Problem 21 Lo 2 Cost Of Goods Manufactured And Sold

Problem21lo2cost Of Goods Manufactured Cost Of Goods Sold And I

Problem 2.1 ( LO2 ) Cost of Goods Manufactured, Cost of Goods Sold, and Income The following information is available for Satterfield’s Custom Glass for the fiscal year ending December 31, 2020: Beginning balance in Work in Process Inventory $210,000 Ending balance in Work in Process Inventory 300,000 Beginning balance in Finished Goods Inventory 500,000 Ending balance in Finished Goods Inventory 400,000 Direct material cost 2,500,000 Direct labor cost 3,000,000 Manufacturing overhead 1,700,000 Selling and administrative expenses 1,350,000 Sales 8,500,000. Required 1. Prepare a schedule of cost of goods manufactured. 2. Prepare an income statement for fiscal 2020. Ignore income taxes.

Paper For Above instruction

The task involves calculating the Cost of Goods Manufactured (COGM), Cost of Goods Sold (COGS), and preparing an income statement for Satterfield’s Custom Glass for the fiscal year ending December 31, 2020. Using the provided data, I will systematically proceed through each requirement, starting with the computation of COGM and then deriving the income statement.

Part 1: Schedule of Cost of Goods Manufactured

The Schedule of Cost of Goods Manufactured consolidates all manufacturing costs incurred during the period and adjusts for changes in work-in-process inventory. The relevant formula is:

  • Direct Materials Used = Beginning Raw Materials + Purchases - Ending Raw Materials (here, raw materials purchases are not explicitly provided, so we assume direct material costs represent raw materials used)
  • Manufacturing Costs Incurred = Direct Materials Used + Direct Labor + Manufacturing Overhead
  • Cost of Goods Manufactured = Manufacturing Costs Incurred + Beginning Work in Process Inventory - Ending Work in Process Inventory

From the provided data:

  • Direct Materials Used = $2,500,000
  • Direct Labor = $3,000,000
  • Manufacturing Overhead = $1,700,000
  • Beginning Work in Process Inventory = $210,000
  • Ending Work in Process Inventory = $300,000

Calculations:

Manufacturing Costs Incurred = $2,500,000 + $3,000,000 + $1,700,000 = $7,200,000

Cost of Goods Manufactured (COGM) = $7,200,000 + $210,000 - $300,000 = $7,120,000

Part 2: Income Statement for Fiscal 2020

The income statement components include sales, cost of goods sold, gross profit, selling and administrative expenses, and net income. To find COGS, we use:

Beginning Finished Goods Inventory + COGM - Ending Finished Goods Inventory = COGS

Given Data:

  • Beginning Finished Goods Inventory = $500,000
  • Ending Finished Goods Inventory = $400,000
  • COGM = $7,120,000 (calculated above)

Calculations:

COGS = $500,000 + $7,120,000 - $400,000 = $7,220,000

Gross Profit = Sales - COGS = $8,500,000 - $7,220,000 = $1,280,000

Operating Expenses (Selling & Administrative Expenses) = $1,350,000

Net Income = Gross Profit - Operating Expenses = $1,280,000 - $1,350,000 = -$70,000

Thus, Satterfield’s incurred a net loss of $70,000 for fiscal 2020.

Final Remarks

This analysis demonstrates how manufacturing and operating costs influence the financial outcomes of a manufacturing company. Notably, despite robust sales, high operating expenses and production costs led to a net loss. Such insights inform managerial decisions regarding cost control, pricing strategies, and operational efficiency.

References

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  • Harrison, W. T., & Horngren, C. T. (2020). Financial & Managerial Accounting (17th ed.). Pearson.
  • Drury, C. (2018). Management and Cost Accounting (10th ed.). Cengage Learning.
  • Atrill, P., & McLaney, E. (2019). Accounting and Finance for Non-Specialists. Pearson.
  • Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2019). Financial Accounting Theory and Analysis. Wiley.
  • Kaplan, R. S., & Atkinson, A. A. (2019). Advanced Management Accounting. Pearson.
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