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  • Jul 15, 2008, 04:12 AM
    pmonica
    Cost of goods manufactured
    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
  • Jul 15, 2008, 04:47 AM
    Criado
    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 :)
  • Jul 15, 2008, 05:04 PM
    pmonica
    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.
  • Jul 15, 2008, 06:09 PM
    pmonica
    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
  • Jul 15, 2008, 07:11 PM
    Criado
    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. :)
  • Jul 16, 2008, 02:37 PM
    pmonica
    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
  • Jul 16, 2008, 07:52 PM
    Criado
    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. :)
  • Jul 17, 2008, 06:48 AM
    pmonica
    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
  • Jul 17, 2008, 09:02 AM
    Criado
    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.
  • Jul 17, 2008, 03:21 PM
    pmonica
    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
  • Jul 17, 2008, 03:29 PM
    pmonica
    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
  • Jul 17, 2008, 04:09 PM
    pmonica
    Criado,

    Do we calculate the cost of goods available for sale as

    Beginning Inventory + Purchases?

    pmonica
  • Jul 17, 2008, 08:07 PM
    Criado
    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
  • Jul 18, 2008, 04:23 PM
    pmonica
    Hi,

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

    pmonica
  • Jul 18, 2008, 04:25 PM
    pmonica
    Yes Criado,

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

    pmonica
  • Jul 18, 2008, 07:12 PM
    Criado
    Quote:

    Originally Posted by 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
  • Jul 18, 2008, 10:52 PM
    pmonica
    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
  • Jul 18, 2008, 10:56 PM
    pmonica
    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
  • Jul 19, 2008, 03:34 AM
    Criado
    I am sorry. I misssed this part of your question. I don't know why I did not notice it before.

    Quote:

    Originally Posted by pmonica
    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. :)
  • Jul 19, 2008, 05:30 AM
    pmonica
    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

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