Question

(TCO A) The following data (in thousands of dollars) have been taken from the accounting records of the Maroon Corporation for the just-completed year. Sales 1,300 Raw materials inventory, beginning 25 Raw materials inventory, ending 30 Purchases of raw materials 250 Direct labor 350 Manufacturing overhead 500 Administrative expenses 300 Selling expenses 250 Work in process inventory, beginning 150 Work in process inventory, ending 100 Finished goods inventory, beginning 80 Finished goods inventory, ending 110 Use the above data to prepare (in thousands of dollars) a schedule of Cost of Goods Manufactured and a Schedule of Cost of Goods Sold for the year. In addition, what is the impact on the financial statements if the ending finished goods inventory is overstated or understated?

Answer 1

1
Direct materials:
Raw materials inventory, beginning	25
Add: Purchases of raw materials	250
Raw materials available for use	275
Less: Raw materials inventory, ending	30
Raw materials used in production		245
Direct labor		350
Manufacturing overhead cost applied to work in process		500
Total manufacturing costs		1095
Add: Work in process inventory, beginning		150
		1245
Less: Work in process inventory, ending		100
Cost of goods manufactured		1145
2
Finished goods inventory, beginning	80
Add: Cost of goods manufactured	1145
Cost of goods available for sale	1225
Less: Finished goods inventory, ending	110
Cost of Goods Sold	1115
3
If the ending finished goods inventory is overstated, cost of goods sold will be understated and net income will be overstated
If the ending finished goods inventory is understated, cost of goods sold will be overstated and net income will be understated