Schedule of Cost of Goods Manufactured (CGM), Cost of Goods Sold (CGS) and Income

Statement:

COST SHEET: Cost Sheet provides all the classes of cost, total cost, unit cost and profit/loss of a
product or service.
Items not included in Cost Sheet:
1) Financial Cost like, Interest on loan, Bad debt written off, Payment of Dividend.
2) Intangible asset written off: Goodwill written off,
3) Income tax paid , Donations paid.

Stock or Inventory:
1) Raw Mat Inventory; [Beginning R Mat Inv + ] and [Ending R Mat Inv -]{ D. Mat Used/
consumed}
2) Work in Process Inventory (Unfinished goods); [Beginning WIP +] and [Ending WIP -]
{Cost of Goods Manufactured (CGM)}
3) Finished Goods Inventory; [Beginning F G Inv +] and Ending F G Inv -] {Cost of Goods
sold (CGS)}

Solution: Rev prob-1:

Particulars 1.Cost 2.Cost 3.Manufac. Cost or 4.Non- manufac. 5.Cost for decision
Object behavior Product cost Cost or Period making
cost
DC IC VC FC D.Mat D.La M.O/H Offic Selling Sun Opportunity.
b e k Cost
Cost
1.Wood cost $ 100 x ----- x ----- x ---- ---- --- --- --- ---
per table -
2. Direct lab $ 40 x ---- x ---- --- x ---- -- --- -- --
per table
3. Factory x x x
supervisor paid $
38,000 per year
4. Electricity cost $ x x x
2 per machine hour
5. Factory x x x x
Machine
Depreciation $
10,000 per year
6. Salary of the x x x
president $
1,00,000 per year
7. Advertisement x x x
cost $ 2,50,000 per
year
8. Sales x x x
commission $30
per table
9. Rental benefit x
forgone or rejected
$50,000

EX-1.3:

Particulars 1.Cost 2.Cost 3.Manufac. Cost or 4.Non- manufac. 5.Cost for decision
Object behavior Product cost Cost or Period making
cost
DC IC VC FC D.Mat D.La M.O/H Offic Selling Sun Opportunity.
b e k Cost
Cost
1.Depreciation on x x x x
salespersons’ cars
2.Factory Equip. x x x
Rent
3. Lubricants for x x x
machine
4.salaries in the x x x
finished goods
warehouse
5.Soap and paper x x x
towels in factory
6.Factory x x x
supervisors’ salary
7.Heat, water and x x x
power of Factory
8. Material used x x x
for boxing
products
9. Advertising cost x x x

10. Insurance for x x x

factory employees

11. Depreciation x x x x
on factory
furniture
12. Wages for x x x
office receptionist
13.Cost of leasing x x x
for office
14. rental cost for x x x
sales
15. packaging cost X x x

Ex-1.4: Solution:
R-1:
Particulars 2000 cups of coffee 2100 cups of coffee 2,200 cups of coffee
Fixed costs $ 1,200 [per unit FC $ 1,200 [Per unit FC $1,200 [per unit FC
$0.60] $ 0.57] $0.55]
Variables Costs
[2000 x $ 0.22 $ 440
2100 x 0.22 $ 462
2200 x 0.22] $ 484
Total cost= FC+VC $ 1,640 $ 1,662 $ 1,684
Average cost per cup
of coffee $ 0.82 $ 0.79 $0.77
$ 1640÷2000 cups Or [unit FC + unit Or [0.57+ 0.22= $ Or [0.55+ 0.22= $
$1662÷2100 VC] [$ 0.60 + 0.22 = 0.79] 0.77]
$1684 ÷2200 $ 0.82]

R-2: Average cost per cup of coffee will be decreased as the number of cups of coffee served
increase because total fixed cost will remain unchanged but per unit fixed cost will be decreased
according to cup of coffee served increases.

Ex-1.5: Solution:

Items Differential Sunk cost or Opportunity cost

cost Past cost
1. Cost of the old X-ray machine x
2. Salary of the radiology -------- ---------- ------------
department
3. Salary of the head of lab ----- ----- -------
4. Cost of new color laser printer x
5. Rent on the space occupied by ------ ----- ----
radiology
6. The cost of maintaining the old x ------- ------
machine
7. Benefits from a new DNA x
 analyzer . . . . . . . . . . . . . . . . . . .
8. Cost of electricity to run the X-ray x
machines.

