Question

Note: In case you are not familiar with Masco Corporation, here is their business description:

Masco Corporation is a global leader in the design, manufacture and distribution of branded home improvement and building products. Our portfolio of industry-leading brands includes BEHR® paint; DELTA® and HANSGROHE® faucets, bath and shower fixtures; KRAFTMAID® and MERILLAT® cabinets; MILGARD® windows and doors; and HOT SPRING® spas.

This is Masco’s income statement. It is similar to Exhibit 2-14 on page 35 of our text.

MASCO CORPORATION and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

for the years ended December 31, 2016, 2015 and 2014

	(In Millions, Except Per Common Share Data)
	2016				2015				2014
Net sales	$	7,357			$	7,142			$	7,006
Cost of sales	4,901				4,889				4,946
Gross profit	2,456				2,253				2,060
Selling, general and administrative expenses	1,403				1,339				1,347
Income from litigation settlements	—				—				(9		)
Impairment charge for other intangible assets	—				—				1
Operating profit	1,053				914				721
Other income (expense), net:
Interest expense	(229		)		(225		)		(225		)
Other, net	6				—				11
	(223		)		(225		)		(214		)
Income from continuing operations before income taxes	830				689				507
Income tax expense (benefit)	296				293				(361		)
Income from continuing operations	534				396				868
(Loss) income from discontinued operations, net	—				(2		)		35
Net income	534				394				903
Less: Net income attributable to non-controlling interest	43				39				47
Net income attributable to Masco Corporation	$	491			$	355			$	856

This is the inventory footnote from Masco’s audited financial statement:

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

D. INVENTORIES

	(In Millions) At December 31
	2016				2015
Finished goods	$	366			$	358
Raw material	254				238
Work in process	92				91
Total	$	712			$	687

Inventories, which include purchased parts, materials, direct labor and applied manufacturing overhead, are stated at the lower of cost or net realizable value, with cost determined by use of the first-in, first-out method.

THis is assignment. I put in answers. Data is above. Does this look correct below based on the data?

In Unit 1 we learned about accounting for manufacturers. Attached is the income statement and inventory footnote for Masco Corporation. Using this information and what we have learned in Unit 1, answer the following questions:

1. The Masco inventory footnote lists the three classifications of inventory that we studied: Raw Materials, Work in Process and Finished Goods.   It also lists the items that are included in those three inventories. Classify each item in the appropriate inventory account and include a brief explanation as to why you included the item there. I have completed A as an example. B, C and D are worth 5 points each.

A. Purchased parts. Purchased parts would be included in Finished Goods Inventory. I’m assuming these parts are purchased from an outside supplier and then sold to customers. If they were parts to be used in production, they would have been classified as “materials”.

B. Materials. Materials are considered a raw materials inventory. The materials they use are needed to create the finished product.

C. Direct Labor. Direct labor is work in process inventory. This is the labor directly applied to the product to create it.

D. Applied Manufacturing Overhead. Applied manufacturing overhead is the indirect cost assigned to your goods manufactured. This would be part of work in progress. These cost help determine total cost of finished goods inventory and final inventory.

2. The schedule below looks similar to Exhibit 2-13 on page 35 of our text. The computation is described at the bottom of page 34. Using the information from Masco’s footnote for the inventory balances, and the income statement for the amount of cost of goods sold, compute the amount of Cost of goods manufactured. The balances for December 31, 2015 will be the beginning balances and the balances for December 31, 2016 will be the ending balances. (15 points)

Masco Corporation
Summary of Cost of Goods Sold
for the year ended December 31, 2016
Cost of goods manufactured	$ 4,901
Add: Beginning finished goods inventory	$ 358
Cost of goods available for sale	$ 5,259
Less: Ending finished goods inventory	$ ( 366)
Cost of goods sold	$ 4,893

3. The schedule below is similar to Exhibit 2-12 on page 34 of our text (starting with the first yellowed line). Using the cost of goods manufactured you computed in #2 and the inventory balances for work in process from Masco’s footnote, compute Total manufacturing costs for the year. (15 points)

Masco Corporation
Schedule of Cost of Goods Manufactured
for the year ended December 31, 2016
Total manufacturing costs for the year	$ 4,901
Add: Beginning work in process inventory	$ 91
Total cost of work in process during the year	$ 4,992
Less: Ending work in process inventory	$ (92)
Cost of goods manufactured	$ 4,900

4. In Chapter 2 we learned about three types of businesses. Based upon what you have learned, is Masco a Service, Merchandising, or Manufacturing firm? Explain, using two complete sentences that make sense. (5 points)

Masco uses materials to create finished goods so that makes then a manufacturing business. These goods are then sold to consumers.

Answer 1

.B. Materials: Materials would be included in Raw Material Inventory; here it is assumed that materials are solely used in producing finished goods without being sold directly or independently as an item to customers.

C. Direct Labor: Direct labor would form part of finished goods inventory. However for all such direct labor cost proportionate to the goods which are under work in process, such proportionate direct labor cost will be included in work in process inventory cost.

D. Applied Manufacturing Overhead: It will be included in Finished Goods inventory. However for all those proportionate applied manufacturing overhead for which goods are under process such proportionate amount of applied manufacturing overhead will go to Work in Process.

The Masco corporation
Summary of Cost Goods soil
The year ended December 31,2016
	$Millions
The cost of Goods Manufactured	4901
Add: Beginning finished goods inventory	358
The cost of goods available for sale	5259
Less : Ending Finished goods inventory	366
Cost of goods sold	4893

3.

The Masco corporation
Summary of Cost Goods manufactured
The year ended December 31,2016
	$Millions
Total Manufacturing cost	4901
Add: Beginning Work in process inventory	91
The cost Work in process during the year	4992
Less : Ending Work in process inventory	92
Cost of goods manufactured	4900

4.

To the Masco is a Manufacturing & Merchandising firm. They are involved in purchasing parts, raw materials and using them in manufacturing the finished goods which are made to be sold. Masco also sells purchased parts directly to customers so its also involved in merchandising activities.