Question

Of all the times this hard drive could crash, it had to be now, ” Marcy cried. “How can I finish the June financial reports without all the information? I knew I should have backed up the disk last night before I left work.” News of the disaster traveled quickly through the office, and people began to stop by her cubicle to offer their help.

     John was the first to the rescue. “It might not be as bad as you think, Marcy. I have the financial reports from May right here. According to the balance sheet, we had a total inventory of $99,000 at the end of May. And I remember that the Finished Goods Inventory was one-third of that amount.”

     “I just finished the inventory counts last night,” Peter chimed in from across the hall. “According to my tally sheets, we finished June with $80,000 in Direct Materials Inventory, $52,000 in Work in Process Inventory, and $25,000 in Finished Goods Inventory. This was a 100% increase from the balances in Direct Materials Inventory and Work in Process Inventory at the end of May. I bet with a little more investigative work, we can get all the numbers you need to complete the reports.”

     Sally called from Payroll to tell Marcy that the company had paid a total of $36,000 for direct labor during June. Juan, the billing supervisor, e-mailed Marcy that the company had sent out invoices to customers totaling $291,000.

     Marcy knew that the overhead rate was 200% of direct labor costs. She also knew that the company priced its product using a 50% markup on the cost of goods sold. Armed with all this information, she sat down to reconstruct the inventory accounts for June.

1. Begininng finished goods:

2. Beginning direct materials:

3. Beginning work in process:

4. Cost of goods sold:

5. Cost of goods manufactured

6. Direct material used:

7. Purchases:

8. Direct labor:

9. overhead:

Answer 1

Mark up = 50% of cost of goods sold

Hence, mark up = 50/150 of sales revenue

Sales revenue = $291,000

Hence, mark up = 291,000 x 50/150

= $97,000

Cost of goods sold = Sales - Mark up

= 291,000 - 97,000

= $194,000

• Schedule of cost of goods sold

Beginning finished goods inventory	33,000
Add: Cost of goods manufactured	186,000
Cost of goods available for sale	219,000
Less: Ending finished goods inventory	-25,000
Cost of goods sold	194,000

Schedule of Cost of goods manufactured

Direct materials:
Beginning raw material inventory	40,000
Add: Purchases of raw material	144,000
Total raw materials available	184,000
Less: Ending raw materials inventory	- 80,000
Raw materials used in production	104,000
Direct labor	36,000
Manufacturing overhead applied to work in process	72,000
Total manufacturing cost	212,000
Add: Beginning work in process inventory	26,000
Less: Ending work in process inventory	-52,000
Cost of goods manufactured	186,000

Hence,

(1) beginning finished goods = $33,000, (2) beginning direct materials = $40,000, (3) beginning work in process = $26,000, (4) cost of goods sold = $194,000, (5) cost of goods manufactured. = $186,000, (6) direct material used = $104,000, (7) purchases. = $144,000 , (8) direct labor = $36,000, (9) overhead = $72,000  

Feel free to ask if you have any doubts. Thanks.