EX-1.6: Solution:
R-1) Cherokee Inc
Traditional Format Income Statement

Particulars $ $
Sales ( 20,000 units x $30) 6,00,000
Less: Cost of Goods Sold:
Beginning inventory 24,000
+ Purchase 1,80,000
Available for sale 2,04,000
- Ending inventory (44,000)
***Cost of Goods sold (1,60,000)
Gross Profit 4,40,000
Less: Operating Expenses:
Selling Expense:
Variable (20,000 units x $4) 80,000
Fixed Selling Expense 40,000 1,20,000
Admin Expense
Variable (20,000 units x $2) 40,000
Fixed admin expense 30,000 70,000 (1,90,000)
Net Operating Profit 2,50,000

R-2: Cherokee Inc

Contribution Format Income Statement

Particulars Per unit $ $ $

Sales ( 20,000 units X $30 ) 30 6,00,000
Less: Variable Cost:
Variable cost of goods sold ($1,60,000÷ 20,000 units) 8 1,60,000
Variable selling (20,000 x 4) 4 80,000
Variable Admin (20,000 x $ 2) 2 40,000
Total Variable cost 14 (2,80,000)
Contribution Margin (CM) ( 30-14) 16 3,20,000
Less: Fixed Cost:
Fixed Selling cost 40,000
 Fixed Admin cost 30,000 (70,000)

Net Operating Profit 2,50,000

Problem: 1-19:
R-1: Todrick Company
Contribution format Income Statement

Particulars Per unit $ $ $

Sales ($ 3,00,000 / 1,000 units) (R-3) 300 3,00,000
Less: Variable Cost:
Variable cost of goods sold ($2,13,000÷ 1,000 units) 213 2,13,000
Variable selling (15,000 / 1,000) 15 15,000
Variable Admin (2,40,000-2,13000- 15,000) 12 12,000
Total Variable cost [(3,00,000- 60,000)/ 1000] (R-4) 240 (2,40,000)
Contribution Margin (CM) ( 60,000/1000) (R-5) 60 60,000
Less: Fixed Cost:
Fixed Selling cost (42,000-12,000) 30,000
Fixed Admin cost 12,000 ( 42,000)

Net Operating Profit 18,000

W-1: Variable cost of Goods sold:

Beginning inventory $ 20,000
+ Purchase 2,00,000
Available for sale 2,20,000
- Ending inventory (7,000)
Cost of goods sold 2,13,000

R-2: Income Statement under Traditional format

Sales 3,00,000
- Cost of Goods sold (2,13,00)
Gross profit 87,000
Less: Operating Expenses:
Selling expense:
Variable 15,000
Fixed 30,000 45,000
Admin Expense
 Variable 12,000
Fixed 12,000 24,000 (69,0000)

Net operating profit 18,000

Inventory or Stock:
1. Raw Material Inventory: a) Beginning Raw mat + [ Purchase] b) Ending Raw Mat
Inventory – [ D mat used or consumed]

2. Work In Process Inventory or Unfinished Goods Inventory:

a) Beginning WIP inventory + [ Total Manufacturing Cost (TMC)] b) Ending WIP
inventory - [ Cost of Goods Manufactured or Production (CGM)]
3. Finished Goods Inventory:
a) Beginning Finished Goods Inventory + [ CGM] b) Ending Finished Goods
Inventory - [ Cost of Goods Sold]

Format for COST SHEET/

Schedule of Cost of Goods Manufactured (CGM) and Cost of Goods Sold (CGS)
1. D. mat. Used:
Beginning raw mat inventory ***
+ Purchase of R Mat ***
Raw material available for production ***
- Ending Raw mat inventory or (Un-used raw mat) (**)
*** Direct Material Used or consumed ***
+ 2. Direct Labor / Direct Expenses ***
***Prime Cost ***
+ 3. Manufacturing O/H or Factory O/H (All the
Indirect expenses of the Factory):
Factory Rent **
Indirect Mat and Indirect Lab **
Factory Equipment/Building/ Machinery depreciation ***
Factory Insurance **
Factory Utility **
Factory Maintenance ***
Factory Supervisor’s salary **
Factory Manager’s salary **
Factory Tax **
Factory Guard salary **
Factory heating and lighting ** ***
***Total Manufacturing Cost (TMC) ***
 + Beginning Work in process inventory **
Cost of Goods available for Manufacture (CGAM) ***
- Ending work in process inventory (**)
**Cost of Goods Manufactured / Production (CGM) ***
+ Beginning Finished goods inventory (unsold goods invent) **
Cost of Goods available for sale (CGAS) ***
-Ending Finished goods inventory (***)
Cost of Goods Sold (CGS) or (Manufacturing ****
cost of Goods sold)

+ Operating Expenses / Period cost / Non-manufacturing exp :

Office and Administrative exp ***
Selling and Distribution exp *** ****
Total Cost (TC) ****
Net operating Profit (Balancing figure) ****
Sales ****

Income Statement

Kirsen Corporation
Income Statement
For the year ended …..

