Question

Income Statement, Cost of Goods Manufactured

Spencer Company produced 200,000 cases of sports drinks during the past calendar year. Each case of 1-liter bottles sells for $36. Spencer had 2,500 cases of sports drinks in finished goods inventory at the beginning of the year. At the end of the year, there were 11,500 cases of sports drinks in finished goods inventory. Spencer’s accounting records provide the following information:

Purchases of direct materials	$2,360,000
Direct materials inventory, January 1	290,000
Direct materials inventory, December 31	110,000
Direct labor	1,100,000
Indirect labor	334,000
Depreciation, factory building	525,000
Depreciation, factory equipment	416,000
Property taxes on factory	65,000
Utilities, factory	150,000
Insurance on factory	200,000
Salary, sales supervisor	85,000
Commissions, salespersons	214,000
Advertising	500,000
General administration	390,000
Work-in-process inventory, January 1	440,000
Work-in-process inventory, December 31	750,000
Finished goods inventory, January 1	107,500
Finished goods inventory, December 31	488,750

Required:

1. Prepare a cost of goods manufactured statement.

Spencer Company
Statement of Cost of Goods Manufactured
For the Year Ended December 31
Direct materials:
	$
	$
		$
Manufacturing overhead:
	$
Total manufacturing costs added		$
Cost of goods manufactured		$

2. Compute the cost of producing one case of sports drink last year. If required, round your answer to the nearest cent.

$ per case

3. Prepare an income statement on an absorption-costing basis. Show the percentage of sales that each line item represents. Round the percent to four decimal places before converting to a percentage. For example, .88349 would be rounded to .8835 and entered as 88.35.

Spencer Company
Income Statement: Absorption Costing
For the Year Ended December 31
			Percent
			%
Cost of goods sold:
			%
Less: Operating expenses:
			%
			%
			%

Answer 1

1.

Direct materials
Beginning inventory	290,000
Add: Purchases	2,360,000
Materials available	2,650,000
Less: Ending inventory	(110,000)
Direct materials used in production		2,540,000
Direct labor		1,100,000
Mfg overhead
Indirect labor	334,000
Depreciation, factory building	525,000
Depreciation, factory equipment	416,000
Property taxes	65,000
Utilties	150,000
Insurance on factory	200,000	1,690,000
Total mfg cost added		5,332,000
Add: Beginning WIP		440,000
Less: Ending WIP		(750,000)
Cost of goods manufactured		5,022,000

2. Cost of producing one unit = 5,022,000/ 200,000

= $25.11 per case

3.

Sales		6,876,000	100%
Less: COGS		(4,640,750)	(67.49%)
Gross margin		2,235,250	32.51%
Less: Operating expenses
Selling exp [85,000 + 214,000]	299,000
Admin exp [500,000 + 390,000]	890,0000	(1,189,000)	(17.29%)
Operating Income		1,046,250	15.22%

Opening fininshed goods inventory	2500
Cases produced	200,000
Less: Closing finished goods inventory	(11,500)
Number of cases sold	191,000
Sales [191,000 x 36]	6,876,000

Opening fininshed goods inventory	107,500
Cost of goods manufactured	5,022,000
Total goods available for sale	5,129,500
Closing fininshed goods inventory	(488,750)
COGS	4,640,750