Question

1. Income Statement, Cost of Goods Manufactured

   Spencer Company produced 200,000 cases of sports drinks during the past calendar year. Each case of 1-liter bottles sells for $36. Spencer had 2,500 cases of sports drinks in finished goods inventory at the beginning of the year. At the end of the year, there were 11,500 cases of sports drinks in finished goods inventory. Spencer’s accounting records provide the following information:

   Purchases of direct materials	$2,340,000
   Direct materials inventory, January 1	290,000
   Direct materials inventory, December 31	110,000
   Direct labor	1,200,000
   Indirect labor	334,000
   Depreciation, factory building	525,000
   Depreciation, factory equipment	416,000
   Property taxes on factory	65,000
   Utilities, factory	150,000
   Insurance on factory	200,000
   Salary, sales supervisor	85,000
   Commissions, salespersons	218,000
   Advertising	500,000
   General administration	390,000
   Work-in-process inventory, January 1	440,000
   Work-in-process inventory, December 31	750,000
   Finished goods inventory, January 1	107,500
   Finished goods inventory, December 31	488,750

   Required:

   1. Prepare a cost of goods manufactured statement.

   Spencer Company
   Statement of Cost of Goods Manufactured
   For the Year Ended December 31
   Direct materials:
   Beginning inventory Beginning work in process Cost of goods manufactured Depreciation, factory building Depreciation, factory equipment Purchases Utilities, factory	$
   Add: Beginning work in process Add: Cost of goods manufactured Add: Depreciation, factory building Add: Ending inventory Add: Ending work in process Add: Indirect labor Add: Purchases
   Beginning work in process Ending inventory Ending work in process Materials available Purchases Total manufacturing costs added Utilities, factory	$
   Less: Beginning inventory Less: Beginning work in process Less: Cost of goods manufactured Less: Depreciation, factory building Less: Direct labor Less: Ending inventory Less: Ending work in process
   Cost of goods manufactured Depreciation, factory building Depreciation, factory equipment Direct labor Direct materials used in production Indirect labor Insurance on factory		$
   Beginning work in process Cost of goods manufactured Direct labor Ending inventory Ending work in process Insurance on factory Purchases
   Manufacturing overhead:
   Beginning inventory Beginning work in process Cost of goods manufactured Direct labor Ending inventory Indirect labor Purchases	$
   Beginning inventory Beginning work in process Depreciation, factory building Direct labor Ending inventory Ending work in process Purchases
   Beginning inventory Beginning work in process Cost of goods manufactured Depreciation, factory equipment Direct labor Ending inventory Ending work in process
   Beginning inventory Beginning work in process Direct labor Ending inventory Ending work in process Property taxes on factory Purchases
   Beginning inventory Beginning work in process Direct labor Ending inventory Ending work in process Purchases Utilities, factory
   Beginning inventory Beginning work in process Direct labor Ending inventory Ending work in process Insurance on factory Purchases
   Total manufacturing costs added		$
   Add: Beginning inventory Add: Beginning work in process Add: Ending inventory Add: Ending work in process Add: Property taxes on factory Add: Purchases Add: Utilities, factory
   Less: Beginning inventory Less: Beginning work in process Less: Direct labor Less: Ending inventory Less: Ending work in process Less: Indirect labor Less: Purchases
   Cost of goods manufactured		$

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   2. Compute the cost of producing one case of sports drink last year. If required, round your answer to the nearest cent.

   $ per case

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   3. Prepare an income statement on an absorption-costing basis. Show the percentage of sales that each line item represents. Round the percent to four decimal places before converting to a percentage. For example, .88349 would be rounded to .8835 and entered as 88.35.

   Spencer Company
   Income Statement: Absorption Costing
   For the Year Ended December 31
   			Percent
   Administrative expenses Commissions, salespersons Cost of goods sold Ending finished goods inventory Goods available for sale Salary, sales supervisor Sales			%
   Cost of goods sold:
   Administrative expenses Advertising Beginning finished goods inventory Cost of goods manufactured Operating income Salary, sales supervisor Sales
   Add: Beg. finished goods inventory Add: Commissions, salespersons Add: Ending finished goods inventory Add: Goods available for sale Add: Operating income Add: Salary, sales supervisor Add: Sales
   Advertising Beginning finished goods inventory Commissions, salespersons Ending finished goods inventory Goods available for sale Operating income Salary, sales supervisor
   Less: Administrative expenses Less: Advertising Less: Beginning finished goods inventory Less: Commissions, salespersons Less: End. finished goods inventory Less: Goods available for sale Less: Gross margin			%
   Gross margin Gross loss
   Less: Operating expenses:
   Beginning finished goods inventory End. finished goods inventory Goods available for sale Gross margin Operating income Salary, sales supervisor Sales
   Beginning finished goods inventory Commissions, salespersons Cost of goods manufactured End. finished goods inventory Goods available for sale Gross margin Sales
   Advertising Beginning finished goods inventory Cost of goods manufactured End. finished goods inventory Goods available for sale Gross margin Sales			%
   Administrative expenses Beginning finished goods inventory End. finished goods inventory Goods available for sale Gross margin Net margin Sales			%
   Beginning finished goods inventory Cost of goods manufactured Cost of goods sold Ending finished goods inventory Goods available for sale Operating income Sales			%

Answer 1

Ans. 1	SPENCER   COMPANY
	Statement of Cost of Goods Manufactured
	For the Year Ended December 31
	Particulars	Amount	Amount
	Direct materials:
	Beginning raw materials inventory	$290,000
	Add: Purchase of direct materials	$2,340,000
	Raw materials available	$2,630,000
	Less: Ending raw materials inventory	-$110,000
	Direct materials used		$2,520,000
	Direct labor		$1,200,000
	Manufacturing overhead:
	Indirect labor	$334,000
	Depreciation, factory building	$525,000
	Depreciation, factory equipment	$416,000
	Property taxes on factory	$65,000
	Utilities, factory	$150,000
	Insurance on factory	$200,000
	Total manufacturing overhead		$1,690,000
	Total manufacturing costs		$5,410,000
	Add: Beginning Work in process inventory		$440,000
	Less: Ending Work in process inventory		-$750,000
	Cost of goods manufactured		$5,100,000
Ans. 2	Cost of producing per case =   Cost of goods manufactured / Cases produced
	$5,100,000 / 200,000
	$25.50	per case
Ans. 3	SPENCER   COMPANY
	Income Statement
	For the Year Ended December 31
	Particulars	Amount	%
	Sales	$6,876,000	100.00%
	Less: Cost of goods sold	$4,718,750	68.63%
	Gross profit (A)	$2,157,250	31.37%
	Less: Operating expenses:
	Salary, sales supervisor	$85,000	1.24%
	Commissions, salespersons	$218,000	3.17%
	Advertising	$500,000	7.27%
	General administration	$390,000	5.67%
	Total operating expenses (B)	$1,193,000	17.35%
	Net operating income (A - B)	$964,250	14.02%
	*Percentage   =   Particular item / Sales * 100
	*Working Notes:
1	*Calculations of Units sold:
	Particulars	Amount
	Units produced	200000
	Add: Beginning finished goods inventory	2500
	Less: Ending finished goods inventory	-11500
	Number of units sold	191000
	Total sales   =   Number of units sold * Selling price
	191,000 * $36
	$6,876,000
2	*Calculations of cost of goods sold:
	Particulars	Amount
	Cost of Goods Manufactured	$5,100,000
	Add: Beginning finished goods inventory	$107,500
	Cost of goods available for sale	$5,207,500
	Less: Ending finished goods inventory	-$488,750
	Cost of goods sold	$4,718,750