The MNO Company manufactures pencils. Last year, direct materials costing $800,0
ID: 2582129 • Letter: T
Question
The MNO Company manufactures pencils. Last year, direct materials costing $800,000 were put into production. Direct labor of $400,000 was incurred and overhead equaled $1,000,000. The company had operating income for the year of $100,000 and manufactured and sold 4,000,000 pencils at a sales price of $0.70 per unit. Assume that there were no beginning or ending inventory balances in the work in process and finished goods inventory accounts.
Required:
A. Compute the selling and administrative expenses for the year
B. Assume production amounted to 4,000,000 pencils and 3,800,000 were sold. Compute cost of goods sold.
C. Assume production amounted to 4,000,000 pencils and 3,800,000 were sold. Compute the balance in ending finished goods inventory.
Explanation / Answer
A) SELLING AND ADMINISTRATIVE EXPENSES:
Sales (4,000,000*$0.70) : $2,800,000
LESS: Cost of Goods Sold:
Material : ($800,000)
Labor : ($400,000)
Overheads : ($1,000,000)
Gross Profit : $600,000
Less: Operating Income : ($100,000)
Selling and Administrative Expenses : $500,000
B) COST OF GOODS SOLD: When Production is 4,000,000 and sales are 3,800,000
We should take Material, Labor and Overhead Costs proportionately for 3,800,000 Pencils
Materials : (800,000/4000000)*3800000 = $760,000
Labor : (400000/4000000)*3800000 =$380,000
Overheads:(1000000/4000000)*3800000 =$950,000
Cost of Goods Sold = $2,090,000
C) BALANCE IN ENDING FINISHED GOODS INVENTORY:
We should take Material, Labor and Overhead Costs proportionately for 200,000 balance Pencils
Materials : (800,000/4000000)*200000 = $40,000
Labor : (400000/4000000)*200000 =$20,000
Overheads:(1000000/4000000)*200000 =$50,000
Finished Goods Inventory = $110,000
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