Question

In: Accounting

Margaret Rosenthal, accountant for Russell Manufacturing Company, prepared the following income statement for the quarter ending...

Margaret Rosenthal, accountant for Russell Manufacturing Company, prepared the following income statement for the quarter ending December 31, 2019.

Sales $ 1,384,100
Purchases of materials (1) 247,290
Payroll (2) 267,100
Advertising 37,300
Administrative travel 27,900
Manufacturing utilities 50,000
Facility rental (3) 93,000
Depreciation (4) 64,100
Sales commissions 44,000
Annual insurance (manufacturing) 43,000
Office utilities 22,700
Management salaries (5) 391,000
Net income $ 96,710

Notes:

(1) 90% of the materials were direct
(2) 80% direct labour; 20% indirect labour
(3) 80% related to manufacturing
(4) 80% related to manufacturing
(5) 30% related to manufacturing

Furthermore, Rosenthal compiled the following information with respect to inventories for the quarter (note that the company does not maintain inventories of indirect materials).

Beginning Ending
Direct materials $ 7,020 $ 8,100
Work in process 8,220 9,360
Finished goods 11,430 7,510

Required:
1. This part of the question is not part of your Connect assignment.

2. Prepare a cost of goods manufactured statement for the quarter.



3. Prepare a revised income statement for the quarter.

Solutions

Expert Solution

NOTES
1 The cost of goods manufactured (COGM), also called cost of goods completed, calculates the total value of inventory that was produced during the period and is ready for sale. In other words, this is the total amount of expenses incurred to turn work in process inventory into finished goods.
2 The cost of goods manufactured equation is calculated by adding the total manufacturing costs; including all direct materials, direct labor, and factory overhead; to the beginning work in process inventory and subtracting the ending goods in process inventory. This formula will leave you with only the cost of goods that were completed during the period.
3 The formula to calculate the COGM is:
Add: Direct Materials Used
Add: Direct Labor Used
Add: Manufacturing Overhead
Add: Beginning Work in Process (WIP) Inventory
Deduct: Ending Work in Process (WIP) Inventory
COGM
4 Cost of goods sold, often abbreviated COGS, is a managerial calculation that measures the direct costs incurred in producing products that were sold during a period. In other words, this is the amount of money the company spent on labor, materials, and overhead to manufacture or purchase products that were sold to customers during the year.
5 The cost of goods sold formula is calculated by adding purchases for the period to the beginning inventory and subtracting the ending inventory for the period.

SOLUTION

PART 1:

COST OF GOODS MANUFACTURED STATEMENT Explanation
$
Direct materials :
Beginning inventory 7,020 Given in question
Add : Purchases 2,22,561 247290*90%
less : Ending inventory 8,100 Given in question
Direct materials used 2,21,481 (7020+222561-8100)
Direct Labour : 2,13,680 267100*80%
Overhead :
Indirect materials 24,729 247290*10%
Indirect labour 53,420 267100*20%
Faclility rental 74,400 93000*80%
Depreciation 51,280 64100*80%
Management Salaries 1,17,300 391000*30%
Insurance 10,750 (43000/4)
Manufacturing Utilities 50,000 Given in question
3,81,879 Total Overhead
Total manufacturing costs 817040 (221481+213680+381879)
Add : Beginning WIP Inventory 8,220 Given in question
Deduct : Ending WIP Inventory 9,360 Given in question
Cost of goods manufactured 8,15,900 (817040+8220-9360)

PART 2:
RUSSELL MANUFACTURING COMPANY Explanation
INCOME STATEMENT
For the Quarter Ending December 31,2019
$
Sales 13,84,100 Given in question
Cost of Goods Sold
Beginning FG inventory 11,430 Given in question
Add : Cost of goods manufactured 8,15,900 Refer above table
Goods available for sale 8,27,330 (11430+815900)
Deduct : Ending FG inventory 7,510 Given in question
Cost of Goods Sold 8,19,820 (827330-7510)
Gross margin 5,64,280 (1384100-819820)
Deduct : S&A Expenses
Advertising 37,300 Given in question
Administrative travel 27,900 Given in question
Facility rental 18,600 93000*20%
Depreciation 12,820 64100*20%
Sales commission 44,000 Given in question
Management Salaries 2,73,700 391000*70%
Office utilities 22,700 Given in question
4,37,020 Total S&A Expenses
Net income 1,27,260 (564280-437020)

ekkarill92 answered 1 year ago
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