Question

Selected data concerning the past year’s operations of the Altek Manufacturing Company are as follows:

Inventories ($) Beginning Ending

Raw materials 71,000 81,000

Work in Process 80,000 30,000

Finished Goods 90,000 110,000

Other Data:

Direct Materials Used ---------------------------------------------- $ 326,000

Total Manufacturing Costs Charged to production during the year (includes direct material, direct labour, and manufacturing overhead applied at a

rate of 60% of direct-labour cost) ----------------------------------$ 686,000

Cost of Goods Available for Sale -----------------------------------$ 826,000

Selling and Administration Expenses ------------------------------- $ 31,500

Required:

i. What was the cost of raw materials purchased during the year?

ii. What was the direct-labour cost charged to production during the year?

iii. What was the cost of goods manufactured during the year?

iv What was the cost of goods sold during the year?

Answer 1

i.

Cost of raw material purchased = Direct material used + Raw material ending inventory - Raw material beginning inventory

= 326,000+81,000-71,000

= $336,000

ii.

Let the direct labor cost be $k

Manufacturing overhead applied = k x 60%

= 0.6k

Direct material used + Direct labor cost + Manufacturing overhead applied = Total manufacturing cost

326,000+k+0.6k = 686,000

1.6k = 360,000

k = 360,000/1.6

= $225,000

Hence Direct labor cost = $225,000

iii.

Cost of goods manufactured = Total manufacturing cost + Beginning work in process - Ending work in process

= 686,000+80,000-30,000

= $736,000

iv.

Cost of goods sold = Cost of goods available for sale - Ending Finished goods

= 826,000-110,000

= $716,000