[Aunikwoman]

Direct materials inventory 8/1/07 $90,000,000
Direct materials purchased $360,000,000
Direct materials used $375,000,000
Total manufacturing overhead $480,000,000
Variable manufacturing overhead $$250,000,000
Total manufacturing costs $1,600,000,000
Work-in-process inventory 8/1/07 $200,000,000
Costs of goods manufactured $1,650,000,000
Finished goods inventory 8/1/07 $125,000,000
Cost of goods sold $1,700,000,000

What formulas do I use to calculate the following?
1. Direct materials inventory 8/31/07
2. Fixed manufacturing overhead costs for August
3. Direct manufacturing labor costs for August
4. Work-in-process inventory 8/31/07
5. Goods available for sale in August
6. Finished goods inventory 8/31/07

[wadoca]

Can you help me solve this problem? Thanks

[morgaine300]

These are not "formulas." Things like ending balances are just what the balance happens to be at a given point in time. It's like saying the balance in your checkbook was obtained with a "formula." No, you just added your deposits and subtracted your checks and withdrawals.

This is really the same thing, if you can look at it from that point of view. Make t accounts. Take the information you have and insert it into the t accounts where it belongs. The nice thing about all the new manufacturing accounts is that they're all debits. So everything debits into the accounts and credits out of the accounts. So every time it moves from one to the other, if credits out and debits into the next. They all follow this flow.

What you need to understand to do this is the flow of the accounts. Your three inventory accounts are materials, work in process and finished goods. Materials is raw materials purchased. Work in process is anything that is currently being worked on but not yet finished. It must have three entries put into it and memorize these: direct material, direct labor and applied overhead. (More on overhead following.) Then once something is finished, it's removed from that account and all associated costs move onto finished goods, as that's where the finished stuff goes. It says there until it's sold. (Finished Goods is similar to Merchandise Inventory from merchandising.)

Now, what I call a "detour" account is the Overhead. That's not one of your inventory accounts. It will contain indirect materials, indirect labor, and any other production cost that is not direct material or labor. (Direct material and labor go directly into Work in Process.) The "other stuff" could include factory supplies, taxes, insurance, depreciation -- really, just about anything, as long as it's a cost of production or the factory. (As opposed to selling or administrative.) This problem is not splitting them out. But since they all have to be in there, you can assume it's all included and not worry about it.

You debit these costs into the overhead account. Then at the end of the period, they are "applied" to Work in Process. I said three things go into WIP: direct material, direct labor, and overhead. Here's where the overhead comes in. It's applied based on a rate, credited out of the overhead account and debited into the WIP account. At this point, you will then have all three costs in the WIP account.

If you have missing numbers, such as what goes into an account or comes out of an account, leave it blank, draw a line, and put the ending balance underneath. You can then do some adding and subtracting, get a sub-total, and then figure out the missing number.

Make an attempt to do this. We can't just do the work for you, and there really isn't any specific "formula" to give you. (How you figure it out all depends on what information is available for the problem.) I've attempted to give the flow of the accounts. You need to now make an attempt to do it. Feel free to submit any work you've done.