Question

Border Designs manufactures custom tiles and applies job-order costing. The following information relates to the fiscal year ending December 31, 2011.

Beginning balance in Raw Materials Inventory    $ 12,500

Purchases of raw material                                        189,000

Ending balance in Raw Materials Inventory    14,300

Beginning balance in Work in Process                      24,500

Ending balance in Work in Process                           23,100

Direct labor cost                  89,700

Manufacturing overhead applied                              65,300

Actual manufacturing overhead                               64,100

Beginning balance in Finished Goods                     28,900

Ending balance in Finished Goods                          24,300

Sales                                   432,000

Selling expenses                 120,000

General and administrative expenses                      86,000

How much is cost of goods sold?

Answer 1

Calculation of Raw Materials Consumed:

Raw Materials consumed = Beginning balance in Raw Materials Inventory + Purchases of raw material - Ending balance in Raw Materials Inventory

= $12,500 + $189,000 - $14,300

= $187,200

Calculation of Prime Cost:

Prime Cost = Raw Materials Consumed + Direct labor cost

= $187,200 + $89700

= $276,900

Calculation of Cost of Production:

Cost of Production = Prime Cost + Manufacturing Overhead (applied) + Beginning balance in Work in Process - Ending balance in Work in Process

= $276,900 + $65,300 + $24,500 - $23,100

= $343,600

Calculation of Cost of Goods Sold:

Cost of Goods Sold = Cost of Production + Beginning balance in Finished Goods - Ending balance in Finished Goods

= $343,600 + $28,900 - $24,300

= $348,200.

Note: 1. Since, Manufacturing Overhead applied is greater than actual manufacturing overhead, Manufacturing Overhead applied is added to prime cost to obtain cost of production. Because, the over applied manufacturing overhead is disposed off to Cost of Goods Sold.

2. Selling expenses, General and administrative expenses are not included in Cost of Goods Sold.