Chapter 1, Problem 9P

Glasson Manufacturing Co. produces only one product. You have obtained the following information from the corporation’s books and records for the current year ended December 31, 2016:

1. a. Total manufacturing cost during the year was $1,000,000, including direct materials, direct labor, and factory overhead.
2. b. Cost of goods manufactured during the year was $970,000.
3. c. Factory Overhead charged to Work in Process was 75% of direct labor cost and 27% of the total manufacturing cost.
4. d. The beginning Work in Process inventory, on January 1, was 40% of the ending Work in Process inventory, on December 31.
5. e. Material purchases were $400,000 and the ending balance in Materials inventory was $60,000. No indirect materials were used in production.

Required:

Prepare a statement of cost of goods manufactured for the year ended December 31 for Glasson Manufacturing. (Hint: Set up a statement of cost of goods manufactured, putting the given information in the appropriate spaces and solving for the unknown information.)

To determine

Prepare the statement of cost of goods manufactured for the year ended December 31 for Company G.

Explanation of Solution

Cost of goods manufactured: Cost of goods manufactured refers to the cost incurred for a making a product, that are available for sales at the end of the accounting period.

Prepare the statement of cost of goods manufactured for the year ended December 31 for Company G.

Company G
Statement of cost of goods manufactured
For the year ended December 31
Particulars	Amount in $	Amount in $
Direct materials:
Inventory, January 1 (8)	30,000
Add: Purchase	400,000
Total cost of available materials	430,000
Less: Inventory, December 31	60,000
Cost of materials used	370,000
Less: Indirect materials used	0
Cost of direct materials used in production (3)		370,000
Direct labor (2)		360,000
Factory  Overhead (1)		270,000
Total manufacturing cost		1,000,000
Add: work in process inventory, January 1 (6)		20,000
		1,020,000
Less: Work in  process inventory, December 31 (5)		50,000
Cost of goods sold manufactured		970,000

(Table 1)

Working note 1: Calculate the amount of factory overhead.

$\begin{array}{c}\text{Factory overhead = Total manufacturing cost }\times \left(\begin{array}{l}\text{Percentage of factory overhead }\\ \text{charged to manufacturing cost}\end{array}\right)\\ =\$1,000,000\times 27\%\\ =\$270,000\end{array}$

Working note 2: Calculate the amount of direct labor.

$\begin{array}{c}\text{Direct labor =}\frac{\text{Amount of Factory overhead}}{\left(\begin{array}{l}\text{Percentage of factory overhead }\\ \text{charged to work in process }\\ \text{in direct labor cost}\end{array}\right)}\\ =\frac{\$270,000}{75\%}\\ =\$360,000\end{array}$

Working note 3: Calculate the amount of direct material used.

$\begin{array}{c}\text{Direct materials used =Total manufactuirng cost}-\left(\begin{array}{l}\text{Direct labor+}\\ \text{Factory overhead}\end{array}\right)\\ =\$1,000,000-\left(\$360,000+\$270,000\right)\\ =\$1,000,000-\$630,000\\ =\$370,000\end{array}$

Working note 4: Calculate the amount of direct material used.

$\begin{array}{c}\text{Direct materials used =Total manufactuirng cost}-\left(\begin{array}{l}\text{Direct labor+}\\ \text{Factory overhead}\end{array}\right)\\ =\$1,000,000-\left(\$360,000+\$270,000\right)\\ =\$1,000,000-\$630,000\\ =\$370,000\end{array}$

Working note 5: Calculate the ending work in process.

Ending work in process is considered as “X”.

$\begin{array}{c}\text{Cost of goods manufactured= }\left(\begin{array}{l}\text{Total manufacturing cost+Percent of}\\ \text{ beginning work in process}-\text{Ending work}\\ \text{ in process}\end{array}\right)\\ \$,970,000=\$1,000,000+0.4\text{X}-\text{X}\\ \$970,000=\$1,000,000-0.6\text{X}\\ \text{\$1,000,000}-\$970,000\text{=0}\text{.6X}\end{array}$

$\begin{array}{c}\text{ \$30,000=0}\text{.6X}\\ \frac{\text{ \$30,000}}{0.6}\text{=X}\\ \text{\$50,000=X}\end{array}$

Working note 6: Calculate the beginning work in process.

$\begin{array}{c}\\ \text{Beginning work in process = }\left(\begin{array}{l}\text{Ending work in process (5)}\times \text{Percentage}\\ \text{ of BWIP available in EWIP}\end{array}\right)\\ =\$50,000\times 40\%\\ =\$20,000\end{array}$

Working note 7: Calculate the total cost of available materials.

$\begin{array}{c}\text{Total cost of available materials =Cost of materials used +Ending materials of inventory}\\ \text{=\$370,000+\$60,000}\\ \text{=\$430,000}\end{array}$

Working note 8: Calculate the beginning materials of inventory.

$\begin{array}{c}\begin{array}{l}\text{Beginning materials}\\ \text{ of inventory }\end{array}\}\text{=Total cost of available materials (7)}-\text{Purchase}\\ \text{=\$430,000}-\$400,000\\ \text{=\$30,000}\end{array}$