Question:

The following information is available for Aikman Company.

January 1, 2014 2014 December 31, 2014

Raw materials inventory $21,000 $30,000
Work in process inventory 13,500 17,200
Finished goods inventory 27,000 21,000
Materials purchased $150,000
Direct labor 220,000
Manufacturing overhead 180,000
Sales revenue 910,000

1) Compute cost of goods manufactured.

2) Prepare an income statement through gross profit.

3)Show the presentation of the ending inventories on the December 31, 2014, balance sheet. (List current assets in order of liquidity.)

The Income Statement and Balance Sheet of a Manufacturing Operation

So, this question provides you with the opportunity to produce, for a manufacturing operation, first the total manufacturing costs incurred for a
period of time, followed by the cost of goods manufactured for the period (accounting for the change in work in process from the beginning to the
end of the period); followed by the cost of goods sold for the period (accounting for the change in finished goods inventories from the beginning to
the end of the period). Finally, an income statement is prepared through the gross profit line (sales less cost of goods sold expense).

Answer and Explanation: 1

1) Compute cost of goods manufactured.

Raw materials inventory January 1, 2014 $21,000

Add: Materials purchased $150,000
Deduct: Raw materials inventory, December 31, 2014 $30,000
Equals: Raw materials used during the year $141,000
Add: Direct labor 220,000
Add: Manufacturing overhead 180,000
Equals: Total manufacturing costs 511,000
Add: Work in process inventory, January 1, 2014 13,500
Deduct: Work in process inventory, December 31, 2014 17,200
Equals: Cost of goods manufactured during the year 507,300

2) Prepare an income statement through gross profit.

Sales revenue 910,000

Cost of goods sold:
Cost of goods manufactured 507,300
Add: Finished goods inventory, January 1, 2014 27,000
Deduct: Finished goods inventory, December 31, 2014 21,000
Equals: Cost of goods sold 513,300
Gross profit 396,700

3)Show the presentation of the ending inventories on the December 31, 2014, balance sheet. (List current assets in order of liquidity.)

Raw materials 30,000

Work-in-process 17,200
Finished goods 21,000
Total inventory 68,200