Question

The Following Trail Balance has been extracted from the books of ABC Company on December 31st, 2018: 

Descriptions 

Debit  

Descriptions 

Debit  

Rs. 

Rs.  

Cash 

          8,200 

Notes Payable 

3,200 

Accounts Receivable 

          41,000 

Accounts Payable 

    12,350 

Notes Receivable 

          23,000 

Taxes Payable 

      1,500 

Material (1-1-2018) 

    31,800 

Rent Payable 

      1,020 

Work in Process (1-1-2018) 

            4,000 

Dividend Payable 

          500 

Finished Goods (1-1--2018) 

          11,700 

Sales 

    35,000 

Prepaid Insurance 

              200 

Common Stock 

    10,000 

Machinery & Equipment 

          93,500 

Retained Earnings 

    34,570 

Purchased of Material 

          16,000 

Accumulated Depreciation 

    20,000 

Carriage inward 

              520 

 

 

Direct Labor 

          33,000 

 

 

Indirect Material 

            8,520 

 

 

Indirect Labor 

            5,580 

 

 

Depreciation - Factory 

            5,400 

 

 

Utility - Factory 

            6,500 

 

 

Carriage outward 

              460 

 

 

Advertising 

              175 

 

 

Salesmen Salary 

              565 

 

 

Foreman Salary 

            7,000 

 

 

Administrative Cost 

            1,020 

 

 

 

        318,140 

 

  318,140 

 

During the year 70,000 units have been produced. The Following Further information are also available: 

Inventories at December 31st, 2018 

Rs. 



Material 

            3,520 



Work in Process 

            2,500 



Finished Goods  

          10,000 







Note: The factory overhead cost applied at the rate of 100% of direct labor cost.  


The actual FOH cost incurred during the period Rs. 31,480. 






Required 




a) Statement of Cost of Goods Manufactured at December 31st, 2018. (Marks 5)


b) Statement of Profit or Loss for the year ended December 31st, 2018. (Marks 5)​

Answer 1

Answer:

(A) The statement of cost of goods manufactured supports the cost of goods sold figure on the income statement. The two most important numbers on this statement are the total manufacturing cost and the cost of goods manufactured. Be careful not be confused the term total manufacturing cost and cost of goods manufactured with each other or with the cost of goods sold.

(B) Total manufacturing cost includes the cost of all resources put into production during the period (meaning, the direct materials, direct Labour and overhead applied). Cost of goods manufactured consists of the cost of all goods completed during the period. It includes total manufacturing cost plus the beginning work in process in entry minus the ending work in process inventry. Cost of goods sold are the cost of all goods SOLD during the period and includes the cost of good manufactured plus the beginning finished good inventory minus the ending finished goods inventory. Cost of goods sold is reported as an expense on the income statement and is the only time product costs are expensed. This chart will be summarize the formulas you will need :

1. Direct material used = beginning row material inventory + Raw material purchases - Ending raw material inventory - indirect material used.
2. Total manufacturing cost = Direct materials + Direct Labour + overhead applied.
3. Cost of goods manufacturing = total manufacturing cost + beginning work in process inventory - Ending work in process inventory.
4. Cost of Goods sold = Beginning finished goods inventory + Cost of goods manufactured - Ending finished goods inventory.

Note look at the following example. Farside manufacturing makes calender and books. The schedule of cost of goods manufactured turned follows:

Direct material used

1. Raw material inventory, january 1 = $40,000
2. Raw material purchases = 480,000
3. Less:Raw material inventory, December 31 = 30,000
4. Raw materials used= $490,000
5. Less: indirect materials used = $0
6. Direct materials used= $490,000
7. Dire t Labour = 380,000

Manufacturing overhead:

1. Indirect Labour = $120,000
2. Maintenance and repairs expenses = 60,000
3. Factory utilities expense = 10,000
4. Depreciation expense - factory building = 20,000
5. Depreciation expense - building equipment = 30,000
6. Other expense - factory = 20,000
7. Total manufacturing overhead = 260,000

Total manufacturing cost: $1,130,000

1. Add: work in process inventory, january 1 = 30,000
2. Less:work in process inventory, December 31 = - 60,000

Cost of goods manufactured: $1,110,000

Note how the statement show the costs incurred for direct materials, direct Labour, and manufacturing overhead, the statement totals these three costs for total manufacturing cost during the period. When adding the beginning work in process inventory and deducting ending work in process inventory from the total manufacturing costs, we obtain cost of goods manufactured or completed. Cost of goods sold does manufactured statement but on the income statement.

To make manufacturer's income statement more understandable to readers of the financial statement, accountant do not show aal of the details that appear in the costs of goods manufactured statement.

Explanation:

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