Question

Selected data concerning operations of Cascade Manufacturing Company for the past fiscal year follow:

Raw materials used.........................................................................................................................................$400,000

Total manufacturing costs charged to production during the year (includes raw materials, direct labor, and manufacturing overhead

applied at a rate of 60 percent of direct labor costs) .....................................................................................$731,000

Cost of goods available for sale .....................................................................................................................$936,000

Selling and general expenses.........................................................................................................................    40,000

                                                                                                                                               Inventories

                                                                                                                            _______________________________

                                                                                                                Beginning                                         Ending

Raw materials              ......................................................              $70,000                                            $80,000

Work-in-process          ......................................................                      $85,000                                           $30,000

Finished goods           ......................................................                       $90,000                                          $110,000

REQUIRED:

Determine each of the following:

1. Cost of raw materials purchased
2. Direct labor costs charged to production
3. Cost of goods manufactured
4. Cost of goods sold

Answer 1

1) Cost of Raw Material Purchased - Raw material in opening stock will all be used in production and similarly Raw material remaining at year end (closing) is not used in production, So

Raw material used = Opening RM + Purchase of raw material - closing RM

$ 400,000 = $ 80,000 + Purchase of RM - $ 70,000

Purchase of RM = 400,000+70,000-80,000

Purchase of RM = $ 390,000.

2) Direct Labor Cost charged to Production - Let direct labor be X

total cost = RM used + direct labor + manufacturing overhead (i.e. 60% of direct labor)

$731,000 = $ 400,000 + X + 0.6X

1.6X = $ 331,000

X = $ 206,875

and now here note that, in cost of goods manufactured WIP (Work in Progress) is taken into consideration but in Cost of goods sold both WIP and finished goods are taken into consideration.

3) Cost of Goods Manufactured = Total cost of manufacturing + Opening WIP - Closing WIP

= 731,000 + 30,000 - 85,000

= $ 676,000

4) Cost of Goods Sold = Opening stock (RM, WIP, FG) + Purchase + Direct expense - Closing Stock (RM, WIP, FG)

= or Total cost of manufacturing + Opening WIP + Opening Finished Goods - Closing WIP - Closing Finished Goods

= 731,000 + 30,000 + 110,000 - 85,000 -90,000

= $ 696,000

Now here comes the cost of goods available for sale which is of no use for now and also selling expenseis not included in Cost of Goods sold instead it is treated as expense because it is indirect expense.