Q28PGA - Horngren'S Financial And Managerial Accounting

Question

Question: Preparing a schedule of cost of goods manufactured and an income statement for a manufacturing company 

Gourmet Bones manufactures its own brand of pet chew bones. At the end of December 2018, the accounting records showed the following:

Balances:                                                                Beginning Ending 

Direct Materials \( 13,500 \) 7,500 

Work-in-Process Inventory 0 3,500 

Finished Goods Inventory 0 5,200 

Other information: 

Direct materials purchases$ 36,000 

Plant janitorial services 700 

Sales salaries 6,000 

Delivery costs1,300 

Net sales revenue 107,000 

Utilities for plant 1,300 

Rent on plant 17,000 

Customer service hotline costs 1,200 

Direct labor23,000 

Requirements 

1. Prepare a schedule of cost of goods manufactured for Gourmet Bones for the year ended December 31, 2018. 

2. Prepare an income statement for Gourmet Bones for the year ended December 31, 2018.

 3. How does the format of the income statement for Gourmet Bones differ from the income statement of a merchandiser? 

4. Gourmet Bones manufactured 17,900 units of its product in 2018. Compute the company’s unit product cost for the year, rounded to the nearest cent.

Step-by-Step Solution

Answer

The COGM is $80,500, net operating income is $23,200. Manufacturing company’s income statement COGS includes COGM and change in finished goods inventory and COGS on income statement of merchandise inventory includes purchases and change in merchandise inventory. The unit product cost is $4.50

Step-by-Step Solution Step 1: Preparation of schedule of cost goods manufactured

Gourmet Bones
Schedule of cost goods manufactured
The year ended December 31, 2018
	Amount ($)	Amount ($)	Amount ($)
Beginning WIP Inventory
Direct Materials Used
Beginning Direct material	$13,500
Purchases of direct material	$36,000
Direct Materials available for use	$49,500
Ending direct materials	-$7,500
Direct Materials used		$42,000
Direct Labor		$23,000
Manufacturing overhead
Plant Janitorial services	$700
Utilities for plant	$1,300
Rent on Plant	$17,000
Total Manufacturing Overhead		$19,000
Total manufacturing cost incurred during the year			$84,000
Total manufacturing cost to account for			$84,000
Ending WIP Inventory			-$3,500
Cost of goods manufactured			$80,500

Step 2: Preparation of Income statement

Gourmet Bones
Income Statement
The year ended December 31, 2018
	Amount ($)	Amount ($)
Revenues:
Net Sales Revenue		$107,000
Cost of goods sold
Beginning finished goods inventory	0
Cost of goods manufactured	$80,500
Cost of goods available for sale	$80,500
Ending finished goods inventory	-$5,200
Cost of goods sold		$75,300
Gross Profit		$31,700
Selling and administrative Expenses
Sales Salaries Expense	$6,000
Delivery Expense	$1,300
Customer service hotline Expense	$1,200
Total Selling and administrative Expenses		$8,500
Operating Income (loss)		$23,200

Step 3: Difference in income statement format between Gourmet and merchandiser company

In an income statement of the manufacturing company, the cost of goods sold is based on the cost of goods manufactured, and for a merchandising company, the cost of goods sold is based on the cost of merchandise purchased including freight in and the change in merchandise inventory.

Step 4: Computation of unit product cost

$$\begin{gathered} \mathbf{Unitproductcost}\mathbf{=}\frac{\mathbf{Costofgoodsmanufactured}}{\mathbf{Totalunitsproduced}} \\ \mathbf{=}\frac{\mathbf{\$}\mathbf{80}\mathbf{,}\mathbf{500}}{\mathbf{17}\mathbf{,}\mathbf{900}} \\ \mathbf{=}\mathbf{\$}\mathbf{4}\mathbf{.}\mathbf{50} \end{gathered}$$