Question

The following selected account balances are provided for Delray Mfg.

Answer 1

Answer:

                  DELRAY MFG.  

               Income Statement  

For the year ended December 31, 2017  

 

Sales                           $1,250,000

Cost of goods sold       623,840

Gross profit                        626,160

General and

Administrative expenses       129,300

Net Income                    $496,860

 

              DELRAY MFG.  

Statement of Cost of Goods Sold  

For the year December 31, 2017  

 

Raw Material  

Raw material, beginning     $37,000

Add: Purchases                      175,600

Raw materials available    $212,600

Less: Raw material, end        42,700

Cost of raw material used      169,900

Add: Direct labor                     225,000

Prime Cost                             394,900

Add: Manufacturing overhead       221,090

Manufacturing cost              615,990

Add: Work in process, beginning    53,900

Less: Work in process, Ending       41,500

Cost of Goods Manufactured    628,390

Add: Finished goods, beginning      62,750

Cost of goods available for sale     691,140

Less: Finished goods, ending         67,300

Cost of goods sold         $623,840

Explanation:

Income statement is computed by deducting cost of goods sold from the sales of the period to get the gross profit, then deduct the general and administrative expenses to get the net income for the period.

To compute cost of goods sold it started from the raw materials beginning inventory then add the purchases of the raw materials including the handling cost to get the raw materials available. Then deduct the raw materials end to get the cost of raw material used for the period. Add direct labor to get the prime cost and then add manufacturing overhead to the prime cost to get the manufacturing cost. Lastly, add work in process beginning and deduct the work in process end to get the cost of goods manufactured then add the finished goods beginning to get the cost of goods available for sale. And from there we deduct the finished goods ending inventory to get the cost of goods sold for the period.