Sales ***
Less: Cost of Goods Sold (CGS) (1) (***)
Gross Margin / Profit ***
Less: Operating Expenses / Period cost / Non-manufacturing
exp: (2)
Office and Administrative exp ***
Selling and Distribution exp *** (***)
Net Operating Profit ****

Problem-1: The following data (in thousands of dollars) have been taken from the accounting
records of Karsen Corporation for the just completed year.
Sales ...................................................................... $930
Raw materials inventory, beginning ..................... $70
Raw materials inventory, ending ........................... $40
Purchases of raw materials .................................... $190
Direct labor ............................................................ $150
Manufacturing overhead ....................................... $210
Administrative expenses ....................................... $90
Selling expenses .................................................... $120
Work in process inventory, beginning .................. $80
Work in process inventory, ending ....................... $70
Finished goods inventory, beginning .................... $90
Finished goods inventory, ending ......................... $140
Use these data to answer the following questions.
Requirements: 1) Schedule of Cost of Goods Manufactured (CGM) 2) Schedule of Cost of
Goods Sold (CGS) 3) Income Statement

Solution: Schedule of Cost of Goods Manufactured (CGM) and CGS

Particulars $ $ [In ‘000]
Direct Mat. Used:
Beginning raw mat inventory 70
+ Purchase of raw mat 190
Raw material available 260
- Ending Raw mat inventory (40)
**Direct Material Used 220
+ Direct Labor 150
***Prime Cost 370
+ Manufacturing O/H 210
***Total Manufacturing Cost (TMC) 580
+ Beginning Work in process inventory 80
Cost of good available for manufacture CGAM 660
- Ending work in process inventory (70)
**Cost of Goods Manufactured or Production (CGM) 590
+ Beginning Finished goods inventory 90
Cost of Goods available for sale (CGAS) 680
-Ending Finished goods inventory (140)
Cost of Goods Sold (CGS) 540

Kirsen Corporation
Income Statement
For the year ended …..

Sales 930
Less: Cost of Goods Sold (CGS) (540)
Gross Margin / Profit 390
Less: Operating Expenses / Period cost / Non-manufacturing exp :
Administrative exp 90
Selling exp 120 (210)
Net Operating Profit 180
Formula:
1)Direct mat used= Beg stock of R. Mat + purchase – Ending stock of R. mat
2) Prime Cost= D Mat + D Lab +D Exp
3) Conversion Cost= D Lab + Manufac. O/H
4) Total Manufacturing Cost (TMC)= D Mat + D Lab +D Exp + Manufac. O/H
Or TMC = Prime cost + M O/H
5) Cost of Goods Manufactured (CGM)= TMC + Beginning WIP - Ending WIP
6) Cost of Goods sold (CGS)= CGM + Beginning FG inventory - Ending FG inventory
7) Gross profit = Sales- CGS OR, CGS= Sales – Gross profit
8) Total Cost = Manufacturing Cost + Non-manufacturing cost
Problem-2.
A manufacturing company has given you the following cost figures of 1,000 screw drivers for
the last month, which is very much within the range of 1,000 to 1,500 units of screw drivers:
Prime cost, Tk. 75,000; Direct labor cost, Tk. 35,000; Total material cost, Tk 45,000. Prime cost
is equal to 80% of total manufacturing cost. Non-manufacturing cost is Tk. 22,000 for the month.
Required:
a) Identify the cost object, the cost driver and the relevant range.
Cost object is Production of Screw drivers; Cost driver may be Units of screw driver, Direct
labor hour or Machine hour; Range is 1000 to 1500 units.

b) Calculate the conversion cost.

Conversion Cost = Direct Labor + Manufacturing Overhead(w-1)
= 35,000 + 18,750 = Tk 53,750
Working-1:
Total Manufacturing cost (TMC) = Prime cost + Manufacturing Overhead
Given, 100% = 80% + 20%
Total Manufacturing cost (TMC)= [Prime cost/ 80%]
= [(1/.80)x75,000] [75,000/ .80] = Tk 93,750 (TMC)
Manufacturing Overhead = (Total Manufacturing cost × 20% ) = 93,750 × 0.20
Manufacturing Overhead = Tk18,750
or M. O/H = TMC-Prime cost = 93,750-75,000= 18,750

c) Calculate the indirect material cost.

Indirect Material = Total Material – Direct Material(W-2) = 45,000 – 40,000 = Tk 5,000
Working-2: Prime cost = Direct Material + Direct Labor
Or, Direct Material = Prime cost – Direct Labor
Direct Material = 75,000- 35000 = Tk 40,000

d) Calculate the unit cost of screw driver.

