A company sells goods for $150,000 that cost $60,000 to manufacture. Which state

Question

A company sells goods for $150,000 that cost $60,000 to manufacture. Which statement(s) are true?

Select one:

a. The company will recognize sales on the balance sheet of $150,000.

b. The company will recognize $90,000 gross profit on the balance sheet.

c. The company will decrease finished goods by $60,000.

d. All of these are true.

A company used $35,000 of direct materials, incurred $73,000 in direct labor cost, and $114,000 in factory overhead costs during the period. If beginning and ending work in process inventories were $28,000 and $32,000 respectively, the cost of goods manufactured was:

Select one:

a. $218,000

b. $226,000

c. $190,000

d. $222,000

Explanation / Answer

1.

Correct Ans: c. The company will decrease finished goods by $60,000.

Justification for incorrect options: option a and option b are wrong, since both sales and gross profit will be recognized and reported on the income statement, but not on the balance sheet.

2.

Cost of goods manufatured = Direct material+ Labor cost+Factory overhead cost +(Beginning WIP inventory-Ending WIP inventory)

= $35,000+$73,000+$114,000+($28,000-$32,000)

= $218,000

Hence, the correct ans is option a. $218,000

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