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pmonica · Jul 15, 2008, 04:12 AM

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

Criado · Jul 15, 2008, 04:47 AM

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 :)

pmonica · Jul 15, 2008, 05:04 PM

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.

pmonica · Jul 15, 2008, 06:09 PM

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

Criado · Jul 15, 2008, 07:11 PM

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. :)

pmonica · Jul 16, 2008, 02:37 PM

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

Criado · Jul 16, 2008, 07:52 PM

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. :)

pmonica · Jul 17, 2008, 06:48 AM

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

Criado · Jul 17, 2008, 09:02 AM

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.

pmonica · Jul 17, 2008, 03:21 PM

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

pmonica · Jul 17, 2008, 03:29 PM

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

pmonica · Jul 17, 2008, 04:09 PM

Criado,

Do we calculate the cost of goods available for sale as

Beginning Inventory + Purchases?

pmonica

Criado · Jul 17, 2008, 08:07 PM

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

pmonica · Jul 18, 2008, 04:23 PM

Hi,

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

pmonica

pmonica · Jul 18, 2008, 04:25 PM

Yes Criado,

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

pmonica

Criado · Jul 18, 2008, 07:12 PM

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

pmonica · Jul 18, 2008, 10:52 PM

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

pmonica · Jul 18, 2008, 10:56 PM

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

Criado · Jul 19, 2008, 03:34 AM

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

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. :)

pmonica · Jul 19, 2008, 05:30 AM

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