Question

Bearkat Corporation is a manufacturing company that uses an actual costing system and produces one type of product. On January 1 st, they had the following account balances in their three inventory accounts:

Finished goods $47,000

Raw materials $42,500

Work-in-process $44,000

During the year, Bearkat purchased $760,000 of materials on account which consists of both direct and indirect materials. They used $221,000 of direct materials and $40,000 of indirect materials. Total payroll costs were $522,400 of which $325,000 were direct, $59,000 were indirect, and the remainder were administrative payroll costs. Other costs incurred during the year were as follows:

Depreciation (80% related to the factory) $38,000

Rent (factory occupies 60% of the bldg) $50,000

Utilities (70% related to the factory) $36,800

On December 31st, Bearkat had $39,500 in work-in-process and $15,500 in finished goods. The raw materials balance on December 31st is unknown. Based on this information, answer the following (label your answers to receive full credit):

a. What were the conversion costs and period costs for the year?

b.What was the cost of goods manufactured for the year?

c.What was the cost of goods sold for the year?

d.If Bearkat incurred an operating loss of $49,300, what was the amount of sales?

Answer 1

Solution a:

Computation of conversion cost for the year
Particulars	Amount
Direct labor	$325,000.00
Manufacturing overhead:
Indirect Materials	$40,000.00
Indirect labor	$59,000.00
Factory Depreciation ($38,000*80%)	$30,400.00
Factory Rent ($50,000 * 60%)	$30,000.00
Factory Utilities ($36,800*70%)	$25,760.00
Total Manufacturing overhead	$185,160.00
Total Conversion cost incurred	$510,160.00

Computation of Period cost for the year
Particulars	Amount
Administrative Salaries ($522,400 - $325,000 - $59,000)	$138,400.00
Depreciation ($38,000*20%)	$7,600.00
Rent ($50,000*40%)	$20,000.00
Utilities ($36,800*30%)	$11,040.00
Total Period Cost	$177,040.00

Solution b:

Compuatation of cost of goods manufactured - Bearkat Corporation
Particulars	Amount
Direct material	$221,000.00
Direct labor	$325,000.00
Manufacturing overhead	$185,160.00
Total manufacturing cost incurred	$731,160.00
Add: Beginning WIP	$44,000.00
Less: Ending WIP	$39,500.00
Cost of goods manufactured	$735,660.00

Solution c:

Compuatation of cost of goods sold- Bearkat Corporation
Particulars	Amount
Beginning finished goods inventory	$47,000.00
Add: Cost of goods manufactured	$735,660.00
Less: Ending finished goods inventory	$15,500.00
Cost of goods sold	$767,160.00

Solution d:

If bearkat incurred an operating loss of $49,300 then sales = Cost of goods sold + Period costs - Operating loss

= $767,160 + $177,040 - $49,300 = $894,900