Unit cost of screw driver = Total cost (W-3) ÷ units produced
 = Tk 1,15,750 ÷ 1000 units = Tk 115.75 per unit of screw driver
Working-3: Total cost = Total Manufacturing cost (TMC) + Non- manufacturing cost (NMC)
= 93,750 + 22,000 = Tk 1,15,750

Problem- 3:
Selected account balances for the year ended December 31 are provided below for Superior
Company. (All amounts given in thousand Tk.):
Selling and administrative salaries 110
Insurance, factory 8
Utilities, factory 45
Purchases of raw materials 290
Indirect labor 60
Direct labor ??
Advertising expense 80
Cleaning supplies, factory 7
Sales commissions 50
Rent, factory building 120
Maintenance, factory 30
Inventory balances at the opening and end of the year are as follows:

Inventory Opening of the year End of year

Raw materials 40 10
Work in process (unfinished goods) ? 35
Finished goods 50 ?
The total manufacturing costs (TMC) for the year are Tk 683; the cost of goods available for sale
(CGAS) total Tk 740 and the cost of goods sold (CGS)total Tk 660.
Required:
a) Prepare the cost of goods Manufactured (CGM) and Cost of Goods sold(CGS) schedule
for the year.
b) Assuming that the company produces 40,000 units; compute the unit cost for direct
materials used and the unit cost of rent on the factory building.
c) Assuming that the company expects to produce 50,000 units in the following year; what
unit cost and total cost would you expect to be incurred for direct materials? For rent
on the factory building? Further assume that direct materials is a variable cost and that
rent is a fixed cost.
d) As the manager in charge of production costs, explain to the CEO the reason for any
differences in unit cost between b and c above.
Required Solution (a)
Superior Company
Schedule of Cost of Goods Manufactured (CGM) and Cost of Goods sold (CGS)
For the Year ended Dec. 31….. [In ,000 TK]
Particulars TK TK
D mat used:
Opening Raw Material inventory 40
+ Purchase of raw mat 290
Raw Material available for production 330
- Ending Raw mat inventory (10)
Direct Mat Used or consumed 320
+ Direct Labor (413-320) 93??
Prime Cost (683-270) 413 ???
+ Manufacturing Overhead:
Insurance, factory 8
Utilities, factory 45
Indirect Labor 60
Cleaning supplies, factory 7
Rent, factory building 120
Maintenance, factory 30
Total M. O/H 270
Total Manufacturing Cost (TMC) 683
+ Opening work in process (725-683) 42??
CGAM(690+35) 725 ???
-Ending work in process (35)
Cost of Goods Manufactured (CGM) (740-50) 690 ??
+ Opening finished Goods inventory 50
Cost of Goods available for sale (CGAS) 740
-Ending Finished goods inventory (740-660) (80)??
Cost of Goods Sold (CGS) 660
Required solution B: (40,000 units)
1. Unit cost for Direct Material used:
(Direct Material used ÷ 40,000 units)= Tk 3,20,000 ÷ 40,000 units = Tk 8 per unit
2. Unit cost of rent on the factory building:
 Factory Rent ÷40,000 units = Tk 1,20,000÷40,000 = Tk 3 per unit
Required solution- C: (50,000 units):
1. Unit cost for Direct Material used = Tk 8 per unit
Total cost for Direct Material used= Tk 8 × 50,000 units = Tk 4,00,000
2. Unit rent cost on factory: F. Rent ÷ 50,000 units=Tk 1,20,000÷50,000 =Tk 2.4 per unit
Total rent cost on factory = Tk 1,20,000.
Required – D:
As Direct material used is a variable cost so, unit direct material cost Tk 8 will remain
unchanged in R-B & C but total direct material cost as a variable cost will be increased as
volume increased.

On the other hand, Rent on factory building is a fixed cost so, unit rent cost on factory building
will be decreased i.e, Tk 2.4 as volume increases to 50,000 units in R-C but total FC will remain
unchanged.

