Question

2. Classifying Costs, Calculating Cost of Goods Manufactured, and Preparing an Income Statement.

Madison Company has the following information available:

Cost	Amount	Cost	Amount
Factory Utilities	3,000	Depreciation – Factory Equipment	4,000
Factory Maintenance	1,100	Indirect Labor	15,550
Production Supervisor’s Salary	48,990	Direct Labor Wages	50,000
Sales Commissions	14,000	Direct Material Purchases	120,000
President’s Salary	98,000	Depreciation-Office Equipment	2,000
Office Utilities	1,500	Factory Insurance	3,800
Accounts Receivable	12,500	Cash	62,300
Office Salaries	15,650	Factory Rent	17,775

Other information includes:

Inventory	Beginning	Ending
Raw Materials	36,800	62,750
Work In Process	52,500	86,210
Finished Goods	70,250	89,680

Instructions:  

1. Prepare a Cost of Goods Manufactured Schedule
2. Prepare an Income Statement (Net Sales = $420,000)
3. Prepare a current assets section of the balance sheet

Answer 1

SOLUTION

(a) Cost of Goods Manufactured Schedule

Direct Materials Used
Beginning Raw Materials inventory	36800
Add: cost of raw materials purchased	120000
Total raw materials available	156800
Less: Ending Raw materials inventory	(62750)
total raw materials used		94050
Direct labour		50000
manufacturing overhead
Indirect Materials	-
Indirect labour	15550
Depreciation - factory equipment	4000
factory insurance	3800
factory rent	17775
factory utilities	3000
factory maintenance	1100
production supervisors salary	48990
total manufacturing OH		94215
Total Manfacturing costs		238265
Add: beginning WIP		52500
		290765
Less:ending WIP		(86210)
COST OF GOODS MANUFACTURED		204555

(b) INCOME STATEMENT

SALES			420000
COST OF GOODS SOLD
BEGINNING FINISHED GOODS	52500
COST OF GOODS MANUFACTURED	204555
TOTAL GOODS AVAILABLE FOR SALE	257055
ENDING FINISHED GOODS	(89680)
COST OF GOODS SOLD	167375		(167375)
GROSS PROFIT			252625
OPERATING EXPENSES
SELLING EXP(SALES COMMISSION)	14000
ADMINISTRATIVE EXP
PRESIDENTS SALARY	98000
OFFICE UTILITIES	1500
OFFICE SALARIES	15650
DEPRECIATION -OFFICE EQUIPMENT	2000
TOTAL OPERATING EXPENSES			131150
INCOME FROM OPERATIONS			121475
INCOME BEFORE TAX			121475

NOTE : Accounts receivable and cash will come only in balance hence not shown under income statement.

(c) CURRENT ASSETS

CASH	62300
ACCOUNTS RECEIVABLE	12500
INVENTORY :-
RAW MATERIALS	62750
WIP	86210
FINISHED GOODS	89680
TOTAL		313440