Case Study 1

Supplied Information Materials Purchased Direct Labor Sales Gross Margin Cost of Goods Available for Sale Prime Costs Manufacturer Overhead Direct Materials Beginning Balances Raw Materials Works in Progress Finished Goods Notes Conversion cost = Manufacturing overhead + direct labor Known: Manufacturing overhead= 65% of conversion Direct labor= Direct = 35% of Conversion costs 220,000= 35% of Conversion 220,000/.35= Conversion cost Conversion cost = Manufacturing overhead + direct labor Direct labor= Manufacturing overhead = Prime Cost = direct materials cost + direct labor costs. 545,000 = direct materials cost + 220,000 Direct materials cost = 325,000 $325,000 $220,000 $1,350,000 30% $1,020,000 $545,000 65% of Conversion $325,000 $41,000 $56,000 $35,000

$220,000 35%

$628,571 $220,000 $408,571

Answers
Raw Materials Cost (purchased) Work in Progress Finished Goods Inventory $325,000 $24,471 $75,000

Calculations Calculating Gross Margin Sales Cost of Goods Sold: Beginning Finished Goods Inventory Add: Cost of Goods Manufactured Cost of Goods Available for Sale Deduct: Ending Finished Goods Inventory *Gross Margin *Gross Margin= 30%($1,350,000) Cost of Goods Sold Beginning balance finished goods Add: Cost of goods manufactured Goods available for sale Less: Ending balance, finished goods Cost of goods sold Total manufacturing cost Direct materials Direct labor Manufacturing overhead Total manufacturing cost

$ 35,000 985,000 1,020,000 75,000 $

1,350,000

945,000 405,000

35,000 985,000 1,020,000 945,000 $ 75,000

325,000 220,000 408,471 953,471

Cost of Goods Manufactured Beginning balance works in progress Total manufacturing cost Less:Ending balance work in progress Cost of good manufactured Cost of Goods Manufactured Direct Materials Beginning Raw Materials inventory Add: Purchases of Raw Materials Raw Materials Available for Use Deduct: Ending Raw Materials Inventory Raw Materials Used in Production Direct Labor Manufacturing Overhead Total Manufacturing Cost Add: Beginning Work in Progress Inventory

56,000 953,471 24,471 985,000

41,000 325,000 366,000 41,000 $ 325,000 220,000 408,471 953,471 56,000

Deduct: Ending Work in Progress Inventory Cost of Goods Manufactured $

24,471 985,000

Answers
Raw Materials Cost (purchased) Work in Progress Finished Goods Inventory $325,000 $24,471 $75,000