I am new to accounting, I have been given an assignment that is giving me a headache and I need help asap.

In calculating the cost of goods manufactured if there are two different years which one do we use or do we use both.
Please find below my assignment and my answer. I do not know whether what I have done is right. Please help me.

B.H. Roberts Company produced 4,000 loveseats during the year. The loveseats sell for $800 each. Roberts had 600 loveseats in finished goods inventory at the beginning of the year. At the end of the year, there were 800 loveseats in finished goods inventory. Roberts accounting records provide the following information:
Purchases of materials………………………………………………………………………. $640,000
Direct materials inventory Dec. 31, 2005 ……………………………………… 93,600
Direct materials inventory Dec. 31, 2006 ……………………………………… 133, 600
Direct labor ………………………………………………………………………………… 400,000
Rent, factory building ………………………………………………………………… 80,000
Depreciation, factory equipment …………………………………………….. 120,000
Utilities, factory …………………………………………………………………………….. 23,912
Salary, sales supervisor …………………………………………………………………. 180,000
Commissions, sales persons ………………………………………………………… 360,000
General administration ………………………………………………………………… 600,000
Work-in-process inventory Dec. 31, 2005 ……………………………………. 26,080
Work-in-process inventory Dec 31, 2006 …………………………………….. 29,992
Finished goods inventory, Dec 31, 2005 ………………………………………. 160,000
Finished goods inventory, Dec. 31, 2006 …………………………………….. 228,200


Write the cost of goods manufactured statement.

Below is my answer

Direct materials
Beginning inventory Dec 31, 2005……………………………………………. 93, 600
Add: Purchases……………………………………………………………………… 640, 000
Materials available ………………………………………………………………. 733, 600
Less: finished goods inventory Dec 31 2005……………………. 160, 000
Direct materials used ………………………………………………………… 673,600
Direct labor ………………………………………………………………………… 400,000
Manufacturing overhead:
Indirect labor …………………………………………………………………………… 80,000
Depreciation, factory equipment ……………………………………………. 120,000
Rent, factory building …………………………………………………………… 84,000
Utilities, factory …………………………………………………………………… 23, 912 273,600
Total manufacturing costs added ……………………………………… 307,912
Add: Work in process inven Dec 31, 2005…………………….. 26,080
Total manufacturing costs ……………………………………………….. 333,992
Less work in process Dec 31, 2005……………………………….. 29,992
Cost of Goods manufactured ………………………………………….. 304,000

You got the bolded items wrong.

Direct materials
Beginning inventory Dec 31, 2005……………………………………………. 93, 600
Add: Purchases……………………………………………………………………… 640, 000
Materials available ………………………………………………………………. 733, 600
Less: finished goods inventory Dec 31 2005……………………. 160, 000
Direct materials used ………………………………………………………… 673,600
Direct labor ………………………………………………………………………… 400,000
Manufacturing overhead:
Indirect labor ………………………………………………………… 80,000 I don't have idea where this came from
Depreciation, factory equipment ……………………………………………. 120,000
Rent, factory building …………………………………………………………… 84,000
Utilities, factory …………………………………………………………………… 23, 912 273,600
Total manufacturing costs added ……………………………………… 307,912
Add: Work in process inven Dec 31, 2005…………………….. 26,080
Total manufacturing costs ……………………………………………….. 333,992
Less work in process Dec 31, 2005……………………………….. 29,992
Cost of Goods manufactured ………………………………………….. 304,000

There are also errors in adding up figures. Please let me know your new figures :)

Hi Criado,

Can you tell me which values I am supposed to use to calculate? There are two values for finished goods, one is "Finished goods inventory Dec 31, 2005" and the other is "finished goods 2006". Do I have to use these values if not what am I supposed to use in my calculation?
Also, the "Indirect labor" value is from the information provided by the company.

Hi Criado,

I have reworked it, is this right?
Thanks,
pmonica

Direct materials
Direct materials inventory Dec 31, 2005……………………………………………. $93, 600
Add: Purchases……………………………………………………………………… 640, 000
Materials available ………………………………………………………………. 733, 600
Less: Direct materials inventory Dec 31 2006……………………. 133, 600
Direct materials used ………………………………………………………… 600,000
Direct labor ………………………………………………………………………… 400,000
Manufacturing overhead:
Indirect labor …………………………………………………………………………… 80,000
Depreciation, factory equipment ……………………………………………. 120,000
Rent, factory building …………………………………………………………… 84,000
Utilities, factory …………………………………………………………………… 23, 912 307,912
Total manufacturing costs added ……………………………………… 1,307,912
Add: work in process inventory Dec 31, 2005 …………………….. 26,080
Total manufacturing costs ……………………………………………….. 1,333,992
Less: work in process inventory Dec 31, 2006……………………….. 29,992
Cost of Goods manufactured ………………………………………….. $1,304,000

