Case Study 1

Case Study I Solution

The following cost items are needed before a schedule of cost of goods manufactured can be prepared:

Materials used in production:

Prime Costs 545,000

Less Direct Labor Cost 220,000

Direct Materials Cost 325,000

Manufacturing Overhead Cost:

Direct Labor Cost/ Percentage of Conversion Cost: 220,000/35% $628,571.43

rounded to nearest dollar 628,571 ( this is total conversion cost)

100%-65% = 35%

Conversion Cost 628,571

Less Direct Labor Cost 220,000

Manufacturing Overhead 408,571

Cost of Goods Manufactured:

Cost of Goods Available for Sale $1,020,000

Less: finished goods inventory, beginning 35,000

Cost of Goods Manufactured $985,000

The easiest way to proceed from this point is to place all of the amounts that are known in a partially

completed schedule of cost of goods manufactured and a partially completed income statement. Then

fill in the missing amounts by analyzing the available data.

Direct Materials:

Raw Materials Inventory, beginning 41,000

Add: Purchases of Raw Materials 325,000

Raw Materials Available for use 366,000

Deduct: Raw Materials inventory, ending A 41,000

Raw Materials Used in Production ( See above) 325,000

Direct Labor Cost 220,000

Manufacturing Overhead Cost (See Above) 408,571

Total Manufacturing Costs 953,571

Add: Work in Process inventory, beginning 56,000

1,009,571

Deduct: Work in Process inventory, ending B $24,571

Cost of Goods Manufactured $985,000

Therefore, A is Raw Materials Available for Use...