf{.}\mathbf{50} \end{gathered}$$