Question

Cost of Goods Manufactured

Pietro Frozen Foods, Inc., produces frozen pizzas. For next year, Pietro predicts that 50,000 units will be produced, with the following total costs:

Direct materials	?
Direct labor	$61,000
Variable overhead	30,000
Fixed overhead	205,000

Next year, Pietro expects to purchase $115,000 of direct materials. Projected beginning and ending inventories for direct materials and work in process are as follows:

	Direct materials Inventory	Work-in-Process Inventory
Beginning	$6,000	$10,500
Ending	$5,900	$12,500

Required:

1. Prepare a statement of cost of goods manufactured.

Pietro Frozen Foods, Inc.
Statement of Cost of Goods Manufactured
For the Coming Year
Direct materials
Beginning inventory	$
Materials available	$
Direct materials used in production		$
Total manufacturing costs added		$
Cost of goods manufactured		$

2. What if the ending inventory of direct materials increased by $2,600? Indicate the affect that this would have on the items listed below:

	Direction of change			Amount
Direct materials used		by		$
Total manufacturing costs		by		$
Cost of goods manufactured		by		$

Answer 1

Statement of cost of goods manufactured
Direct materials	115,000
Beginning inventory	6,000
Materials available	121,000
Less: ending inventory	(5,900)
Direct materials used for production		236,100
Direct labour		61,000
Overheads (Variable and fixed)		235,000
Total manufacturing costs added		532,100
Add: Beginning WIP		10,500
Less: ending WIP		(12,500)
Cost of goods manufactured		530,100
Effect of increase in ending inventory by $2,600
Direct materials used	Decrease	by	$2,600
Total manufacturing costs	Decrease	by	$2,600
Cost of goods manufactured	Decrease	by	$2,600