Case Study I Solution The following cost items are needed before a schedule of

Case Study I Solution

The following cost items are needed before a schedule of cost of goods manufactured can be prepared:

Materials used in production:

Prime Costs

$ 545000.00

Less Direct Labor Cost

$ (220000.00)

Direct Materials Cost

$ 325000.00

=220000/0.65

Manufacturing Overhead Cost:

338462.00

round-up to

$ 338461.5385

Direct Labor Cost/ Percentage of Conversion Cost:

rounded to nearest dollar

( this is total conversion cost)

100%-65% = 35%

Conversion Cost

Less Direct Labor Cost

Manufacturing Overhead

Cost of Goods Manufactured:

Cost of Goods Available for Sale

1020000

Less: finished goods inventory beginning

-35000

Cost of Goods Manufactured

985000

The easiest way to proceed from this point is to place all of the amounts that are known in a partially

completed schedule of cost of goods manufactured and a partially completed income statement. Then

fill in the missing amounts by analyzing the available data.

Direct Materials:

Raw Materials Inventory beginning

41000

Add: Purchases of Raw Materials

325000

Raw Materials Available for use

366000

Deduct: Raw Materials inventory ending

Raw Materials Used in Production ( See above)

Direct Labor Cost

220000

Manufacturing Overhead Cost (See Above)

338462

Total Manufacturing Costs

Add: Work in Process inventory beginning

56000

Deduct: Work in Process inventory ending

Cost of Goods Manufactured

Therefore A is Raw Materials Available for Use

Less: Raw Materials Used in Production

Raw Materials Inventory Ending

Therefore B is

Work in Process Ending

Sales

Cost of Goods Sold:

Finished Goods Inventory Beginning

Cost of Goods Manufactured

Cost of Goods Available for Sale

0

Deduct: Finished Goods Inventory Ending

C

Gross Margin

0

Therefore C is as follows:

Cost of Goods Available for Sale

Cost of Goods Sold

Finished Goods Inventory Ending

Some students may wish to start at the bottom of the income statement ( with gross margin) and work upwards

from that point. Also the solution can be obtained by the use of T-accounts.

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