Special Issues:
True/False Questions

1. Manufacturing overhead is an indirect cost with respect to units of product.

Answer: True

2. Depreciation on office equipment would not be included in the cost of goods manufactured. Answer:
True

3. Rent on a factory building used in the production process would be classified as a period cost and as a
fixed cost. Answer: False

4. Period costs are found only in manufacturing companies, not in merchandising companies. Answer:
False

5. Depreciation on equipment a company uses in its selling and administrative activities would be
classified as a product cost. Answer: False

6. The cost of goods manufactured is calculated by adding the amount of work in process at the end of
the year to the cost of raw materials used, direct labor worked, and manufacturing overhead incurred
for the year and then subtracting work in process at the beginning of the year. Answer: False

7. A publisher that sells its books through agents who are paid a constant percentage commission on
each book sold would classify the commissions as a fixed cost. Answer: False

8. Variable costs per unit are affected by changes in activity. Answer: False Level: Easy

9. The cost of idle time should be charged as direct labor of the job that is in process when the
breakdown occurs. Answer: False Level: Medium LO: 8 Appendix: 2A
Multiple Choice Questions

10. Indirect labor is a part of: [ CC= D lab + M o/h]

A) Prime cost. B) Conversion cost. C) Period cost. D) Nonmanufacturing cost. Answer: B

11. The cost of lubricants used to grease a production machine in a manufacturing company is an
example of a(n):

A) period cost. B) direct material cost. C) indirect material cost. D) none of the above. Answer: C

12. The salary paid to the president of King Company would be classified on the income statement as
a(n):

A) administrative expense. B) direct labor cost. C) manufacturing overhead cost. D) selling expense.
Answer: A

13. Direct labor cost is a part of:

Conversion cost Prime cost [ CC= D lab + M o/h] , [PC= D. mat + D lab]
A) No No
B) No Yes
C) Yes Yes
D) Yes No
Answer: C
14. Direct material cost is a:
Conversion cost Prime cost
A) No No
B) No Yes
C) Yes Yes
D) Yes No
Answer: B

15. Prime cost and conversion cost share what common element of total cost?

A) Direct materials. B) Direct labor. C) Variable overhead. D) Fixed overhead. Answer: B

16. Prime cost consists of:

A) direct labor and manufacturing overhead. B) direct materials and manufacturing overhead. C) direct
materials and direct labor. D) direct materials, direct labor and manufacturing overhead.

Answer: C

17. Wages paid to a timekeeper in a factory are a:

Prime cost Conversion cost
A) Yes No
B) Yes Yes
C) No No
D) No Yes
Answer: D
18. Property taxes on a company's factory building would be classified as a(n):
A) product cost. B) opportunity cost. C) period cost. D) variable cost.
Answer: A
19. All of the following would be classified as product costs except:
A) property taxes on production equipment.
B) insurance on factory machinery.
C) salaries of the advertising staff.
D) wages of machine operators.
Answer: C

20. Data for Cost A and Cost B are as follows:

Number of
Units
Produced Unit Cost Total Cost
Cost A
1 ? 10 $10
10 ? 10 $100
100 ? 10 $1,000
1,000 ? 10 $10,000

Cost B
1 $5,000 ? 5000
10 $500 ? 5000
100 $50 ? 5000
1,000 $5 ? 5000
Which of the above best describes the behavior of Costs A and B?
A) Cost A is fixed, Cost B is variable.
B) Cost A is variable, Cost B is fixed.
C) Both Cost A and Cost B are variable.
D) Both Cost A and Cost B are fixed.
Answer: B

21. Fixed costs expressed on a per unit basis:

A) will increase with increases in activity.
B) will decrease with increases in activity.
C) are not affected by activity.
D) should be ignored in making decisions since they cannot change.
Answer: B
22. The costs of staffing and operating the accounting department at Central Hospital
would be considered by the Department of Surgery to be:
A) direct costs.
B) indirect costs.
C) incremental costs.
D) opportunity costs.
Answer: B
23. A cost incurred in the past that is not relevant to any current decision is classified as
a(n):
A) period cost.
B) opportunity cost.
C) sunk cost./Past cost
D) differential cost.
Answer: C
24. Differential costs can:
A) only be fixed costs.
B) only be variable costs.
C) be either fixed or variable.
D) be incremental but not decremental.
Answer: C
25. John Johnson decided to leave his former job where he earned $12 per hour to go to a
new job where he will earn $13 per hour. In the decision process, the former wage of
$12 per hour would be classified as a(n):
A) sunk cost.
B) direct cost.
C) fixed cost.
D) opportunity cost.
Answer: D

26. The term that refers to costs incurred in the past that are not relevant to a decision is:
A) marginal cost.
B) indirect cost.
C) period cost.
D) sunk cost.
Answer: D

Short Problem
27. The following costs were incurred in January:

Direct materials ............................. $33,000

Direct labor .................................... $28,000
Manufacturing overhead ................ $69,000
Selling expenses ............................ $16,000
Administrative expenses ................ $21,000
Conversion costs during the month totaled: Con cost= D lab+ M O/H =28000+69000=97,000
A) $97,000
B) $167,000
C) $102,000
D) $61,000
Answer: A
28. The following costs were incurred in February:
Direct materials ......................... $43,000
Direct labor ............................... $16,000
Manufacturing overhead ........... $37,000
Selling expenses ........................ $17,000
Administrative expenses ........... $26,000
Conversion costs during the month totaled:
A) $59,000
B) $80,000
C) $53,000
D) $139,000
Answer: C
29. The following costs were incurred in March:

