Manufacturing Business

Nature of Manufacturing business, Preparation of Statement of

Cost of Goods Manufactured and Sold
 MANUFACTURING VS. MECHANDISING

MANUFACTURING MERCHANDISING
- Buying Raw Materials - Buying goods
- Conversion - Selling goods without changing form
- Selling as finished product - Has one type of inventory:
- Has four types of inventory: - Merchandise inventory
- Finished Goods, Goods In Process,
Raw Materials, Factory Supplies
(Indirect Materials)
Merchandising Business
Merchandising Business:

Merchandise Inventory, beginning xxx

Add: Net Purchases
Purchases xxx
Add: Freight In xxx
Total xxx
Less: Purchase Discount xxx
Purchase Returns & Allowances xxx xxx
Total Goods Available for Sale xxx
Less: Merchandise Inventory, ending xxx
Cost of Goods Sold xxx
Manufacturing Business
Four Types of Inventory
• Finished Goods Inventory – Ready for sale products
• Goods or Works in Process – Goods in processing
stage
• Raw Materials Inventory – Direct materials needed
• Factory supplies – Indirect materials needed
Product Cost
• Direct Materials – integral part of product
• Direct Labor – salary of workers directly involved in
making the product
• Factory Overhead – indirect materials and indirect
labor
Period Cost
Operating Expenses
- Classified into two:
1. Distribution Cost/ Selling expenses – Sales and
advertising
2. Administrative expenses – Office-related
expenses
Common Cost
- Incurred in general by the company
E.g.: Utilities expense (telephone, light and water)
 [Name of the Company]
Statement of Cost of Goods Manufactured and Sold
For the year ended, [date]

Raw Materials Inventory, beginning xxx

Add: Net Purchases
Purchases xxx
Add: Freight In xxx
Total xxx
Less: Purchase Discount xxx
Purchase Returns & Allowances xxx xxx
Total Materials Available for Use xxx
Less: Raw Materials Inventory, ending xxx
Raw Materials Used/ Direct Materials xxx
Direct Labor xxx
Manufacturing Expenses/ Overhead (in detail) xxx
Total Manufacturing Cost xxx
Add: Work in Process Inventory, beginning xxx
Total Work Placed in Process xxx
Less: Work in Process Inventory, ending xxx
Cost of Goods Manufactured xxx
Add: Finished Goods Inventory, beginning xxx
Total Goods Available for Sale xxx
Less: Finished Goods Inventory, ending xxx
Cost of Goods Sold xxx
1.The following data refer to Fresno Fashions Company for the year 2015:

Sales Revenue 950,000.00

Work in Process inventory, 12/31/2015 30,000.00
Work in Process inventory, 1/1/2015 40,000.00
Selling and administrative expenses 150,000.00
Income tax expense 90,000.00
Purchases of raw materials 180,000.00
Raw materials inventory, 12/31/2015 25,000.00
Raw materials inventory, 1/1/2015 40,000.00
Direct Labor 200,000.00
Utilities: Plant 40,000.00
Depreciation: Plant and equipment 60,000.00
Finished goods inventory, 12/31/2015 50,000.00
Finished goods inventory, 1/1/2015 20,000.00
Indirect material 10,000.00
Indirect labor 15,000.00
Other manufacturing overhead 80,000.00

Determine the cost of goods manufactured for 2015.

Solution:
Raw materials inventory, 1/1/2015 40,000.00
Purchases 180,000.00
Total Materials Available for Use 220,000.00
Raw materials inventory, 12/31/2015 25,000.00
Raw Materials Used 195,000.00
Direct Labor 200,000.00
Manufacturing expenses: -
Indirect material 10,000.00
Indirect labor 15,000.00
Other manufacturing overhead 80,000.00
Utilities: Plant 40,000.00
Depreciation: Plant and equipment 60,000.00
Total Manufacturing Cost 600,000.00
Work in Process inventory, 1/1/2015 40,000.00
Total Cost Place in Process 640,000.00
Work in Process inventory, 12/31/2015 30,000.00
Cost of Goods Manufactured 610,000.00
2. You have been trying to reconstruct the records of the Ilano Company.
Some employees are suspected of having taken some inventories. Many
records are missing. Nevertheless, you have gathered the following data
regarding the current year:
______________________________________________________________________
Work in Process, beg 200,000.00 Administrative expenses 300,000.00
Work in Process, end 250,000.00 Purchases 800,000.00
Gross Profit 2,500,000.00 Factory overhead 700,000.00
Finished goods inventory, end 760,000.00 Sales 4,100,000.00
Cost of goods sold 1,600,000.00 Direct labor 600,000.00
Selling expenses 400,000.00 Direct materials used 500,000.00
_____________________________________________________________________

The beginning finished goods inventory was: ______________________.

Solution:
Direct materials used (Raw materials used) 500,000.00
Direct labor 600,000.00
Factory overhead 700,000.00
Total Manufacturing Cost 1,800,000.00
Work in Process, beg 200,000.00
Total Cost Place in Process 2,000,000.00
Work in Process, end 250,000.00
Total Cost of Goods Manufactured 1,750,000.00
Finished goods inventory, beg 610,000.00
Total Goods Available for Sale 2,360,000.00
Finished goods inventory, end 760,000.00
Total Cost of Goods Sold 1,600,000.00
3. The Balagtas Manufacturing Company makes one model of a product known as Ariel.
On January 1, 2015, there was 500 units of the finished product which were included in the
finished goods inventory. Other inventories on January 1 were:
Work in process 5,740.00
Materials 11,620.00
Among the data available for December 31, 2015 were the following:
Indirect Labor 12,160.00
Direct Labor 32,640.00
Freight-in 5,570.00
Materials Inventory 9,640.00
Other factory overhead expenses 31,730.00
Work in process inventory 7,820.00
Sales (15,000 units) 360,000.00
Indirect Materials 21,390.00
Total factory cost 194,080.00

There were 1,500 units of Brand Ariel in the finished goods inventory at December 31, 2010.
Solution:
Materials inventory, 1/1/2015 11,620.00
Purchases 88,610.00
Add: Freight in 5,570.00
Materials Available for Use 105,800.00
Materials inventory, 12/31/2015 9,640.00
Materials Used 96,160.00
Direct Labor 32,640.00
Indirect Labor 12,160.00
Other factory overhead expenses 31,730.00
Indirect Materials 21,390.00
Total Factory costs 194,080.00
Work in process, 1/1/2015 5,740.00
Total cost place in process 199,820.00
Work in process, 12/31/2015 7,820.00
Total Cost of Goods Manufactured (16000 units) 192,000.00
Finished Goods Inventory, 1/1/2015 (500 units) 6,000.00
Total Goods Available for Sale 198,000.00
Finished Goods Inventory, 12/31/2015 (1500 units) 18,000.00
Cost of goods sold (15000 units) 180,000.00
Sales 360,000.00
Cost of goods sold 180,000.00
Gross profit 180,000.00

Supporting computation to compute the value of the finished goods inventory:

Goods sold (units) 15,000.00
Finished goods, end (units) 1,500.00
Finished goods, beg (units) (500.00)
Total goods manufactured (units) 16,000.00

Total Cost of Goods Manufactured 192,000.00

Divided by: Total goods manufactured (units) 16,000.00
Cost per unit 12.00