Hello, since the indirect labor is given, then everything is almost perfect. You just seemed to overlook/mistyped the "Rent, factory building". In your answer it's $84,000; but in your initial post above it's $80,000. Please verify. :)

Criado,

Thank you very much for guiding me, I really appreciate the help. I will make the correction that you have pointed out.
I have another question relating to the above, am I supposed to use the "finished goods inventory Dec 31, 2005 and "finished goods inventory Dec 31, 2006" somewhere in my calcualtion? I am asking because I did not use it anywhere and I don't know whether it is okay not to use those values.
Thanks again,
pmonica

In computing your Cost of Goods Manufactured (above), you will not be needing the Finished Goods Inventory accounts.

You will eventually use the Finished Goods Inventory Accounts when you are tasked to compute for Cost of Goods Sold.

Finished Goods Inventory, beginning
Add: Cost of Goods Manufactured
=Cost of Goods Available for Sale
Less: Finished Goods Inventory, ending
= Cost of Goods Sold

I hope this helps. :)

Criado,

You are absolutely right. I have had to use the values to compute the cost of goods sold. I was able to do so.

I am struggling with the questions below right now.

Determine the cost of one loveseat in the beginning finished goods inventory.
Determine the cost of one loveseat in the ending finished goods inventory.
How do I go about these?

Thanks a lot,
pmonica

Just divided the total cost by the number of loveseat.

Total Cost of Beginning Finished Goods Inventory divided by Beginning Number of Loveseat.
Total Cost of Ending Finished Goods Inventory divided by Ending Number of Loveseat.

Hi Criado,
Thank you. I did not realize it was that simple. You are a great tutor for me.

These are my remaining questions for my assignment this week.
How do I Calculate the cost of goods available for sale.

I worked it out this way, is this right

The cost of goods available for sale is calculated as follows
Finished goods inventory, December 31, 2005 ………………… $160,000
Add: Cost of manufactured goods …………………………………….. $1,304,000
Cost of available goods for sale ……………………………………… $1,464,000

Determine the cost of goods sold.

Is this right?
Cost of goods sold is calculated as follows:
Cost of goods sold = cost of goods available – ending inventory balance
Cost of goods available……………………………………. $1,464,000
Less: Finished goods inventory December 31, 2006 …….. 228,200
Cost of goods sold $1,235,800


Determine the number of loveseats sold in the current period. How do I calclate this?


Have you used a first-in-first-out (FIFO) or a last-in-first-out (LIFO) policy for determining the cash flow in finished goods inventory account?
What is the meaning of this question, I do not know what I am supposed to be doing.

Determine the average cost of producing one loveseat in the current period.

I do not know how to go about this because I only have the value for the cost of goods available so without being able to determine the number of loveseats produced in the current period, I do not know how to determine the cost of one loveseat in the current period.

Did the cost of production go up or down as compared to previous periods?

I guess if I have the answer to the cost of producing one loveseat in the current period, I will know the answer to this question.

Prepare an income statement based on absorption costing for external users. How is this prepared? I keep checking from my textbook but there's no example for me to follow.

Clearly state the manufacturing cost of goods sold and the total selling and administrative costs.

I know the value of manufacturing cost of goods sold and administrative costs but I do not know the total selling cost, what do I do?

Criado, I am working hard on these assignments. I have total of 15 questions so any input you give is extremely helpful.

Thanks again,
pmonica

PS// I realized that the rent was actually 84,000. That was a typing mistake on my part

Criado,

This is how I worked the total number of loveseats in the current period as well as the cost of one loveseat in the current period and the number of loveseats sold. Please take a look and advise.

Thanks,
pmonica


Number of loveseats sold in the current period is calculated as follows:
The total number of loveseats available at the beginning of the year + total number of loveseats manufactured – number of loveseat available at the end of the year.
To determine the total number of love seats manufactured, we need calculate the cost of one love seat
We know that there were 600 loveseats at the beginning of the year which cost $160,000.
$160,000/600 = $200
Cost of one loveseat =$200
This is the cost of one loveseat at the beginning of the year. Based on this, we can calculate the number of loveseats seat manufactured as
Cost of goods manufactured ………………. $1,304,000
Divided by: $200
Number of loveseats manufactured = 1304000/200 = 6520
Add: beginning number of loveseats available = + 600
Total number of loveseats available for sale = 7120
Less loveseats available at the end of the year = - 800
Total number of loveseats sold = 6320

Criado,

Do we calculate the cost of goods available for sale as

Beginning Inventory + Purchases?

pmonica

Regarding the cost of beginning and ending seats, everything is already given so you don't need to compute much.

