Question

The following information is available for the McCain Manufacturing Company for 2020.
Accounts receivable, January 1, 2020 $120,000
Accounts payable, January 1, 2020 ?
Raw materials, January 1, 2020 10,000
Work in process, January 1, 2020 25,000
Finished goods, January 1, 2020 75,000
Accounts receivable, December 31, 2020 80,000
Accounts payable, December 31, 2020 200,000
Raw materials, December 31, 2020 ?
Work in process, December 31, 2020   60,000
Finished goods, December 31, 2020 50,000
Raw materials used in production   100,000
Raw materials purchased 130,000
Accounts receivable collections ?
Accounts payable payments 80,000
Sales ?
Total manufacturing costs ?
Cost of goods manufactured ?
Cost of goods sold 60% of Sales
Gross margin 400,000

Assume that all raw materials are purchased on credit and all sales are credit sales. Compute the missing amounts above.

Answer 1

Accounts payable, January 1, 2020 = $150,000
Raw materials, December 31, 2020 = $40,000
Accounts receivable collections = $1,040,000
Sales = $1,000,000
Total manufacturing costs = $610,000
Cost of goods manufactured = $575,000
Cost of goods sold = $600,000

Working notes:

Ending raw materials inventory = Raw materials available - Raw materials used

Raw materials available = Beginning raw materials + Raw materials purchased = $10,000 + $130,000 = $140,000

Raw materials used = $100,000

Ending raw materials inventory = $140,000 - $100,000 = $40,000

Gross margin given is $400,000
Cost of goods sold = 60% of sales.

Gross margin = Sales - Cost of goods sold

Let consider,
Sales as 100%

Gross margin = 100% - 60% = 40%

If cost of of goods sold is 60% of sales, gross margin will be 40% of sales.

Sales = ($400,000/ 40) × 100 = $1,000,000

Cost of goods sold = 60% of sales = $1,000,000 × 60% = $600,000

Cost of goods manufactured = Cost of goods sold + Ending finished goods inventory - Beginning finished goods inventory
= $600,000 + $50,000 - $75,000 = $575,000

Direct labor and manufacturing overhead = Total manufacturing cost - Raw materials used in production = $610,000 - $100,000 = $510,000

Total manufacturing costs = Cost of goods manufactured + Ending work in process - Beginning work in process
= $575,000 + $60,000 - $25,000 = $610,000

Accounts receivable collections = Beginning Accounts receivable + Credit sales - Ending Accounts receivable = $120,000 + $1,000,000 - $80,000 = $1,040,000

Beginning accounts payable = Ending accounts payable + Accounts payable payments - Credit purchases
= + $200,000 + $80,000 - $130,000 = $150,000