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 Maroon Corporation for the just-completed year. Sales 1,700 Raw materials inventory, beginning 50 Raw materials inventory, ending 25 Purchases of raw materials 210 Direct labor 360 Manufacturing overhead 330 Administrative expenses 400 Selling expenses 200 Work-in-process inventory, beginning 120 Work-in-process inventory, ending 150 Finished goods inventory, beginning 80 Finished goods inventory, ending 120 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

Statement of Cost of Goods Manufactured   Particulars Amount Opening Raw Material $                       50.00 Add- Purchases $                     210.00 Less- closing raw material $                     (25.00) Add- Direct labour $                     360.00 Manufacturing overhead $                     330.00 Opening work in progress $                     120.00 Less- Closing work in progress $                   (150.00) Cost of Goods Manufactured $                     895.00 Statement of Cost of Goods Sold Particulars Amount Opening Finished goods $                       80.00 Add- Cos of goods manufactured $                     895.00 Add- Selling expenses $                     200.00 Cost of goods available for sale $                 1,175.00 Less- Closing finished goods $                   (120.00) Cost of Goods Sold $                 1,055.00 Impact on financial statement if ending finished goods inventory overstated or understated for say 100 dollar Particulars overstated impact Understated impact Sales $                 1,700.00 $                     1,700.00 Existing cost of goods sold $                 1,055.00 $                     1,055.00 Existing profitability $                     645.00 $                        645.00 New cost of goods sold after overstated and understated closing finished goods impact of 100 dollar $                     955.00 $                     1,155.00 Ner profitability $                     745.00 $                        545.00 So closing stock overstatement means increase in profit and understatement means decrease in profit

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