Chapter 1, Problem 16E

To determine

Overhead:

Overheads are the cost and the expenses a company incurs of the production of a particular goods or services which are not directly related to the production. It does not include labor and direct material.

Direct Material Cost:

Direct material cost is the cost that a company incurs while manufacturing a certain product or service. It includes all the cost and expenses that are directly associated with the production such as raw materials.

Direct Labor Cost:

Direct labor cost is the cost that a company incurs in giving wages to the people that are directly associated with the production work.

To compute: The amount of cost.

Explanation of Solution

Given,
Raw material purchases are $532,000.
Beginning raw materials inventory are $145,500.

Formula to calculate raw materials available for use,

$\text{Raw}\text{materials}\text{available}\text{for}\text{use}=\left(\begin{array}{l}\text{Raw}\text{material}\text{purchases}\\ +\text{Beginning raw materials inventory}\end{array}\right)$

Substitute $532,000 for raw materials inventory and $145,500 for beginning raw materials inventory.

$\begin{array}{c}\text{Raw}\text{materials}\text{available}\text{for}\text{use}=\$532,000+\$145,500\\ =\$677,500\end{array}$

Hence, the raw material available for use is $677,500.

Given,
Ending raw materials inventory is $175,000.

Formula to calculate direct materials used,

$\text{Direct}\text{materials}\text{used}=\left(\begin{array}{l}\text{Raw}\text{materials}\text{available}\text{for}\text{use}\\ -\text{Ending raw materials inventory}\end{array}\right)$

Substitute $677,500 for raw materials available for use and $175,000 for ending raw materials inventory.

$\begin{array}{c}\text{Direct}\text{materials}\text{used}=\$677,500-\$175,000\\ =\$502,500\end{array}$

Hence, the direct materials used are $502,500.

Given,
Direct labor used in production is $350,000.
Factory overhead is $750,000.
Beginning work in process inventory is $84,500.

Formula to calculate work in process inventory,

$\text{Work}\text{in}\text{process}=\left(\begin{array}{l}\text{Direct materials used}+\text{Direct labor used in production}\\ +\text{Factory overhead}+\text{Beginning work in process inventory}\end{array}\right)$

Substitute $502,500 for direct materials used $350,000 for direct labor used in production, $750,000 for Factory overhead and $84,500 for beginning work in process inventory.

$\begin{array}{c}\text{Work}\text{in}\text{process}=\$502,500+\$350,000+\$750,000+\$84,500\\ =\$1,687,000\end{array}$

Hence, the work in process is $1,687,000.

Given,
Finished goods manufactured are $1,593,500.

Formula to calculate ending work in process inventory,

$\text{Ending}\text{work}\text{in}\text{process}\text{inventory}=\text{Work}\text{in}\text{process}-\text{Finished}\text{goods}$

Substitute $1,687,000 for work in process and $1,593,500 for finished goods.

$\begin{array}{c}\text{Ending}\text{work}\text{in}\text{process}\text{inventory}=\$1,687,000-\$1,593,500\\ =\$93,500\end{array}$

Hence, the ending work in process inventory is $93,500.

Given,
Finished goods available for sale are $1,740,250.
Finished goods manufactured are 1,593,500.

Formula to calculate beginning finished goods inventory,

$\text{Beginning finished goods inventory}=\left(\begin{array}{l}\text{Finished goods available for sale}\\ -\text{Finished goods manufactured}\end{array}\right)$

Substitute $1,740,250 for finished goods available for sale and $1,593,500 for finished goods manufactured.

$\begin{array}{c}\text{Beginning finished goods inventory}=\$1,740,250-\$1,593,500\\ =\$146,750\end{array}$

Hence, the beginning finished goods inventory is $146,750.

Given,
Finished goods available for sale are $1,740,250
Ending finished goods inventory is $139,950.

Formula to calculate finished goods sold,

$\text{Finished}\text{goods}\text{sold}=\left(\begin{array}{l}\text{Finished goods available for sale}\\ -\text{Ending finished goods inventory}\end{array}\right)$

Substitute $1,740,250 for finished goods available for sale and $139,950 for ending finished goods inventory.

$\begin{array}{c}\text{Finished}\text{goods}\text{sold}=\$1,740,250-\$139,950\\ =\$1,600,300\end{array}$

Hence, the finished goods sold is $1,600,300.