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Chapter 16: Q38PGB (page 902)

Determining the flow of costs through a manufacturer’s inventory accounts

True Fit Shoe Company makes loafers. During the most recent year, True Fit incurred total manufacturing costs of \(21,900,000. Of this amount, \)2,600,000 was direct materials used and \(14,800,000 was direct labor. Beginning balances for the year were Direct Materials, \)700,000; Work-in-Process Inventory, \(1,500,000; and Finished Goods Inventory, \)1,100,000. At the end of the year, balances were Direct Materials, \(800,000; Work-in-Process Inventory, \)2,000,000; and Finished Goods Inventory, $1,080,000.

Requirements Analyze the inventory accounts to determine:

1. Cost of direct materials purchased during the year.

2. Cost of goods manufactured for the year.

3. Cost of goods sold for the year.

Short Answer

Expert verified

The purchase of direct materials is $2,700,000, the cost of goods manufactured is $21,400,000 and the cost of goods sold is $21,420,000.

Step by step solution

01

Step-by-Step Solution Step 1: Calculation of cost of direct materials purchased

Purchaseofdirectmaterials=Directmaterialsused+Endingdirectmaterials-BeginningDirectMaterials=$2,600,000+$800,000-$700,000=$2,700,000

02

Calculation of cost of goods manufactured

Costofgoodmanufactured=BeginningWIPInventory+TotalManufacturingcostincurred-EndingWIPinventory=$1,500,000+$21,900,000-$2,000,000=$21,400,000

03

Calculation of cost of goods Sold

Costofgoodssold=BeginningFinishedGoodsInventory+COGM-EndingFinishedGoodsInventory=$1,100,000+$21,400,000-$1,080,000=$21,420,000

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Most popular questions from this chapter

Classifying period costs and product costs

Langley, Inc. is the manufacturer of lawn care equipment. The company incurs the following costs while manufacturing edgers:

• Handle and shaft of edger

• Motor of edger

• Factory labor for workers assembling edgers

• Lubricant used on bearings in the edger (not traced to the product)

• Glue to hold the housing together

• Plant janitorial wages

• Depreciation on factory equipment

• Rent on plant

• Sales commissions

• Administrative salaries

• Plant utilities

• Shipping costs to deliver finished edgers to customers

Requirements

1. Describe the difference between period costs and product costs.

2. Classify Langley’s costs as period costs or product costs. If the costs are product costs, further classify them as direct materials, direct labor, or manufacturing overhead.

Identify each cost as a period cost or a product cost. If it is a product cost, further indicate if the cost is direct materials, direct labor, or manufacturing overhead. Then determine if the product cost is a prime cost and/or a conversion cost.

11.Salary of the sales manager

Becky Knauer recently resigned from her position as controller for Shamalay Automotive, a small, struggling foreign car dealer in Upper Saddle River, New Jersey. Becky has just started a new job as controller for Mueller Imports, a much larger dealer for the same car manufacturer. Demand for this particular make of car is exploding, and the manufacturer cannot produce enough to satisfy demand. The manufacturer’s regional sales managers are each given a certain number of cars. Each sales manager then decides how to divide the cars among the independently owned dealerships in the region. Because of high demand for these cars, dealerships all want to receive as many cars as they can from the regional sales manager.

Becky’s former employer, Shamalay Automotive, receives only about 25 cars each month. Consequently, Shamalay is not very profitable.

Becky is surprised to learn that her new employer, Mueller Imports, receives more than 200 cars each month. Becky soon gets another surprise. Every couple of months, a local jeweler bills the dealer $5,000 for “miscellaneous services.” Franz Mueller, the owner of the dealership, personally approves payment of these invoices, noting that each invoice is a “selling expense.” From casual conversations with a salesperson, Becky learns that Mueller frequently gives Rolex watches to the manufacturer’s regional sales manager and other sales executives. Before talking to anyone about this, Becky decides to work through her ethical dilemma. Put yourself in Becky’s place.

Requirements

1. What is the ethical issue?

2. What are your options?

3. What are the possible consequences?

4. What should you do?

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.

Computing cost of goods manufactured

Use the following inventory data for Caddy Golf Company to compute the cost of goods manufactured for the year:

Direct Materials Used $ 12,000

Manufacturing Overhead 21,000

Work-in-Process Inventory:

Beginning Balance 1,000

Ending Balance 5,000

Direct Labor 9,000

Finished Goods Inventory:

Beginning Balance 18,000

Ending Balance 4,000
See all solutions

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