You procedure for Cost of One Loveseat, beginning is correct except that you rounded off too much. The bold ones are correct. The red one isn't.

$160,000/600 = $200

You should do the same with the Ending Finished Goods Inventory since the total cost and the remaining seats at the end of the year is given.

Cost of Goods Available for Sale is:
Beginning Finished Goods Inventory
+Cost of Goods Manufactured
=Cost of Goods Available for Sale

Hi,

How do I calculate the cost of one loveseat in the current period?

pmonica

Yes Criado,

The correct answer is 267. Thank you. I have made the correction.

pmonica

how do I calculate the cost of one loveseat in the current period?
You mean the ending inventory?

Total Cost of Ending Finished Goods Inventory divided by Total Quantity of Ending Finished Goods Inventory

is there a difference between the average cost of producing one loveseat in the current period and the cost of one loveseat in the beginning inventory?

Below is my income statement, please advise

13. Prepare an income statement based on absorption costing for external users.
Sales is calculated as
Total # of loveseats = 4000
Less total number of loveseats at the end of the year = 800
4000-800= 3200
Multiplied by selling price of one loveseat = $800
3200* 800 = 2,560,000
Sales…………………………………………………………………………… $2,560,000

Less expenses:
Cost of services sold:
Beginning work in process …………………………………… 26, 080
Service cost added:
Direct materials …………………………………………………………… 600,000
Direct labor ………………………………………………………………… 400,000
Overhead …………………………………………………………………… 307,912 1,307,912
Total ……………………………………………………………………………… 1,333,992
Less: Ending work in process …………………………………………………………… 29,992 $1,304,000
Gross margin …………………………………………………………………………………………….. $3,864,000
Less operating expenses:
Selling expenses:
Salary, sales supervisor ……………………………………………………………. 180,000
Add: Commissions, sales persons ……………………………………………… 360,000
Selling expenses = 180000 + 360000 = 540,000
Selling expenses ………………………………………………………………… 540, 000
Administrative expenses ……………………………………………………….. 600,000 $1,140,000
Income before income taxes ……………………………………………….. $2,724,000

I am not sure what the professor wants, is there a differnce between the cost of producing one loveseat in the current period and the cost of one loveseat in the ending period or do they mean the same thing?

pmonica

I am sorry. I misssed this part of your question. I don't know why I did not notice it before.


Hi Criado,
Thank you. I did not realize it was that simple. You are a great tutor for me.

These are my remaining questions for my assignment this week.
How do I Calculate the cost of goods available for sale.

I worked it out this way, is this right

The cost of goods available for sale is calculated as follows
Finished goods inventory, December 31, 2005 ………………… $160,000
Add: Cost of manufactured goods …………………………………….. $1,304,000
Cost of available goods for sale ……………………………………… $1,464,000

Determine the cost of goods sold.

Is this right?
Cost of goods sold is calculated as follows:
Cost of goods sold = cost of goods available – ending inventory balance
Cost of goods available……………………………………. $1,464,000
Less: Finished goods inventory December 31, 2006 …….. 228,200
Cost of goods sold $1,235,800


Determine the number of loveseats sold in the current period. How do I calclate this?


Have you used a first-in-first-out (FIFO) or a last-in-first-out (LIFO) policy for determining the cash flow in finished goods inventory account?
What is the meaning of this question, I do not know what I am supposed to be doing.

Determine the average cost of producing one loveseat in the current period.

I do not know how to go about this because I only have the value for the cost of goods available so without being able to determine the number of loveseats produced in the current period, I do not know how to determine the cost of one loveseat in the current period.

Did the cost of production go up or down as compared to previous periods?

I guess if I have the answer to the cost of producing one loveseat in the current period, I will know the answer to this question.

Prepare an income statement based on absorption costing for external users. How is this prepared? I keep checking from my textbook but there's no example for me to follow.

Clearly state the manufacturing cost of goods sold and the total selling and administrative costs.

I know the value of manufacturing cost of goods sold and administrative costs but I do not know the total selling cost, what do I do?

