Question No.1 The following information has been taken from the accounting records of Klear-Seal Company for the year 2012 Selling expenses………………………………………………………. $140,000 Raw materials inventory, January 1…………………………………. 90,000 Raw materials inventory, December 31…………………………….. 60,000 Utilities, factory………………………………………………………… 36,000 Direct labor cost……………………………………………………….. 150,000 Depreciation, factory………………………………………………….. 162,000 Purchases of raw materials…………………………………………… 750,000 Sales……………………………………………………………………. 2,500,000 Insurance, factory……………………………………………………… 40,000 Supplies, factory………………………………………………………. 15,000 Administrative Expenses ………………………………………………… 270,000 Indirect labor…………………………………………………………… 300,000 Maintenance, factory………………………………………………….. 87,000 Work in process inventory, January 1………………………………. 180,000 Work in process inventory, December 31………………………….. 100,000 Finished goods inventory, January 1………………………………… 260,000 Finished goods inventory, December 31……………………………. 210,000 Management wants these data organized in a better format so that financial statements can be prepared for the year. Required: 1. Prepare a schedule of cost of goods manufactured. 2. Compute the cost of goods sold. 3. Using data as needed from (1) and (2) above, prepare an income statement.
Answer
1
| Klear-Seal Company | ||
| Schedule of Cost of Goods Manufactured | ||
| For the year ended December 31 | ||
| Direct materials: |
$ | $ |
| Raw material inventory, Jan 1 | 190,000 | |
| Add: purchases of raw material | 75,000 | |
| Raw material available for use | 840,000 | |
| Less: raw material inventory, Dec 31 | -600,000 | |
| Raw material used | 780,000 | |
| Direct labor | 150,000 | |
| Manufacturing overhead: | ||
| Indirect labor | 300,000 | |
| Supplies, factory | 15,000 | |
| Utilities, factory | 36,000 | |
| Insurance, factory | 40,000 | |
| Depreciation, factory | 162,000 | |
| Maintenance, factory | 87,000 | |
| Total manufacturing overhead | 640,000 | |
| Total manufacturing costs | 1,570,000 | |
| Add: work in process inventory, Jan 1 | 180,000 | |
| Less: work in process inventory, Dec 31 | -100,000 | |
| Cost of Goods Manufactured | 1,650,000 | |
2
| Klear-Seal Company | ||
| Schedule of Cost of Goods Sold | ||
| For the year ended December 31 | ||
| Finished goods inventory, Jan 1 | 260,000 | |
| Add: cost of goods manufactured | 1,650,000 | |
| Goods available for use | 1,910,000 | |
| Less: finished goods inventory, Dec 31 | -210,000 | |
| Cost of Goods Sold | 1,700,000 | |
3
| Klear-Seal Company | ||
| Income statement | ||
| For the year ended December 31 | ||
| Sales | 2,500,000 | |
| Less: cost of goods sold | -1,700,000 | |
| Gross margin | 800,000 | |
| Less: selling& admin costs | ||
| Selling exp. | 140,000 | |
| Admin exp. | 270,000 | |
| Total selling& admin costs | -410,000 | |
| Net operating income | 390,000 | |
