Question

Cornerstone Exercise 2.3 (Algorithmic) Cost of Goods Sold Pietro Frozen Foods, Inc., produces frozen pizzas. For next year, Pietro predicts that 47,700 units will be produced, with the following total costs: Direct materials ? Direct labor 69,000 Variable overhead 22,000 Fixed overhead 205,000 Next year, Pietro expects to purchase $119,500 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 $7,000 $13,600 Ending $6,900 $15,600 Pietro expects to produce 47,700 units and sell 47,000 units. Beginning inventory of finished goods is $39,500, and ending inventory of finished goods is expected to be $31,000. Required: Hide 1. Prepare a statement of cost of goods sold in good form. 2. What if the beginning inventory of finished goods decreased by $5,000? What would be the effect on the cost of goods sold?

Answer 1

Computation of raw material consumed:
Beginning inventory of raw material:				7000
Add: Purchases				119500
Less: Ending inventory				6900
Raw material consumed				119600
Computation of cost of goods manufactured:
Raw material consumed				119600
Direct labour cost				69000
Manufacturing overheads (22000+205000)				227000
Total cost added during the year				415600
Add: Beginnign inventory of WIP				13600
Less: Ending inventory of WIP				15600
Cost of goods manufactured				413600
Req 1: When Finished inventory beginning is $ 39500
STATEMENT SHOWING COST OF GOODS SOLD
Cost of goods manufactured				413600
Add: Beginning finished goods inventory				39500
Less: Ending Finished goods inventory				31000
Cost of goods sold				422100
Req 2: Finished Goods beginning reduced by $5,000 i.e. $ 34500
STATEMENT SHOWING COST OF GOODS SOLD
Cost of goods manufactured				413600
Add: Beginning finished goods inventory				34500
Less: Ending Finished goods inventory				31000
Cost of goods sold				417100