Question

PART II

PKRK manufacturers dolls and has reported the following information:

Jan 1 2016

Raw Material $30,000

Work in process $350,000

Finished goods $250,000

Dec 31 2016

Raw material $60,000

Work in process$100,000

Finished goods$120,000

Assemblers' Direct Wages $300,000

Sales Commissions$12,000

Repairs on Machinery $10,000

Small tools $4,500

Executive Bonuses $80,000

Advertising Expense $30,000

Raw Materials Purchased $450,000

Factory Depreciation Exp $10,000

Factory Utilities $60,000

Net Income $15,000

1. Use the above information to determine

a. Raw Materials issued to WIP

b. Total Production Costs

c. Cost of goods manufactured (completed jobs)

d. Gross Margin

E.Total Sales

Answer 1

Answer:

a. Raw materials issued to WIP

= beg. Raw materials + purchases – ending raw materials – indirect materials (small tools)

= 30,000 + 450,000 – 60,000 – 4,500 = $415,500

Raw materials issued to WIP = $415,500

b. Total production costs

= Raw materials issued to WIP + direct wages + manufacturing overhead

=415,500+300,000+84,500

=$800,000

Note:

Raw materials issued to production = $415,500

Direct wages = $300,000

Manufacturing overhead:

Repairs on machinery	$        10,000
Small tools	4500
Factory depreciation expense	10000
Factory utilities	60000
Total manufacturing overhead	$        84,500

c. Cost of goods manufactured (completed jobs):

Beginning Work in Process	$       350,000
Add: total production costs	800000
Less: ending WIP	-100000
Cost of goods manufactured	$    1,050,000

d. Gross margin

= net sales – cost of goods sold

Cost of goods sold:

= Cost of goods manufactured + beginning finished goods inventory – ending finished goods inventory

= 1,050,000 + 250,000 – 120,000 = $1,180,000

Cost of goods sold = 1,180,000

e.Total Sales:

Applying the available values in the equation for operating income to get the sales value,

Sales – cost of goods sold = gross margin

Gross margin – operating expenses = net income

Hence, net income + operating expenses = gross margin

Operating expenses :

Sales commissions      = $12,000

Executive bonuses       = $80,000

Advertising expenses   = $30,000

Total operating expenses = $122,000

Net income + operating expenses = 15,000 + 122,000 = $137,000

Hence, gross margin = $137,000

Therefore sales = 1,180,000 + 137,000 = $1,317,000