Question

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

Chewy 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 \( 13,400 \) 10,500

Work-in-Process Inventory 0 1,500

Finished Goods Inventory 0 5,400

Other information:

Direct materials purchases $ 39,000

Plant janitorial services 900

Sales salaries 5,100

Delivery costs 1,700

Net sales revenue 115,000

Utilities for plant 1,200

Rent on plant 9,000

Customer service hotline costs 1,600

Direct labor 16,000

Requirements

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

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

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

4. Chewy Bones manufactured 17,500 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 $67,500, net operating income is $44,500. 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 $3.86 per unit.

Step-by-step solution

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

Chewy Bones
Schedule of cost goods manufactured
The year ended December 31, 2018
	Amount ($)	Amount ($)	Amount ($)
Beginning WIP Inventory
Direct Materials Used
Beginning Direct material	$13,400
Purchases of direct material	$39,000
Direct Materials available for use	$52,400
Ending direct materials	-$10,500
Direct Materials used		$41,900
Direct Labor		$16,000
Manufacturing overhead
Plant Janitorial services	$900
Utilities for plant	$1,200
Rent on Plant	$9,000
Total Manufacturing Overhead		$11,100
Total manufacturing cost incurred during the year			$69,000
Total manufacturing cost to account for			$69,000
Ending WIP Inventory			-$1,500
Cost of goods manufactured			$67,500

Preparation of Income statement

Chewy Bones
Income Statement
The year ended December 31, 2018
	Amount ($)	Amount ($)
Revenues:
Net Sales Revenue		$115,000
Cost of goods sold
Beginning finished goods inventory	0
Cost of goods manufactured	$67,500
Cost of goods available for sale	$37,500
Ending finished goods inventory	-$5,400
Cost of goods sold		$62,100
Gross Profit		$52,900
Selling and administrative Expenses
Sales Salaries Expense	$5,100
Delivery Expense	$1,700
Customer service hotline Expense	$1,600
Total Selling and administrative Expenses		$8,400
Operating Income (loss)		$44,500

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

$$\begin{gathered} \mathbf{Unit}\mathbf{}\mathbf{product}\mathbf{}\mathbf{cost}\mathbf{=}\frac{\mathrm{Cost}\mathrm{of}\mathrm{goods}\mathrm{manufactured}}{\mathrm{Total}\mathrm{units}\mathrm{produced}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\$67,500}{17,500} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{3}\mathbf{.}\mathbf{86}\mathbf{} \end{gathered}$$