Criado, I am working hard on these assignments. I have total of 15 questions so any input you give is extremely helpful.

Thanks again,
pmonica

PS// I realized that the rent was actually 84,000. That was a typing mistake on my part

Your COGAS and COGS computations are correct.

Before we know about which is being used, FIFO or LIFO, we need to first know the following.

-Average cost of producing one loveseat in the current period
-Cost of one loveseat (beginning)
-Cost of one loveseat (ending)

I tried to determine whether it's FIFO or LIFO was used but I can't arrive with exact conclusion (though I got a close match). Can you please provide me with the complete detail of the problem so I can compute ahead and lead you accurately.

I will comment regarding your income statement later; once this question of yours is settled. :)

Thanks Criado,

below are my computations:

8. Number of loveseats sold in the current period is calculated as follows:
The total number of loveseats available at the beginning of the year + total number of loveseats manufactured – number of loveseats available at the end of the year.
To determine the total number of love seats manufactured, we need calculate the cost of one love seat
We know that there were 600 loveseats at the beginning of the year which cost $160,000.
$160,000/600 = $267
Cost of one loveseat in the beginning =$267
This is the cost of one loveseat at the beginning of the year. Based on this, we can calculate the number of loveseats seat manufactured as
Cost of goods manufactured ………………. $1,304,000
Divided by: $267
Number of loveseats manufactured = 1304000/267 = 4883
Add: beginning number of loveseats available = + 600
Total number of loveseats available for sale = 5483
Less: loveseats available at the end of the year = - 800
Total number of loveseats sold = 4683

9. Determine the cost of one loveseat in the beginning finished goods inventory.
The cost of one love seat in the beginning goods inventory is calculated as follows:
Total cost of beginning finished goods divided by the beginning number of loveseats in the beginning.
Finished goods inventory, December 31, 2005 …………………………….. $160,000
Beginning number of loveseats ………………………………………………….. 600
Cost of one loveseat …………………………………………………………… 160000/600 = 267
Cost of one loveseat in the beginning goods inventory = $267

10. Determine the cost of one loveseat in the ending finished goods inventory.

The cost of one loveseat in the ending finished goods is calculated as follows
Total cost of ending finished goods divided by ending number of loveseats.
Finished goods inventory, December 3, 2006 …………………………….. $228,000
Ending number of loveseats ………………………………………………….. 800
Cost of one loveseat ………………………………………………. 228000/800 = 285
Cost of one love seat in the ending finished goods inventory = $285

I am not sure how to calculate the average cost of producing one loveseat in the current period. Is the same as the cost of one loveseat in the finished goods inventory?

I appreciate your input,
pmonica

This is the cost of one loveseat at the beginning of the year. Based on this, we can calculate the number of loveseats seat manufactured as
Cost of goods manufactured ………………. $1,304,000
Divided by: $267
Number of loveseats manufactured = 1304000/267 = 4883
Add: beginning number of loveseats available = + 600
Total number of loveseats available for sale = 5483
Less: loveseats available at the end of the year = - 800
Total number of loveseats sold = 4683

You got this one wrong. It should not be this complicated. Here's the formula you should use.
Number of Seats Sold = Beginning + Produced - Ending
All the items in the formula are given.

B.H. Roberts Company produced 4,000 loveseats during the year. The loveseats sell for $800 each. Roberts had 600 loveseats in finished goods inventory at the beginning of the year. At the end of the year, there were 800 loveseats in finished goods inventory. Roberts accounting records provide the following information

Number 9 and 10 are perfect :)

In addition,

Average Cost of Producing One Loveseat in the Current Period = Cost of Goods Manufactured divided by Number of Loveseats Produced in the Current Period.


B.H. Roberts Company produced 4,000 loveseats during the year

Criado,

So are you saying the number of loveseats produced in the current period is 4000 loveseats so I do not need to compute anything?

pmonica

This means the average cost of producing one loveseat is 1304000/4000 = $326

Am I right?

pmonica

and the total number of loveseats sold in the current period is

Number of loveseats sold = Beginning + produced - Ending
= 600 + 4000 - 800
= 3800 loveseats

Am I on the right track here?

You got them right! :)

Criado,

Is there a difference between manufacturing cost of goods sold and manufacturing cost incurred or do the mean the same thing?

pmonica

Thanks, I now understand.

Can you now look at the income statement I prepared and advise me, please?

Also, in this case did the company se lifo or fifo, how do I determine that?

I am unsure of how I came up with my sales figure,
Did I use the correct formula and is my computation correct?

