Revised Summer 2016 Exam Review

FINANCIAL STATEMENTS FOR A

MANUFACTURING COMPANY

Key Topics to Know

 Cost of good sold statement is prepared from the finished goods inventory
account.
 Cost of goods sold statement has the same format as in financial accounting.
 Cost of goods manufactured schedule is prepared from both the raw materials
inventory and work in process inventory accounts.
 Cost of goods manufactured schedule has a similar format to two cost of goods
sold schedules stacked one on top of the other. In other words, the cost of goods
manufactured schedule first analyses the raw materials inventory account and
second the work in process inventory account.
 For all three inventory accounts being analyzed, the amount being determined is
the outflow or deduction being credited to the inventory account.
 Income statement for a manufacturing company
 Balance sheet for a manufacturing company

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Problems
Problem #1

Cost of Goods Manufactured Case 1 Case 2

Direct materials 8,000 6,000
Direct labor 3,000 5,000
Manufacturing overhead _______ 7,000
Total manufacturing costs 32,000 _______
Beginning work in process inventory _______ 2,000
Ending work in process inventory 2,000 _______
Cost of goods manufactured _______ _______

Income Statement
Sales 50,000 30,000
Beginning finished goods inventory 9,000 7,000
Cost of goods manufactured 31,500 _______
Goods available for sale _______ 23,000
Ending finished goods inventory 7,000 5,000
Cost of goods sold ______ ______
Gross margin ______ 12,000
Operating expenses 10,000 ______
Net income 6,500 3,000

Required: Fill in the missing information given above.

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Problem #2

The following data were taken from the cost records:

Depreciation, factory 70,000

Indirect labor 110,000
Utilities, factory 50,000
Insurance factory 15,000
Lubricants for machines 10,000
Direct Labor 210,000
Purchases of raw materials 160,000
Depreciation, sales furniture 7,000

Inventories at the beginning and end of the year were as follows:

January 1 December 31
Raw materials 15,000 25,000
Work in process 30,000 10,000
Finished goods 40,000 60,000

Required: a) Prepare a Schedule of Cost of Goods Manufactured for the year.

b) Prepare a Schedule of Cost of Goods Sold for the year.

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Problem #3

H Company has a job-order costing system. The information below has been taken from
the cost records of H Company for the past year:

Direct materials used $1,250

Total manufacturing costs 6,050
Manufacturing overhead 2,800
Selling expenses 1,000
Direct materials inventory, January 1 130
Direct materials inventory, December 31 80
Work in process, January 1 250
Work in process, December 31 400
Finished goods, January 1 300
Finished goods, December 31 200

Required: a) Compute the cost of direct materials purchased during the year.
b) Compute the cost of direct labor for the year.
c) Compute the Cost of Goods Manufactured for the year.
d) Compute the Cost of Goods Sold for the year.

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Multiple Choice Questions

1. When units are sold, the cost associated with the units is credited to which
account?
a) Raw Materials Inventory
b) Work in Process Inventory
c) Finished Goods Inventory
d) Cost of Goods Sold

2. When units are manufactured, the cost associated with the units is credited to
which account?
a) Raw Materials Inventory
b) Work in Process Inventory
c) Finished Goods Inventory
d) Cost of Goods Sold

3. F Company has the following information:

Beginning Ending
balance balance
Raw materials 20,000 30,000
Work in process 15,000 18,000
Finished goods 30,000 20,000

The following additional information is available for the year:

Raw materials purchases 100,000

Direct labor 75,000
Manufacturing overhead applied 80,000
Indirect materials 0

Compute the direct materials used in production.

a) $20,000
b) $30,000
c) $110,000
d) $90,000

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The next 2 questions refer to the following information:

N Company a local retailer, has provided the following data for March:


Merchandise inventory, beginning balance $30,000

Merchandise inventory, ending balance $34,000
Sales $280,000
Purchases of merchandise inventory $146,000
Selling expense $27,000
Administrative expense $64,000

4. N Company’s cost of goods sold for March was:

a) $146,000
b) $150,000
c) $142,000
d) $237,000

5. N Company’s net operating income for March was:

a) $130,000
b) $134,000
c) $43,000
d) $47,000

6. On the Schedule of Cost of Goods Manufactured, the final Cost of Goods

Manufactured figure represents:
a) the amount of cost charged to Work in Process during the period.

b) the amount of cost transferred from Finished Goods to Cost of Goods Sold
during the period.
c) the amount of cost placed into production during the period
d) the amount of cost of goods completed during the current year whether
they were started before or during the current year.

