Question

Selected data concerning the past year’s operations of the Altek Manufacturing Company are
as follows:

Inventories ($) Beginning Ending
Raw materials 71,000 81,000
Work in Process 80,000 30,000
Finished Goods 90,000 110,000

Other Data:
Direct Materials Used ---------------------------------------------- $ 326,000
Total Manufacturing Costs Charged to production during the year (includes direct material, direct labour,
and manufacturing overhead applied at a rate of 60% of direct-labour cost) ----------------------------------$ 686,000
Cost of Goods Available for Sale -----------------------------------$ 826,000
Selling and Administration Expenses ------------------------------- $ 31,500

Required:

i. What was the cost of raw materials purchased during the year?
ii. What was the direct-labour cost charged to production during the year?
iii. What was the cost of goods manufactured during the year?
iv What was the cost of goods sold during the year?

Answer 1

SOLUTION

(1) Cost of raw materials purchased during the year = Direct material used + Ending raw materials - Beginning raw materials

= $326,000+ $81,000 - $71,000

Cost of raw materials purchased during the year = $336,000

(2) Total manufacturing costs = Direct Materials Used + Direct Labour + Manufacturing Overhead

Direct labour & Manufacturing Overhead = Total Manufacturing Costs - Direct Materials Used

= $686,000 - $326,000 = $360,000

If Manufacturing Overhead is applied at a rate of 60% of Direct Labour costs,

Then Direct Labour + 60% Direct Labour = 360,000

So 160% Direct Labour = 360,000

Therefore Direct Labour = 360,000 / 160% = $225,000

The direct-labour cost charged to production during the year was $225,000.

(3) Cost of Goods Manufactured = Beginning Work In Process + Total Manufacturing Costs – Ending Work In Process

= $80,000 + $686,000 - $30,000 = $736,000

The cost of goods manufactured during the year was $736,000

(4) Cost of Goods Sold = Beginning Finished Goods + Cost of Goods Manufactured – Ending

Finished Goods

= $90,000 + $736,000 - $110,000 = $716,000

The cost of goods sold during the year was $716,000.