Question

The following data (in thousands of dollars) have been taken from the accounting records of the Maroon Corporation for the just-completed year.

Sales	$1,700
Raw materials inventory, beginning	$50
Raw materials inventory, ending	$25
Purchases of raw materials	$210
Direct labor	$360
Manufacturing overhead	$330
Administrative expenses	$400
Selling expenses	$200
Work-in-process inventory, beginning	$120
Work-in-process inventory, ending	$150
Finished goods inventory, beginning	$80
Finished goods inventory, ending	$120

Use the above data to prepare (in thousands of dollars) a schedule of Cost of Goods Manufactured and a Schedule of Cost of Goods Sold for the year. In addition, what is the impact on the financial statements if the ending finished goods inventory is overstated or understated?

Answer 1

Maroon Corporation
Schedule of Cost of Goods Manufactured
(in thousands of dollars)
Direct materials
Raw materials inventory, beginning	50
Raw materials purchases	210
Raw materials available for use	260
Less raw materials inventory, ending	25
Direct materials used		235
Direct labor		360
Manufacturing overhead		330
Total manufacturing costs		925
Add work in process inventory, beginning		120
Total cost of work in process		1045
Less work in process inventory, ending		150
Cost of goods manufactured $		895

Maroon Corporation
Schedule of Cost of Goods Manufactured
(in thousands of dollars)
Cost of goods manufactured $	895
Add finished goods inventory, beginning	80
Cost of goods available for sale	975
Less finished goods inventory, ending	120
Cost of goods sold $	855

Impact on financial statements:

If ending finished goods inventory is overstated, the cost of goods sold will be understated and hence the income will be overstated.

If ending finished goods inventory is understated, the cost of goods sold will be overstated and hence the income will be understated.