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7. R Company reported the following financial information for the year:

Sales revenues for the period $1,304,000

Operating expenses for the period $239,000
Finished Goods Inventory, January 1 36,000
Finished Goods Inventory, December 31 41,000
Cost of goods manufactured for the period $540,000

Cost of goods sold was:

a) $769,000.
b) $530,000.
c) $535,000.
d) $448,000.

8. A financial report that summarizes the amounts and types of costs that were
incurred in the manufacturing process during the period is a:
a) Schedule of cost of goods manufactured
b) Schedule of cost of goods sold
c) Materials statement
d) Merchandise schedule

9. Which of the following costs is not an indirect cost:

a) Wages for plant cleanup crews
b) Wages for carpenters working for a home builder
c) Wages for factory maintenance personnel
d) Wages for warehouse personnel

10. Which of the following accounts would appear on a schedule of cost of goods
manufactured?
a) Direct materials, indirect labor, sales salaries.
b) Direct labor, delivery equipment, and depreciation on factory equipment.
c) Raw materials, work in process, finished goods.
d) Raw materials, factory insurance expense, indirect labor.

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Solutions to Problems
Problem #1

Case 1 Case 2
Direct materials 8,000 6,000
Direct labor 3,000 5,000
Manufacturing overhead 21,000 7,000
Total manufacturing costs 32,000 18,000
Add: Beginning work in process inventory 1,500 2,000
Deduct: Ending work in process inventory 2,000 4,000
Cost of goods manufactured 31,500 16,000

Sales 50,000 30,000

Beginning finished goods inventory 9,000 7,000
Add: Cost of goods manufactured 31,500 16,000
Goods available for sale 40,500 23,000
Deduct: Ending finished goods inventory 7,000 5,000
Cost of goods sold 33,500 18,000
Gross margin 16,500 12,000
Operating expenses 10,000 9,000
Net income 6,500 3,000

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Problem #2

a)
Schedule of Cost of Goods Manufactured
Direct materials:
Raw materials inventory, January 1 15,000
Add: Purchases of raw materials 160,000
Raw materials available for use 175,000
Deduct: raw materials inventory, Dec. 31 25,000
Raw materials used in production 150,000
Direct Labor 210,000
Manufacturing overhead:
Depreciation, factory 70,000
Indirect labor 110,000
Utilities, factory 50,000
Insurance, factory 15,000
Lubricants for machines 10,000
Total overhead costs 255,000
Total manufacturing costs 615,000
Add: Work in process inventory, January 1 30,000
645,000
Deduct: Work in process inventory, Dec. 31 10,000
Cost of Goods Manufactured 635,000

b)
Schedule of Cost of Goods Sold
Finished goods inventory, January 1 40,000
Add: Cost of Goods Manufactured 635,000
Goods available for sale 675,000
Deduct: Finished goods inventory, Dec 1 60,000
Cost of Goods Sold 615,000

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Problem #3

a)
Direct materials inventory, December 31 80
Direct materials used 1,250
Less: Direct materials inventory, January 1 $130
Direct materials purchased $1,200

b)
Total manufacturing costs $6,050
less: Direct materials used 1,250
Manufacturing overhead 2,800
Direct labor cost $2,000

c)
Work in process, January 1 $250
Total manufacturing costs 6,050
6,300
Work in process, December 31 400
Cost of goods manufactured $5,900

d)
Finished goods, January 1 $300
Cost of goods manufactured 5,900
Goods available for sale 6,200
Finished goods, December 31 200
Cost of goods sold $6,000

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Solutions to Multiple Choice Questions

1. C
2. B
3. D
4. C
5. D
6. D
7. C
8. A
9. B
10. D

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