Question

Cost of Goods Sold

Pietro Frozen Foods, Inc., produces frozen pizzas. For next year, Pietro predicts that 49,400 units will be produced, with the following total costs:

Direct materials	?
Direct labor	69,000
Variable overhead	27,000
Fixed overhead	240,000

Next year, Pietro expects to purchase $124,500 of direct materials. Projected beginning and ending inventories for direct materials and work in process are as follows:

	Direct materials Inventory	Work-in-Process Inventory
Beginning	$6,000	$13,000
Ending	$5,900	$15,000

Pietro expects to produce 49,400 units and sell 48,700 units. Beginning inventory of finished goods is $42,500, and ending inventory of finished goods is expected to be $34,000.

Required:

1. Prepare a statement of cost of goods sold in good form.

Pietro Frozen Foods, Inc.
Statement of Cost of Goods Sold
For the Coming Year
	$
	$
	$

2. What if the beginning inventory of finished goods decreased by $5,000? What would be the effect on the cost of goods sold?
  by $

Answer 1

1.

	Budgeted Cost of Goods Sold
	For the Coming Year
a	Work in Process Beginning Inventory			$     13,000.00
b	Direct Materials :
c	Direct Materials Beginning Inventory	$               6,000.00
d	Direct Material Purchases	$           124,500.00
e	Cost of Direct Material Available for sale (c+d))	$           130,500.00
f	Less Direct Materials Ending Inventory	$               5,900.00
g	Cost of Direct Material Used in production (e-f)		$ 124,600.00
h	Direct Labor		$   69,000.00
i	Factory Overhead		$ 267,000.00
j	Cost of Goods added to production (g+h+i)			$   460,600.00
k	Cost of Goods available (a+j)			$   473,600.00
l	Work in Process Ending Inventory			$     15,000.00
m	Cost of Goods manufactured (k-l)			$   458,600.00
n	Plus Finished Goods Beginning Inventory			$     42,500.00
o	Less Finished Goods Ending Inventory			$     34,000.00
p	Cost of Goods Sold (m+n-o)			$   467,100.00

Factory Overhead = Variable + Fixed = $27000 + $240000 = $267000

2.
If Beginning Inventory is decreased by $5000, Cost of Goods Sold will also be decreased by $5000