Direct materials ............................. $21,000

Direct labor .................................... $17,000
Manufacturing overhead ................ $67,000
Selling expenses ............................ $16,000
Administrative expenses ................ $15,000
Conversion costs during the month totaled:
A) $88,000
B) $38,000
C) $136,000
D) $84,000
Answer: D
30. The following costs were incurred in January:

Direct materials ............................. $39,000

Direct labor .................................... $26,000
Manufacturing overhead ................ $21,000
Selling expenses ............................ $14,000
Administrative expenses ................ $27,000
Prime costs during the month totaled: PC= D Mat + D Lab = 39000+26000=65000
A) $86,000
B) $65,000
C) $47,000
D) $127,000
Answer: B
31. The following costs were incurred in February:

Direct materials ............................. $39,000

Direct labor .................................... $18,000
Manufacturing overhead ................ $14,000
Selling expenses ............................ $13,000
Administrative expenses ................ $29,000
Prime costs during the month totaled:
A) $71,000
B) $32,000
C) $113,000
D) $57,000
Answer: D

32. The following costs were incurred in March:

Direct materials ............................. $39,000

Direct labor .................................... $24,000
Manufacturing overhead ................ $14,000
Selling expenses ............................ $11,000
Administrative expenses ................ $19,000
Prime costs during the month totaled:
A) $63,000
B) $107,000
C) $38,000
D) $77,000
Answer: A

33. Aable Company's manufacturing overhead is 20% of its total conversion costs. If
direct labor is $45,000 and if direct materials are $53,000, the manufacturing overhead
is: Solution: Con Cost= D lab + M O/H
A) $11,250 100% = 80% +20% Con. Cost= ( 45000/.80)= $ 56,250
B) $13,250 M. O/H=( 56,250 x .20) = $11,250
C) $180,000 Or, M. O/H= Con cost-D. lab = 56,250-45,000 = 11,250.
D) $24,500 OR, M. O/H= (45000/.80) x .20 = $11,250
Answer: A
34. Abair Company's manufacturing overhead is 20% of its total conversion costs. If
direct labor is $38,000 and if direct materials are $35,000, the manufacturing overhead
is:
A) $18,250
B) $9,500
C) $8,750
D) $152,000
Answer: B

35. Abbey Company's manufacturing overhead is 60% of its total conversion costs. If
direct labor is $35,000 and if direct materials are $55,000, the manufacturing overhead
is:
A) $135,000
B) $23,333
C) $82,500
D) $52,500
Answer: D
36. During the month of January, direct labor cost totaled $17,000 and direct labor cost
was 60% of prime cost. If total manufacturing costs during January were $82,000, the
manufacturing overhead was????
A) $11,333 Solution: Prime cost= D Mat + D Lab
B) $53,667 100%= 40% +60%
C) $28,333 Prime Cost = 17,000/0.60 =28,334
D) $65,000 We know; Total Manufacturing cost= Prime cost + M.O/H
Answer: B 82,000 = 28,334+ M O/H
So, M.O/H =82,000-28,334 = 53,666

37. During the month of February, direct labor cost totaled $13,000 and direct labor cost
was 40% of prime cost. If total manufacturing costs during February were $80,000,
the manufacturing overhead was:?? Solution: M. O/H= TMC-Prime cost
M. O/H= 80,000- (13,000/.40)= 80,000-32,500
M. O/H= 47,500.
38. During the month of March, direct labor cost totaled $17,000 and direct labor cost was
70% of prime cost. If total manufacturing costs during March were $88,000, the
manufacturing overhead was:
A) $24,286
B) $71,000
C) $63,714
D) $7,286
Answer: C

39. Knowel Company's direct labor is 40 percent of its conversion cost. If the
manufacturing overhead cost for the last period was $60,000 and the direct materials
cost was $30,000, the direct labor cost was:???
A) $90,000 Solution: Con Cost = D Lab + M O/H
B) $20,000 100% = 40% + 60%
C) $60,000 Con. Cost= 60,000÷ 0.60 =1,00,000 Or, D. Lab=1,00,000 x .40= 40,000
Or, D Lab = (60,000/.60) x .40 = 1,00,000x.40 = 40,000.
D) $40,000
Answer: D
40. In January direct labor was 40% percent of conversion cost. If the manufacturing
overhead cost for the month was $78,000 and the direct materials cost was $22,000,
the direct labor cost was: Dlab= [ 78,000/.60]x .40 = 52,000

