The following beginning and ending inventory balances apply to XYZ’s 2009 accoun

Question

The following beginning and ending inventory balances apply to XYZ’s 2009 accounting period:

Numbers are shown as Beginning, Ending
Raw Materials Inventory $24,000, $22,000
Work in Process Inventory $32,000, $33,000
Finished Goods Inventory $20,000, $17,000

During 2009, the company purchased $234,000 of direct raw materials. It incurred $180,000 of direct labor costs for the year and allocated $260,000 of manufacturing overhead costs to work in process. There was no overapplied or underapplied overhead. Revenue from goods sold during the year was $800,000.

The amount of cost of goods manufactured (amount transferred from WIP to Finished Goods) was what?

Explanation / Answer

Cost of goods manufactured can be determined by using the following formula:

                       Begining                     Total                          Total

                works in process    +    manufacturing     =            cost of          

                       inventory                   costs                        works in progress

    Total cost of       _     Ending works in process      =             Cost of goods

     works in process             invenory                                     manufadtured

The sum of the direct material costs,direct labor costs,and manufacturing overhead incurred in the current year can be called as the total manufacturing cost.

We now have two cost amounts: (1) The cost of begining works in process

                                                   (2) The total manufacturing cost for the current period

                                                     The sum of these two costs is the total works in process .

    To find the cost of goods manufactured we have to deduct ending works in process from total works in process. This is the procedure that we have to folow to determine the total cost of goods manufactured.

                                               For the year 2009

The amount of cost of goods manufactured for the accounting period 2009 is $ 675,000.

                                       XYZ MANUFACTURING COMPANY                                    Cost of goods manufactured schedule

                                               For the year 2009

Opening works in process $32,000 Direct materials Opening raw material $24,000 Raw material purchases 234,000 Total raw material available for use 258,000 Les: closing raw material inventory 22,000 Direct material used 236,000 Direct labor: 180,000 Manufacturing overheads 260,000 Total manufacturing costs 676,000 Total cost of works in process 708,000 Less: Ending works in process 33,000 Cost of goods manufactured $675,000

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