Question

Problem 11-18B Manufacturing cost for one accounting cycle

The following trial balance was taken from the records of Ansgar Manufacturing Company at the beginning of 2018:

Cash	$ 4,000
Raw materials inventory	200
Work in process inventory	300
Finished goods inventory	200
Property, plant, and equipment	3,500
Accumulated depreciation		$ 1,000
Common stock		4,000
Retained earnings		3,200
Total	$8,200	$8,200

Transactions for the Accounting Period

Ansgar purchased $2,600 of direct raw materials and $300 of indirect raw materials on account. The indirect materials are capitalized in the Production Supplies account. Materials requisitions showed that $2,000 of direct raw materials had been used for production during the period. The use of indirect materials is determined at the end of the period by physically counting the supplies on hand at the end of the year.

By the end of the accounting period, $2,000 of the accounts payable had been paid in cash.

During the year, direct labor amounted to 1,200 hours recorded in the Wages Payable account at $3 per hour.

By the end of the accounting period, $3,250 of the Wages Payable account had been paid in cash.

At the beginning of the accounting period, the company expected overhead cost for the period to be $2,750 and 1,250 direct labor hours to be worked. Overhead is applied based on direct labor hours, which, as indicated in Event 3, amounted to 1,200 for the year.

Administrative and sales expenses for the period amounted to $700 paid in cash.

Utilities and rent for production facilities amounted to $1,500 paid in cash.

Depreciation on the plant and equipment used in production amounted to $1,000.

Assume that $7,500 of goods were completed during the period.

Assume that $5,000 of finished goods inventory was sold for $7,000 cash.

A count of the production supplies revealed a balance of $125 on hand at the end of the accounting period.

Any over- or underapplied overhead is considered to be insignificant.

Required

Open T-accounts with the beginning balances shown in the preceding list and record all transactions for the period including closing entries in the T-accounts. (Note: Open new T-accounts as needed.)

Prepare a schedule of cost of goods manufactured and sold, an income statement, and a balance sheet.

Answer 1

Ansgar Manufacturing Company
Statement of Cost of Goods Manufactured
Direct Materials Used:
Raw Materials inventory, January 1	$200
Raw Materials purchases	2,600
Less: Raw Materials inventory, January 31	625
Raw Materials used	$2,175
Less: Indirect Materials Used	$175
Direct Materials Used		$2,000
Direct labor		3,600
Manufacturing overhead:
Indirect labor	$2,640
Maintenance and repairs expense	0
Factory utilities expense	1,500
Depreciation expense – factory building	0
Depreciation expense – factory equipment	1,000
Other expense – factory	0
Total manufacturing overhead		5,140
Total Manufacturing Cost		$10,740
Add: Work in process inventory, January 1		300
Less: Work in process inventory, December 31		3,540
Cost of goods manufactured		$7,500
Ansgar Manufacturing Company
Income statement
For the year ended 2018
Sales		$7,000
Cost of goods sold:
Finished goods inventory, January 1	$200
Cost of goods manufactured	7,500
Cost of goods available for sale	$7,700
Less: Finished goods inventory, December 31	2,700
Cost of goods sold		5,000
Gross margin (Sales – Cost of goods sold)		$2,000
Operating expenses:
Selling expenses	$700
Administrative expenses	0
Total operating expenses		700
Income from operations		$1,300
Note: Cost of goods available for sale represents all items completed and read to sell during the period. It is calculated as beginning finished goods inventory + cost of goods manufactured from the statement of cost of goods manufactured. Income from operations is calculated as Gross Margin (also called Gross Profit) – total operating expenses.