I think sales should be calculated as follows:
the total number of loveseats sold in the current period* selling price
3800 * 800 = $3040000

am I thinking right?

This is my new income statement, please advise

Sales is calculated as
Total # of loveseats sold in the current period = 3800
Multiplied by selling price of one loveseat = $800
Sales = 3800* 800 = $3,040,000
Sales…………………………………………………………………………… $3,040,000

Less expenses:
Cost of services sold:
Beginning work in process …………………………………… 26, 080
Service cost added:
Direct materials …………………………………………………………… 600,000
Direct labor ………………………………………………………………… 400,000
Overhead …………………………………………………………………… 307,912 1,307,912
Total ……………………………………………………………………………… 1,333,992
Less: Ending work in process …………………………………………………………… 29,992 $1,304,000
Gross margin …………………………………………………………………………………………….. $1,736,000
Less operating expenses:
Selling expenses:
Salary, sales supervisor ……………………………………………………………. 180,000
Add: Commissions, sales persons ……………………………………………… 360,000
Selling expenses = 180000 + 360000 = 540,000
Selling expenses ………………………………………………………………… 540, 000
Administrative expenses ……………………………………………………….. 600,000 $1,140,000
Income before income taxes ……………………………………………….. $596,000

This is how I computed the manufacturing cost of goods sold, am on the right track?

14. Manufacturing cost of goods sold is calculated as follows
Total number of loveseats sold in the current period = 3800
Multiplied by the average cost of one loveseat in the current period = $326
Manufacturing cost of goods sold = 3800*326
= $1,238,800

Nope; remember that in your inventory; you have 600 loveasets that worth $267 each and 4,000 loveseats that worth 326 each. During that time that you sold 3,800 we don't know which are the ones that are sold and which are not.

Please go back to your post #10. You already computed for Cost of Goods Sold and I confirm that your computation is correct.


Thank you. I did not realize it was that simple. You are a great tutor for me.

These are my remaining questions for my assignment this week.
How do I Calculate the cost of goods available for sale.

I worked it out this way, is this right

The cost of goods available for sale is calculated as follows
Finished goods inventory, December 31, 2005 ………………… $160,000
Add: Cost of manufactured goods …………………………………….. $1,304,000
Cost of available goods for sale ……………………………………… $1,464,000

Determine the cost of goods sold.

Is this right?
Cost of goods sold is calculated as follows:
Cost of goods sold = cost of goods available – ending inventory balance
Cost of goods available……………………………………. $1,464,000
Less: Finished goods inventory December 31, 2006 …….. 228,200
Cost of goods sold $1,235,800

Thanks criado,

In this case how do I compute the sales figure for the income statement?

Can we not assume that out of the available loveseats for sale, each one was sold for $800

Sales is computed as number of seats sold (you already computed this previously) multiplied by selling price (which is given above).

Definitely. As the problem gave, each one of the seats sold was sold at $800 each. :)

I don't know why I am missing to read some of your post from time to time.

Regarding your Income Statement, it is perfect. :)

Criado,

I want to thank you for helping me through this assignment.

Now for the lifo, fifo part, which on is used in the inventory account, how do I determine that?

Now the average cost for producing one love seat in the current period = $326
Cost of one loveseat (beginning) = $267
Cost of one loveseat (ending) = $285

Based on these figures, how can I determeine whether LIFO or FIFO is being used?

Criado,

Since production costs are rising compared to previous periods, is it safe to say that FiFo is being used in the inventory account?

pmonica

Since the current cost of producing one lovesaet is higher than previous periods, is it safe to assume that FIFO is being used in the inventory account?

There can be an EXACT answer for this but I just can't get it for some reason that's why I wish to request you to re-post the original question including all of supplimentary information to make sure of our final conclusion.

But here's a quick guide. If Cost of one loveseat (ending) is equal to Cost of One seat (currently manufactured), then we are very certain that FIFO is being used (atleast to this problem).

In this problem, we are certain that it is not FIFO because:

Cost of one loveseat (ending) = $285
Cost of One seat (currently manufactured) = $326

Therefore, it has more inclination to LIFO and no possibility that FIFO was used.

Criado,

Sadly, there is no other information on this particular problem so I will choose LIFO and explain my thinking to the professor. Hopefully, he will accept that.

Once again, thanks for your help this week.

I have no idea what my assignment for next week will be like but I will definitely keep in touch again soon.

Have a great weekend,

pmonica

Thanks Pmonica!

Good luck and have a great weekend too. :)