41. In February direct labor was 60% percent of conversion cost. If the manufacturing
overhead cost for the month was $78,000 and the direct materials cost was $22,000,
the direct labor cost was:
Dlab= [78,000/.40]x .60 =1,17,000
 42. In March direct labor was 60% percent of conversion cost. If the manufacturing
overhead cost for the month was $38,000 and the direct materials cost was $32,000,
the direct labor cost was:
A) $21,333
B) $48,000
C) $25,333
D) $57,000
Answer: D
43. Crossland Company's direct labor cost is 30% of its conversion cost. If the
manufacturing overhead cost for the last period was $49,000 and the direct materials
cost was $20,000, the direct labor cost was:
A) $ 6,000
B) $14,700
C) $21,000
D) $34,000
Answer: C
44. CF Company manufactures wooden rocking chairs. CF identified the following three
material costs in its production process for July: $100,000 for springs for the rocking
mechanism; two springs at a cost of $10 each are used in each chair; $1,700 for glue
used as needed from one gallon containers; and $500 for stain used to touch up spots
on the chairs. The total cost that should have been assigned to indirect material for
July was:
A) $102,200 Indirect Material Glue= 1700
B) $500 Stain= 500
C) $2,200 = $2,200
D) $1,700
Answer: C
45. Fab Co. manufactures textiles. Fab's manufacturing costs last year included the
following salaries and wages:

Loom operators .......................... $120,000 [Direct lab]

Factory foremen / Supervisors ..... $45,000 [Indirect lab]
Machinery repairmen ................ $30,000 [Indirect lab]
What is the amount of direct labor included in this list?
A) $195,000
B) $165,000
C) $150,000
D) $120,000
Answer: D
46. A manufacturing company has provided the following cost data for a recent period:
Direct materials ............................................... $8,000
Manufacturing overhead .................................. $12,000
Direct labor ...................................................... $10,000
Increase in work-in-process ............................. $4,000
Prime cost for the period was: Prime Cost= D. mat + D lab = 8000+10000=18000
A) $18,000
B) $26,000
C) $30,000
D) $34,000

47. A manufacturing company prepays its insurance coverage for a three-year period. The
premium for the three years is $3,000 and is paid at the beginning of the first year.
Three-fourths of the premium applies to factory operations and one-fourth applies to
selling and administrative activities. What amounts should be considered product and
period costs respectively for the first year of coverage?

Factory Insurance= $3000 / 3= 1,000 per year.

Product cost/ Manufacturing cost = 1000 x ¾ = $ 750 1st year [F. Ins. is M. O/H]
Period cost= 1000x 1/4 = $ 250 Period cost [ selling and admin ins. is a non-manufac. cost]
A) $1,000 $0
B) $250 $750
C) $2,250 $750
D) $750 $250
Answer: D
48. Last month a manufacturing company had the following operating results:

Beginning finished goods inventory .........$72,000

Ending finished goods inventory ...............$66,000
Sales ..........................................................$465,000 [CGM= TMC + Beg WIP – End WIP]
Gross margin ..............................................$88,000
What was the cost of goods manufactured for the month???

We know, CGS = Opening stock of Finished goods+ CGM – Ending stock of finished goods

Or, 3,77,000= 72000+ CGM – 66000 ;

CGM=377000-72000+66000 = 3,71,000

W-1: CGS = Sales- Gross profit = 465000- 88000= 3,77,000

A)$371,000
B) $459,000
C) $383,000
D) $377,000
Answer: A
49. Last month a manufacturing company had the following operating results:
Beginning finished goods inventory ............ $74,000
Ending finished goods inventory ................. $50,000
Sales ............................................................. $438,000
Gross margin ................................................ $63,000
What was the cost of goods manufactured for the month?
CGS= Sales-Gross margin = 4,38,000-63,000= 3,75,000
CGM= CGS-Beg FG inv + End FG inv = 3,75,000-74,000+50,000=3,51,000
D) $351,000
Answer: D

50. Gabert Inc. is a merchandising company. Last month the company's merchandise
purchases totaled $68,000. The company's beginning merchandise inventory was
$17,000 and its ending merchandise inventory was $13,000. What was the company's
cost of goods sold for the month?
CGS = Beginning inventory + Purchase – Ending inventory = 17000+68000- 13000=72,000

A) $72,000
B) $68,000
C) $98,000
D) $64,000
Answer: A
51. Haag Inc. is a merchandising company. Last month the company's cost of goods sold
was $86,000. The company's beginning merchandise inventory was $20,000 and its
ending merchandise inventory was $21,000. What was the total amount of the
company's merchandise purchases for the month?
A) $86,000
B) $127,000
C) $87,000
D) $85,000
Answer: C

