Question

Spritz2 Company, a soft-drink producers, had the following inventory balances at the beginning and end of the current year (in $):

Inventory account	1 January	31 December
Raw material	167000	186000
Work in process	329000	296000
Finished goods	428000	476000

During the year, the company has incurred the following costs (in $):

Raw material purchased	580000
Machine operators’ wages	1080000
Indirect materials	42000
Indirect labour	80000
Depreciation on plant and equipment	320000
Depreciation on office equipment	15000
Rental of office space for sales personnel	30000
Utilities for factory	60000
Utilities for office	10000
Other related-product cost	83000
Selling and administrative cost	264000
Sales personnel’s commission	132600

Total overtime premiums paid to the machine operators in factory is 30% over the normal pay rate. Sales revenue was $3 152 000 for the year. The firm’s tax rate is 30 per cent.

Required:

1. Prepare a schedule of cost of goods manufactured.
2. Prepare a schedule of cost of goods sold.
3. Prepare an income statement.

Answer 1

1.

Schedule of Cost of Goods manufactured
Direct Materials
Raw Material, Beginning Inventory	$        167,000
Add: Purchases	$        580,000
Total Raw Material Available	$        747,000
Deduct : Raw Material in inventory, ending	$        186,000
Raw Material used in production		$        561,000
Direct Labor		$    1,080,000
Manufacturing Overhead
Indirect Material	$          42,000
Indirect Labor	$          80,000
Depreciation on Plant & Equipment	$        320,000
Utilities for Factory	$          60,000
Other related Product Cost	$          83,000	$        585,000
Total Manufacturing Costs		$    2,226,000
Add: Beginning Work in Process Inventory		$        329,000
		$    2,555,000
Deduct: Ending Work in Process Inventory		$        296,000
Cost of Goods Manufactured		$    2,259,000

2.

Schedule of Cost of Goods Sold
Finished Goods Inventory, Beginning		$        428,000
Add: Cost of Goods Manufactured		$    2,259,000
Cost of Goods Available for sale		$    2,687,000
Deduct : Finished Goods Inventory, Ending		$        476,000
Cost of goods sold		$    2,211,000

3.

Income Statement
Sales Revenue		$    3,152,000
Cost of Goods Sold		$    2,211,000
Gross Profit		$       941,000
Operating Expenses
Depreciation on Office equipment	$          15,000
Rental of Office Space	$          30,000
Utilities for Office	$          10,000
Selling and administrative cost	$        264,000
Sales Personnel's Commission	$        132,600
Total Operating Expenses		$        451,600
Income before income tax		$       489,400
Income tax expense		$        146,820
Net Income		$       342,580