Question

Greenlands, Inc. began the year with three units of finished goods inventory that cost $6 each to manufacture. Greenlands also established a $6 per unit standard product cost for the upcoming accounting period. The company actually incurred unit costs of $4 for direct materials, $2 for direct labor, and $1 for factory overhead for the ten units it produced in the current period. Greenlands sold 11 units at $10 each during the accounting period. The firm accounted for inventory on a first-in, first-out (FIFO) basis.

Required: Compute Greenlands’ cost of goods manufactured, cost of goods sold, and gross profit.

Cost of Goods Manufactured

Direct materials
+ direct labor
+ factory overhead
Cost of goods manufactured

Cost of Goods Sold

Beginning inventory of finished goods
+ Cost of goods manufactured
Finished goods available for sale
- Ending inventory of finished goods
Cost of goods sold

           

Income Statement

Sales revenue
Cost of goods sold
Gross profit

Balance Sheet

Finished goods inventory

Answer 1

Greenlands Inc actually incurred

$4 for direct materials,

$2 for direct labor,

and $1 for factory overhead for the ten units it produced in the current period.

1.Hence ,Cost of Goods Manufactured = 4+2+1 = 7 per unit * No of units manufactured

=7*10 =$70

2.Cost of Goods Sold = Beginning inventory of finished goods+Cost of goods manufactured -  Ending inventory of finished goods

Beginning inventory of finished goods = 3 per unit *No of units in beginning inventory = 3*6 = $18

Ending inventory of finished goods =Opening inventory + No of units produced - No of units sold

= 3+10-11

=2 units

It is given that company follows FIFO methos. Hence the ending inventory of 2 units will be from the units produced during current period.

Hence, ending inventory value = 2*7 =$14.

Therefore Cost of Goods Sold = 18+70-14 = $74

3.Income Statement:

Sales (11*10) = $110

Cost of goods sold =$74

Gross Profit =$36

4.Balance Sheet

Finished goods inventory = $14