Question

The Foster Manufacturing Company has the following inventories on hand at 1 June .

Raw Materials	$ 12,000
Work in Process	14,000
Finished Goods	10,000

The following information relates to June operations:

(a)    Materials purchased (plus 10% GST)	$ 25,000
(b)    Materials returned to suppliers	$   5,000
(c)    Materials issued for production: Direct Indirect	$ 20,000 $   4,000
(d)    Total Payroll incurred: Direct Labour ($10 per hour) Indirect Labour	$ 35,000 $ 11,000
(e)     The payroll due to employees was paid after deducting 35% for income tax withheld.
(f )    Overhead incurred (in addition to indirect materials and indirect labour) amounted to $7,500 comprising: Depreciation of Plant Expired Insurance	$   7,000 $      500
(g)    Factory Overhead is applied at the rate of $6.00 per direct labour hour.
(h)    Finished goods completed during June amounted to $80,000.
(i)     Goods costing $84,000 were sold during the period at a markup on cost of 80%.
( j)    Selling and administration expenses incurred during the month were $18,000 and $19,200 respectively (plus 10% GST)

Required:

Prepare a Manufacturing Statement, Cost of Goods Sold Summary and Income Statement for June.

Answer 1

**Direct Labor Hours : 35000/10 = 3500DLH

Manufacturing Statement
Direct Material	20000
Direct labor	35000
Overhead Applied [3500*6]	21000
Total manufacturing cost		76000
Add:Beginning WIP		14000
		90000
less :Ending WIP [90000-10000]		(10000)
COst of goods manufactured		80000

Cost of Goods Sold
Beginning Finished goods	10000
cost of goods manufactured	80000
cost of goods available for sale	90000
less:cost of goods sold	(84000)
Ending Finished goods	6000

3)Overhead Actually incurred :4000+11000+7000+500=22500

Overhead underapplied : 22500-21000 = 1500

INCOME STATEMENT
Sales [84000(1+.80)		151200
less:cost of goods sold	84000
Add:underapplied overhead	1500
Adjusted cost of goods sold		(85500)
Gross margin		65700
less:Selling and administration expenses [18000+19200]		(37200)
Net Income		28500

**GST credit is available thus it will not be included in cost.