Question

The following selected information was extracted from the 20x3 accounting records of Farrina Products:

Raw materials used	$284,000
Direct labor	178,000
Indirect labor	35,000
Selling and administrative salaries	250,000
Building depreciation*	330,000
Other selling and administrative expenses	80,000
Other factory costs	620,000

*Seventy percent of the company's building was devoted to production activities; the remaining 30% was used for selling and administrative functions.

Farrina's beginning and ending work-in-process inventories amounted to $306,000 and $245,000, respectively. The company's beginning and ending finished-goods inventories were $450,000 and $440,000, respectively.

Required:
A. Calculate Farrina's manufacturing overhead for the year.
B. Calculate Farrina's cost of goods manufactured.
C. Compute Farrina's cost of goods sold.

Answer 1

A
Manufacturing Overhead = Indirect labor + Building depreciation + Other factory costs
=> $35000 + $231000 + $620000
=> $886000 (Ans)

Note - Since only 70% of building was devoted to production, therefore only 70% of depreciation will be considered for computing manufacturing overhead, ($330000 X 70%) = $231000

B
Cost of goods manufactured = Opening work in progress + Raw material + Direct labor + Manufacturing overhead - Closing work in progress
=> $306000 + $284000 + $178000 + $886000 - $$245000
=> $1409000 (Ans)

C
Cost of Goods sold = Opening Finished goods + Cost of goods manufactured - Closing finished goods
=> $450000 + $1409000 - $440000
=> $1419000 (Ans)