Question

Manufacturing Income Statement, Statement of Cost of Goods Manufactured

Several items are omitted from the income statement and cost of goods manufactured statement data for two different companies for the month of December.

	On Company		Off Company
Materials inventory, December 1	$72,710		$95,250
Materials inventory, December 31	(a)		107,630
Materials purchased	184,680		(a)
Cost of direct materials used in production	194,860		(b)
Direct labor	274,120		214,310
Factory overhead	85,070		106,680
Total manufacturing costs incurred in December	(b)		616,270
Total manufacturing costs	693,650		845,820
Work in process inventory, December 1	139,600		229,550
Work in process inventory, December 31	117,790		(c)
Cost of goods manufactured	(c)		610,550
Finished goods inventory, December 1	122,880		106,680
Finished goods inventory, December 31	128,700		(d)
Sales	1,071,750		952,500
Cost of goods sold	(d)		616,270
Gross profit	(e)		(e)
Operating expenses	139,600		(f)
Net income	(f)		211,460

Required:

1. Determine the amounts of the missing items, identifying them by letter. Enter all amounts as positive numbers.

Letter	On Company	Off Company
a.
b.
c.
d.
e.
f.

Feedback

1.
a. The cost of direct materials used in production includes the beginning materials inventory plus purchases, less the ending materials inventory.
b. Total manufacturing costs incurred during December include direct materials, direct labor, and factory overhead.
c. The cost of goods manufactured is beginning work in process plus total manufacturing costs less the ending work in process.
d. The cost of goods sold is the beginning finished goods plus the cost of goods manufactured, less the ending finished goods.
e. Sales minus cost of goods sold equals gross profit.
f. Gross profit minus operating expenses equals net income.

Use similar relationships from On to find the missing amounts for the Off items (a) through (f).

2. Prepare On Company's statement of cost of goods manufactured for December.

On Company
Statement of Cost of Goods Manufactured
For the Month Ended December 31
Work in process inventory, December 1
Direct materials:
Materials inventory, December 1
Purchases
Cost of materials available for use
Less materials inventory, December 31
Cost of direct materials used in production
Direct labor
Factory overhead
Total manufacturing costs incurred during December
Total manufacturing costs
Less work in process inventory, December 31
Cost of goods manufactured

Feedback

2. The cost of goods manufactured is the beginning work in process plus the cost of direct materials used in production plus direct labor and factory overhead, less the ending work in process.

3. Prepare On Company's income statement for December.

On Company
Income Statement
For the Month Ended December 31
Sales
Cost of goods sold:
Finished goods inventory, December 1
Cost of goods manufactured
Cost of finished goods available for sale
Less finished goods inventory, December 31
Cost of goods sold
Gross profit
Operating expenses
Net income

Answer 1

Answer 1

As per the feedback given in question, the values of a - f for On Company and Off Company are calculated as below -

On Company -

a) Cost of direct materials used in production = Materials inventory, December 1 + Materials purchased - Materials inventory, December 31

b) Total manufacturing costs incurred in December = Cost of direct materials used in production + Direct labor + Factory overhead

c) Cost of goods manufactured = Work in process inventory, December 1 + Total manufacturing costs - Work in process inventory, December 31

d) Cost of goods sold = Finished goods inventory, December 1 + Cost of goods manufactured - Finished goods inventory, December 31

e) Gross profit = Sales - Cost of goods sold

f) Net Income = Gross profit – Operating Expenses

Off Company –

a) Materials purchased = Cost of direct materials used in production - Materials inventory, December 1 +Materials inventory, December 31

b) Cost of direct materials used in production = Total manufacturing costs incurred in December - Factory overhead - Direct labor

c) Work in process inventory, December 31 = Work in process inventory, December 1 + Total manufacturing costs - Cost of goods manufactured

d) Finished goods inventory, December 31 = Finished goods inventory, December 1 + Cost of goods manufactured - Cost of Goods Sold

e) Gross profit = Sales - Cost of Goods Sold

f) Operating expenses = Gross profit - Net Income

Answer 2

Note = The cost of goods manufactured = Work in process inventory, December 1 + Total manufacturing costs - Work in process inventory, December 31

Answer 3