Question

ncome Statement, Cost of Goods Manufactured

Spencer Company produced 200,000 cases of sports drinks during the past calendar year. Each case of 1-liter bottles sells for $36. Spencer had 2,500 cases of sports drinks in finished goods inventory at the beginning of the year. At the end of the year, there were 11,500 cases of sports drinks in finished goods inventory. Spencer’s accounting records provide the following information:

Purchases of direct materials	$2,360,000
Direct materials inventory, January 1	290,000
Direct materials inventory, December 31	110,000
Direct labor	1,200,000
Indirect labor	334,000
Depreciation, factory building	525,000
Depreciation, factory equipment	416,000
Property taxes on factory	65,000
Utilities, factory	150,000
Insurance on factory	200,000
Salary, sales supervisor	85,000
Commissions, salespersons	218,000
Advertising	500,000
General administration	390,000
Work-in-process inventory, January 1	460,000
Work-in-process inventory, December 31	750,000
Finished goods inventory, January 1	107,500
Finished goods inventory, December 31	488,750

Required:

1. Prepare a cost of goods manufactured statement.

Spencer Company
Statement of Cost of Goods Manufactured
For the Year Ended December 31
Direct materials:
	$
	$
		$
Manufacturing overhead:
	$
Total manufacturing costs added		$
Cost of goods manufactured		$

2. Compute the cost of producing one case of sports drink last year. If required, round your answer to the nearest cent.

$ per case

3. Prepare an income statement on an absorption-costing basis. Show the percentage of sales that each line item represents. Round the percent to four decimal places before converting to a percentage. For example, .88349 would be rounded to .8835 and entered as 88.35.

Spencer Company
Income Statement: Absorption Costing
For the Year Ended December 31
			Percent
			%
Cost of goods sold:
			%
Less: Operating expenses:
			%
			%
			%

Answer 1

1. Prepare a cost of goods manufactured statement.

Spencer Company
Statement of Cost of Goods Manufactured
	Amount ($)	Amount ($)
Direct materials inventory, January 1	2,90,000
(+) Direct materials inventory, January 1	23,60,000
(-) Direct materials inventory, December 31	-1,10,000
Cost of Direct Material used in production		25,40,000
Direct Labor		12,00,000
Manufacturing Overheads:
Indirect Labor	3,34,000
Depreciation, factory building	5,25,000
Depreciation, factory equipment	4,16,000
Property taxes on factory	65,000
Utilities Factory	1,50,000
Insurance on factory	2,00,000
Total Manufacturing Overheads		16,90,000
Total Manufacturing Cost		54,30,000
(+) Work-in-process inventory, January 1		4,60,000
(-) Work-in-process inventory, December 31		-7,50,000
Cost of Goods Manufactured		51,40,000

2. Compute the cost of producing one case of sports drink last year.

Total units produced last year = 200,000 Cases

Total Cost of Goods Manufactured (as calculated above) = $ 5,140,000

Cost of Production per Case = Total Cost of Goods Manufactured/ Total units produced

= $ 5,140,000 / 200,000

= $ 25.70 per Case

3. Prepare an income statement on an absorption-costing basis. Show the percentage of sales that each line item represents

Income Statement ( Absorption Costing)
Particulars	Amount ($)	Percentage
Sales Revenue (209,000 Units x $36) - (a)	75,24,000	100.00%
Cost of Goods Sold:
Cost of Direct material used in production	25,40,000	33.76%
Direct Labor	12,00,000	15.95%
Manufacturing Overheads	16,90,000	22.46%
Total Manufacturing Cost	54,30,000	72.17%
(+) Work-in-process inventory, January 1	4,60,000	6.11%
(-) Work-in-process inventory, December 31	-7,50,000	-9.97%
Cost of Goods Manufactured	51,40,000	68.31%
(+) Finished goods inventory, January 1	1,07,500	1.43%
(-) Finished goods inventory, December 31	-4,88,750	-6.50%
Cost of Goods Sold - (b)	47,58,750	63.25%
Gross Profit ( c = a - b)	27,65,250	36.75%
Selling and Administrative Expense:
Salary, sales supervisor	85,000	1.13%
Commissions, salespersons	2,18,000	2.90%
Advertising	5,00,000	6.65%
General administration	3,90,000	5.18%
Total Selling and Administrative Expense - (d)	11,93,000	15.86%
Income from Operation ( e = c - d)	15,72,250	20.90%

Note:	Calculation of number of units sold during the year:
	Units Produced during the year	200,000 Units
	(+) Ending Finished Goods Inventory	11,500 Units
	(-) Beginning Finished Goods Inventory	- 2,500 Units
	Number of Units Sold during the year	209,000 Units