Question

Company Inventory Info

ITEM	1/1/2020	12/31/2020
RAW MATERIALS	$34K	$38K
WIP	$126K	$145K
FINISHED GOODS	$76K	$68K

COSTS INCURRED DURING THE YEAR 2020:

RAW MATERIAL PURCHASED	$232K
WAGES TO FACTORY WORKERS	55K
SALARY TO FACTORY SUPERVISORS	25K
SALARY TO SELLING AND ADMIN STAFF	80K
DEPRECIATION ON FACTORY BLDG AND EQUIP	20K
DEPRECIATION ON OFFICE BLDG	24K
UTILITIES FOR FACTORY BLDG	$10K
UTILITIES FOR OFFICE BLDG	7.5K

SALES REVENUE DURING 2020 WAS $600K. THE TAX RATE=21%

CALCULATE:

1. COST OF RAW MATERIALS USED

2. COST OF GOODS MANUFACTURED/COMPLETED

3. COST OF GOODS SOLD

4. GROSS MARGIN

5. NET INCOME

Answer 1

1.

Calculation of Direct Materials Used
Raw materials inventory , beginning	34,000
Add:Direct materials purchases	232,000
Raw Material available for use	266,000
Less:Ending raw material inventory	-38,000
Raw material used	228,000

COST OF RAW MATERIALS USED = $228,000

2.

Calculation of Cost of Goods Manufactured
Direct material used		228,000
Wages to factory workers		55,000
Factory overheads:
Salary to factory supervisors	25,000
Depreciation on factory building and equipment	20,000
Utilities for factory building	10,000
Total factory overheads		55,000
Total Manufacturing costs		338,000
Add: Work in process inventory, beginning		126,000
Total work in process costs		464,000
Less: Work in process inventory, ending		-145,000
Cost of goods manufactured		319,000

COST OF GOODS MANUFACTURED = $319,000

3.

Calculation of Cost of Goods Sold
Finished goods inventory, beginning	76,000
Cost of goods manufactured	319,000
Cost of goods available for sale	395,000
Less:Finished goods inventory, ending	-68,000
Cost of goods sold	327,000

COST OF GOODS SOLD = $327,000

4.

Gross margin = Sales revenue - Cost of goods sold

= 600,000-327,000

= $273,000

5.

Income Statement
Sales revenue		600,000
Less: Cost of goods sold		-327,000
Gross profit		273,000
Expenses:
Salary to selling and admin staff	80,000
Depreciation on office building	24,000
Utilities for office building	7,500
Total expenses		-111,500
Profit before taxes		161,500
Income tax expense( 161,000 x 21%)		-33,915
Net income		127,585

NET INCOME = $127,585

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