The management of Production Life Pty. Ltd. Receives an Interim financial report on June 29th, 2003. The report covered all activities for the financial year from July 1st, 2002. Inventories of Work-In-Process and finished goods were $74,500 and $146,000 respectively as of July 1st, 2002. All Jobs on hand had been completed on the 29th June 2003, except for one large job; No. 276. The job cost sheet for this job indicated to date direct labour of $12,000 and direct material of $10,000 had been used.

Records for the last day of the financial year showed that direct labour costs of $5,000, direct material costs of $3,000 and factory overhead costs of $2,000 were incurred on that day. Job No. 276 was still incomplete.

Up to the close of business on the 29th June 2003, the work in process account had been charged with $500,000 of direct material. Factory overhead is applied at 150% of direct labour costs. Factory overhead of $850,000 had been incurred up to the close of business on 29th June 2003.

Sales for the period were $3,300,000, representing a mark-up of 50% on factory cost. There were no sales recorded on the last day of the period. Closing balance of finished goods was $34,000.

Required:

Incorporate records for the last day of the financial period and for the full financial period prepare:

(a) A cost of goods manufactured statement
(b) A cost of goods sold statement
(c) A Statement of Financial Performance

I don't really know where to being.

I don't know what the Raw Materials opening balance is, I think its 0
The work in process opening balance is $74,500
Factory overhead is $25,500 (for Job No. 276)
The over applied amount is $23,500
Materials $13,000 (for Job No. 276)
Labour $17,000 (for Job No. 276)

I don't know how to get the cost of goods manufactured amount or production costs.

I don't really know where to start.

There's some missing info. It doesn't mention a beginning inventory for materials but that account isn't really mentioned and you aren't going to be able to incorporate it into the COGM statement except for what was used in production. (In other words, the typical beginning inventory + purchases - ending inventory = used in production will have to be missing. You don't have purchases either.)

Your costs for the job are correct. I wouldn't deal with that overapplied amount. I see where you're getting it, but that should really be based on the entire year... you only have overhead incurred for that job for the last month. Some of the other overhead incurred would be mixed up in that 850,000. So even if you wanted to over/under apply overhead job-by-job, you don't have the info to do that. And they haven't asked for it.

You also don't have the info to know how much labor and applied overhead to the WIP account there is. It doesn't give labor anywhere except for the one job, so you don't have that, and lacking that, can't apply overhead in total. You've either left out information or you can't make a COGM statement.

However, you can come up with the actual cost of goods manufactured. Sales is 150% of COGS. (50% markup) So work backwards to figure out COGS. Once you have that, you can work with the finished goods account backwards to get the cost of goods manufactured. Remember that COGM is what comes out of WIP and goes into finished goods, so it'll be the missing number that was added to that account.

The question does not mention the labor costs incurred. However, the question can be solved working backwards.

We know that the cost of goods sold is $2,200.000 to this add ending finished goods inventory of $34,000 and deduct opening finished goods inventory of 146,000 and you get the cost of goods manufactured $2,088,000.

To this adjust the changes in WIP + $55,500 - 74,500 and you get the total manufacturing costs $2,069.000. We know that the actual materials costs for the year are $503,000 and that leaves $1,566,000 for labor and overheads. Now split this amount into labor and overheads in the ratio of 2:3 since overheads are applied at 150% of labor costs. This will give you labor costs as $626,400 and overheads as $939,600. Since actual overheads are $852,000, there is an over applied element of $89,600. The accounting treatment will depend on company policy, but generally this amount will be adjusted from cost of goods sold.

Where is the 55,500 coming from?

$55,500 represents the value of WIP at June 30, calculated as follows:

(1). Values at June 29, 2003
Direct Materials $10,000
Direct Labor $12,000
Overheads (150% of direct labor) $18,000
Total as of June 29, 2003 $40,000

(2). Costs incurred on June 30, 2003
Direct Materials $3,000
Direct labor $5,000
Overheads $7,500
Total $15,500

Totals of (1) and (2) $55,500

Ooooh, I totally missed that thing about the one job being the only one unfinished...

Excuse me? You want to explain what that accusation is supposed to mean?

It has been observed and confirmed by you in your posts that you do not read the posts carefully and very often you do miss the point(s). There is no such thing as an accusation. I am just bringing the fact to light.

You know what? When I go through a problem, I absolutely do read it carefully. I did not miss the information. It's on the scrap paper I used. It just "passed me by" to make the connection between that information and the ending WIP inventory - excuse me all to hell. It had nothing whatsoever with not reading carefully, or with only reading the "interesting" parts.

Because I am a human being like the rest of us, yes I can miss things, just like you can miss things, or anyone else on here. And yes, it's an accusation, cause you're saying that when I'm trying to help someone, I'm only reading part of the post, the part that interests me. No, I read the whole dang thing. And I spent a LOT of time going through long problems... in fact, I'm usually the only one who bothers to spend the time on some of the longer, more involved problems!

If you're trying to refer to the fact that I do not read all of YOUR stuff, then you're right, because YOU go off on irrelevant tangents that I don't care about.

I have really just about had it with you.

The feelings are mutual