Grange Corporation is a manufacturer of precision drill bits. The bits are sold to machine and equipment dealers, and marketing is handled via a network of regionalized manufacturer representatives. The only selling expenses pertain to commissions paid to the manufacturer representatives. The commissions are 7% of total sales. The following information pertains to operations during the calendar year 20X9.


Sales $14,409,435
Administrative salaries 876,090
Direct labor 3,399,674
Indirect labor 1,232,055
Total depreciation 310,300
Total utilities 260,000
Interest expense 67,500
Other factory overhead 77,454


Of the total depreciation, 70% relates to manufacturing and 30% relates to general and administrative costs. Of the total utilities, 60% relates to manufacturing and 40% relates to general and administrative costs.



Raw Materials ($) Indirect Materials ($) WIP
($) Finished Goods
($)
Beginning balance 775,090 55,080 1,213,678 1,242,664
Purchases 4,334,665 320,500 n/a n/a
Ending balance 812,332 71,715 944,070 1,553,509




Required:
Use the above information to prepare:
a) A schedule of cost of goods manufactured for the year ended December 31, 20X9. [Hint: First, calculate raw materials used and indirect materials used.]
b) A schedule of cost of goods sold for the year ended December 31, 20X9.
c) An income statement for the year ended December 31, 20X9.


Answer for part A
Beginning Balance WIP Inventory 1,213,678
(Add) Manufacturing Cost (DM+DL) 7,697,097
Total Manufacturing Cost to Account For 8,910,775
(Less) Ending Balance WIP Inventory 944,070
Cost of Goods Manufactured 7,966,705

You've got a good start but there's some problems. For one, a cost of goods manufactured report usually wants details. i.e. details of where the manufacturing costs came from, and usually it'll even have the details of where you got the materials figure from. (i.e. one of those little "equations" for material inventory inside this little equation for WIP inventory.)

Also, you've skipped overhead entirely. Your three manufacturing costs are direct material, direct labor AND applied overhead. So you've got more work to do there. Some costs are given directly, and some you have to figure out from the extra info provided. You can't skip overhead.

Another issue may not be an issue. You've made your raw material account direct only. Herein lies one of the issues with homework. Problems present things in a way that aren't necessarily realistic and you have to figure out how to interpret it.

Technically, a raw materials account is all materials, not just direct materials. So it would be including the indirect as well. You would have course have to know what portion going into production was direct versus indirect. I have never seen a problem presented in this manner, where "indirect materials" was presented as though it's an individual inventory account separate from raw materials. (There's no rule that says you can't have it split into two, but I've never seen a book teach it that way.) Note it doesn't actually say indirect is separate from "raw" nor does it say "raw" doesn't include indirect, which it normally would.

So I've taken the 4,297,423 used from raw materials as being all materials, including indirect. You've taken it as being only direct.

I don't know what your book is doing. I can only make assumptions and I'm apt to make them as it's literally stated if I don't know any better. (It says "raw materials" not "direct materials.") After fixing the other issues, you need to be looking at an example and seeing how the book is treating this. Books can teach assumptions without us outsiders knowing what they are.

In calculating the cost of goods manufactured you have ignores factory overheads. The correct COGM figure is 9,953,289.