The following data (in thousands of dollars) have been taken from the accounting

Question

The following data (in thousands of dollars) have been taken from the accounting records of the Aladdin Corporation for the just-completed year. Sales 1,300 Raw materials inventory, beginning 25 Raw materials inventory, ending 30 Purchases of raw materials 250 Direct labor 350 Manufacturing overhead 500 Administrative expenses 300 Selling expenses 250 Work in process inventory, beginning 150 Work in process inventory, ending 100 Finished goods inventory, beginning 80 Finished goods inventory, ending 110 Use the above data to prepare (in thousands of dollars) a schedule of Cost of Goods Manufactured and a Schedule of Cost of Goods Sold for the year. In addition, what is the impact on the financial statements if the ending finished goods inventory is overstated or understated?

Explanation / Answer

If finished goods is overstated, it will show lesser profits for the reporting period and if it is understated, it will show higher profits for the same period however it will have reverse impact in the next year as it will be opening finished goods for the next reporting period.

From Balance Sheet point of view, finished goods overstated is showing higher value of inventory while the sales recognition will be much less. Finished goods should be valued in line with the realisation.

Schedule of cost of goods manufactured $ in '000 and Schedule of cost of goods sold Direct materials: Materials inventory beginning $25 Purchase $250 Cost of materials available for use $245 Less materials inventory closing $30 Cost of direct materials used $245 Direct Labor $350 Manufacturing Overheads $500 Add Opening Work in Process $150 Less Closing work in Process $100 Total manufacturing costs $50 Cost of goods manufactured $1,145 Administrative expenses $300 Selling expenses $250 Add Opening Finished goods $80 Less Closing Finished goods $110 Cost of Goods sold $1,665

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