1. A distraught employee, Fang W.

Arson, put a torch to manufacturing plant on a blustery

February 26. The resulting blaze destroyed the plant and its contents. Fortunately, certain
accounting records were kept in another building. They reveal the following for the period
from January 1, 2010 to February 26,2010.
Direct materials purchased 160,000
Work in process 1/1/2010 34,000
Direct materials 1/1/2010 16,000
Finished goods 1/1/2010 30,000
Indirect manufacturing costs 40 % of conversion costs
120,000
Revenues 5,00,000
Direct manufacturing labor 1,80,000
Prime costs 2,94,000
Gross margin percentage based on revenues 20%
Cost of goods available for sale 4,50,000
Required: Calculate the cost of :i. Finished goods inventory 26/2/2010.ii.Work in process inventory
26/2/2010.iii. Direct materials inventory 26/2/2010.

Revenue 500000
(-) Cost of goods sold 400,000
Gross Profit 100,000
DM 114,000
DL 180,000
Prime Cost 294000

DL 180,000 60%
Indirect manufacturing cost / Factory OH 120,000 40%
Conversion Cost 300,000 100%

RM- Opening 16000

(+) RM- Purchase 160000

RM- Available for Use 176000
(-) RM- Ending 62,000
RM- Used 114,000
(+) Direct Labor 180000

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(+) Manufacturing OH / Factory Overhead (W-1) 120,000
Total Manufacturing Cost 414000
(+) WIP- Opening W-I-P 34000
Total WIP 448000
(-) WIP- E 28,000
Cost of goods Manufactured 420,000
(+) Finished Goods - O F/G 30,000
Cost of goods available for sale 450,000
(-) Finished goods – Ending 50,000
Cost of goods sold 400000

2. The following information has been taken from the Visic company’s production, sales & cost
records for the just completed year:
Production in Units 30,000
Sales in Units (10,00,000/50=20000) 20, 000
Ending finished goods inventory in units (30,000-20000) ?10,000
Sales in dollars 10,00,000
Costs:
Advertising – Selling and Administrative 1,15,000
Entertainment & travel- Selling and Administrative 40,000
Direct Labor 90,000
Indirect Labor- Factory overhead 85,000
Raw materials purchased 500,000
Building Rent (production uses 60% of the space; administrative & 40,000
sales offices use the rest)---40000*60%=24000 factory overhead
; 40000*40%= 16000 –Selling and administrative
Utilities, factory 108,000
Royalty paid for use of production patent,1.5 per unit produced ?45000
(30,000*1.5=45000)…factory overhead
Maintenance, factory 9,000
Rent for special production equipment,11000 per year plus 0.30 per ?
unit produced (11,000+0.30*30000= 11000+9000=20,000)..factory
overhead
Selling & administrative salaries 2,10,000
Other factory overhead costs 6,800
Other selling & administrative expenses 17,000
Beginning of End of
the year Year
Inventories:
Raw materials 40,000 20,000
Work in process 60,000 30,000
Finished goods 10,000 ?
The finished goods inventory is being carried at the average unit production cost for the year. The
selling price of the product is tk. 50 per unit.
Required:

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1. Prepare the statement of cost of goods manufactured.
2. Prepare income statement for the year.

Cost of goods manufactured / production units = /30,000 = 30

Ending inventory value = 10,000*30= 300000

Factory Overhead (85,000+24,000+108000+45000+9000+20,000+6800= 297800)

RM- Opening 40,000

(+) RM- Purchase 500,000

RM- Available for Use 540,000
(-) RM- Ending 20,000
RM- Used 520,000
(+) Direct Labor 90,000
(+) Manufacturing OH / Factory Overhead 297800
Total Manufacturing Cost 907800
(+) WIP- Opening 60,000
Total WIP 967800
(-) WIP- E 30,000
Cost of goods Manufactured 937800
(+) Finished Goods - O 10,000
Cost of goods available for sale 947800
(-) Finished goods – Ending ?312600
((937800/30000)*10,000? )
Cost of goods sold 635200

Ending Finished Goods = (Cost of goods manufactured/ Production Units)* Ending Finished
Goods

= 937800/ 30000* 10000= 312600

Income Statement

Revenue 10,00,000
(-) COGs 635,200
Gross Profit 364800
(-) Operating Expense

Selling & Administrative 398,000

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Net Loss 33200
Net Profit (33200)

Factory Overhead Selling and Administrative

Building Rent 24000 Building Rent 16000

Total Factory Total selling and 398000

Overhead administrative
expense

In Total Per Unit

Variable Cost Varies Fixed /Constant
1 15000 15000
2 30000 15000
3 45000 15000
4 60000 15000

Fixed Cost Fixed Varies

1 50,000 50,000
5 50,000 10,000

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10 50,000 5,000
25 50,000 2,000
50 50,000 1,000

Income Statement
Absorption Costing- External Variable Costing – Internal Decision
Reporting—Mandatory making..Not Mandatory

Sales Sales
(-) Cost of Goods sold (-) Variable Cost
Gross Profit Contribution margin
(-) Operating Expense (-) Fixed Cost
Selling and Administrative Net Profit
Net Profit

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