1. A manufacturing company has a beginning finished goods inventory of $16,400, raw material purchases of...

1. A manufacturing company has a beginning finished goods inventory of $16,400, raw material purchases of $19,800, cost of goods manufactured of $36,100, and an ending finished goods inventory of $19,600. Describe and explain the mathematical formula and steps used in computing the cost of goods sold for this company.

2. Based on predicted production of 17,000 units, a company anticipates $255,000 of fixed costs and $216,750 of variable costs. Describe and explain the mathematical formula and steps used in computing the flexible budget amounts of fixed and variable costs for 15,000 units.

Expert Solution

Answer 1

Cost of Goods Sold basic formula is Beginning Inventory + Purchases(including manufacturing cost) – Ending Inventory.

Cost of Goods Sold refers to the ‘’cost’’ of the finished goods that have been sold.

In the given question, cost of goods sold is calculated as:

Beginning Finished goods + Purchases + Cost of Goods Manufactured – Ending Inventory

$16,400 + $19,800 + $36,100 - $19,600
= $52,700

Answer 2

Variable cost predicted = $216,750 for 17,000 units.
This means predicted variable cost per unit = 216750 / 17000 = $12.75 per unit

Under flexible budget, Cost is estimated of various level of output where variable cost changes with the change in output while fixed cost remains the same.

Formula will be: Variable cost per unit x Units produced(or sold) + Total Fixed Cost
Total Cost = $12.75x + $255,000, where ‘x’ is units produced (or sold)
Total cost for 15000 units will be = ($12.75 x 15,000) + $255,000 = $466,250

ekkarill92 answered 1 year ago

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