Question

2. Cost of Goods Manufactured and Income Statement Following is information from the record of the Savoy Company for July. Purchases: Raw materials $90,000 Manufacturing supplies 3,500 Office supplies 1,200 Sales 445,800 Administrative salaries 12,000 Direct labor 117,500 Production employees’ fringe benefits 4,000 Sales commissions 55,000 Production supervisors’ salaries 7,200 Plant depreciation 14,000 Office depreciation 22,000 Plant maintenance 10,000 Plant utilities 35,000 Office utilities 8,000 Office maintenance 2,000 Production equipment rent 6,000 Office equipment rent 1,300 Inventories: July 1 July 31 Raw materials 18,000 27,000 Manufacturing supplies 2,500 4,000 Office supplies 1,600 2,000 Work in process 52,000 41,000 Finished goods 36,000 28,100

Required: Prepare a statement of cost of goods manufactured and an income statement. Actual overhead costs are assigned to products.

Answer 1

Statement ofd Cost of Goods Manufactured
Beginning raw materials inventory	$18,000
Add: Purchase of raw materials	$90,000
Less: Ending raw materials inventory	($27,000)
Materials used		$81,000
Direct labor		$117,500
Manufacturing overheads:
Manufacturing supplies used ($2,500 + $3,500 - $4,000)	$2,000
Production employees' fringe benefits	$4,000
Production supervisors' salaries	$7,200
Plant depreciation	$14,000
Plant maintenance	$10,000
Plant utilities	$35,000
Production equipment rent	$6,000
Total Manufacturing overheads		$78,200
Total Manufacturing Costs		$276,700
Add: Beginning work in process inventory		$52,000
Less: Ending work in process inventory		($41,000)
Cost of Goods Manufactured		$287,700
Income Statement
Sales Revenue	$445,800
Less: Cost of goods sold (see note)	($294,600)
Gross margin	$151,200
Less: Selling and administrative expenses:
Administrative salaries	($12,000)
Sales commissions	($55,000)
Office depreciation	($22,000)
Office utilities ($1,600 + $8,000 - $2,000)	($7,600)
Office maintenance	($2,000)
Office equipment rent	($1,300)
Net Income	$51,300
working notes:
Cost of goods manufactured	$287,700
Add: Beginning finished goods inventory	$36,000
Less: Ending finished goods inventory	($28,100)
Cost of goods sold	$295,600

Actual manufacturing overhead costs assigned to products is $78,200.