52. During February, the cost of goods manufactured was $83,000. The beginning
finished goods inventory was $14,000 and the ending finished goods inventory was
$13,000. What was the cost of goods sold for the month?
A) $83,000 CGS= CGM + Beg FG inv – Ending FG Inv =83,000+14,000- 13,000= 84,000
B) $110,000
C) $82,000
D) $84,000
Answer: D

53. During March, the cost of goods manufactured was $62,000. The beginning finished
goods inventory was $11,000 and the ending finished goods inventory was $19,000.
What was the cost of goods sold for the month? [Manufacturing Co.]
A) $70,000 CGS= CGM + Beg FG inv – End FG inv
B) $92,000 CGS= 62,000+11,000- 19,000 = 54,000
C) $54,000
D) $62,000
Answer: C

54. The following information is taken from the records of CL Company for last year:
Direct materials ..................................................... $5,000
Manufacturing overhead ........................................ $6,000
Total manufacturing costs .(TMC).........................$17,000
Beginning work in process inventory .................... $1,000
Cost of goods manufactured(CGM) ......................$15,000
What are the correct amounts for direct labor and ending work in process inventory?

Direct Mat 5,000

D. Labor 6,000??? [11,000-5,00]
Prime cost= 11,000?? [17,000-6,000]
M. O/H = 6000
TMC = 17,000
+ Beg WIP=1,000
CGAM = 18,000
- End WIP= (3000)???? [18,000-15,000]
CGM =15,000
A) $12,000 $2,000
B) $11,000 $2,000
C) $6,000 $1,000
D) $6,000 $3,000
Answer: D

55. The following information is taken from the records of DW Company for last year:

Direct materials ............................................. $8,000

D.Mat. = 8,000
Direct labor ................................................... $3,000
+ D. Lab = 3,000
Manufacturing overhead ............................... $11,000
Prime cost = 11,000
+ M. O.H= 11,000
TMC = 22,000
Ending work in process inventory ................ $5,000 +Beg wip = 2,000??[24,000-22,000]
Cost of goods manufactured (CGM)........... $19,000 CGAM = 24,000 ?[19,000+5,000]
The amount of beginning work in process inventory ????: - end wip ( 5,000)
A) $24,000 CGM = 19,000
B) $2,000
C) $22,000
D) $3,000
Answer: B

56. Using the following data for February, calculate the cost of goods manufactured:
Direct materials ...................................................... $36,000
Direct labor ............................................................ $20,000
Manufacturing overhead ........................................ $19,000
Beginning work in process inventory .................... $10,000
Ending work in process inventory ......................... $13,000
The cost of goods manufactured was:
A) $78,000
B) $85,000
C) $72,000
D) $75,000
Answer: C

57. Using the following data for March, calculate the cost of goods manufactured:

Direct materials ...................................................... $29,000

Direct labor ............................................................ $19,000
Manufacturing overhead ........................................ $27,000
Beginning work in process inventory .................... $11,000
Ending work in process inventory ......................... $12,000
The cost of goods manufactured was:
A) $74,000
B) $86,000
C) $76,000
D) $75,000
Answer: A Level: Medium LO: 4

58.Use the following to answer questions

Clyde Company has provided the following data for the month of November:
Inventories November 1 November 30
Raw materials ...................... $17,000 ? Beg RMat =17,000
Work in process ................... $14,000 $12,000 + Purchase =10,000
Finished goods .................... ? $9,000 R Mat available= 27,000
-End R mat. = (11,000)??
Additional Data: D.Mat used = 16,000??
Sales revenue ............................................. $102,000 + DLab = 10,000
Direct labor costs ....................................... $10,000 Prime cost = 26,000?
Manufacturing overhead costs .................. $12,000 +M. O.H = 12,000
Selling expenses ........................................ $14,000 TMC = 38,000?
Administrative expenses ........................... $16,000 + Beg WIP = 14,000
Cost of goods manufactured ...................... $40,000 CGAM = 52,000 ?
Raw materials purchases ........................... $10,000 -End WIP = (12,000)
a)The ending raw materials inventory was? CGM = 40,000
A) $11,000 + Beg FG inv = ???
B) $23,000 CGAS = ????
C) $10,000 CGAS= ????
D) $12,000 - End FG=(9,000)
Answer: A CGS = ????

b) If the net operating income was $40,000, then the beginning finished goods inventory
was?
A) $22,000
B) $9,000
C) $42,000
D) $1,000
Answer: D