Chapter 1, Problem 4PA

Manufacturing income statement, statement of cost of goods manufactured

Several items are omitted from the income statement and cost of goods manufactured statement data for two different companies for the month of May:

Instructions

1. 1. For both companies, determine the amounts of the missing items (a) through (f), identifying them by letter.
2. 2. Prepare Yakima Company’s statement of cost of goods manufactured for May.
3. 3. Prepare Yakima Company’s income statement for May.

To determine

Ascertain the amounts of the missing items, identifying them by letter.

Answer to Problem 4PA

Determine the amounts of the missing items.

Particulars	Company R	Company Y
Materials inventory, May 1	$ 100,000	$ 48,200
Materials inventory, May 31	(a) 111,500	50,000
Materials purchased	950,000	710,000
Cost of direct materials used in production	938,500	(a) 708,200
Direct labor	2,860,000	(b) 1,330,000
Factory overhead	1,800,000	446,000
Total manufacturing costs incurred during May	(b) 5,598,500	2,484,200
Total manufacturing costs	5,998,500	2,660,600
Work in process inventory, May 1	400,000	176,400
Work in process inventory, May 31	382,000	(c) 169,100
Cost of goods manufactured	(c) 5,616,500	2,491,500
Finished goods inventory, May 1	615,000	190,000
Finished goods inventory, May 31	596,500	(d) 211,500
Sales	9,220,000	4,550,000
Cost of goods sold	(d) 5,635,000	2,470,000
Gross profit	(e) 3,585,000	(e) 2,080,000
Operating expenses	1,000,000	(f) 580,000
Net income	(f) 2,585,000	1,500,000

Table (1)

Explanation of Solution

Cost of goods manufactured: Cost of goods manufactured refers to the costs incurred for manufacturing the goods during the period. A statement of cost of goods manufactured is prepared in order to determine the cost of goods manufactured, which in turn is used to determine the cost of goods sold, and prepare the income statement.

Income statement: The income statement is a financial statement that shows the net income earned or net loss suffered by a company through reporting all the revenues earned, and expenses incurred by the company over a specific period of time. An income statement is also known as an operation statement, an earning statement, a revenue statement, or a profit and loss statement. The net income is the excess of revenue over expenses.

Working notes:

1. 1.      Determine the amount (a) in Company R.

  $\begin{array}{c}\text{Materials inventory, May 31}\text{= }\left[\begin{array}{l}\text{Materials inventory, May 1+Materials}\\ \text{purchased}-\text{Cost of direct}\\ \text{materials used in production }\end{array}\right]\\ =\$100,000+\$950,000-\$938,500\\ =\$111,500\end{array}$ (a)

1. 2.      Determine the amount (a) in Company Y.

   $\begin{array}{c}\left(\begin{array}{l}\text{Cost of direct materials}\\ \text{used in production}\end{array}\right)\text{= }\left(\begin{array}{l}\text{Materials inventory, May 1+Materials}\\ \text{purchased}-\text{Materials inventory, May 31}\end{array}\right)\\ =\$48,200+\$710,000-\$50,000\\ =\$708,200\end{array}$ (a)

2. 3.      Determine the amount (b) in Company Y.

  $\begin{array}{c}\text{Direct labor=}\left(\begin{array}{l}\text{Total manufacturing costs incurred during May}-\\ \text{Cost of mterials used in production}-\text{Factory overhead}\end{array}\right)\\ =\$2,484,200-\$708,200-\$446,000\\ =\$1,330,000\\ \end{array}$ (b)

1. 4.      Determine the amount (b) in Company R.

   $\begin{array}{c}\left(\begin{array}{l}\text{Total manufacturing costs}\\ \text{incurred during May}\end{array}\right)\text{= }\left(\begin{array}{l}\text{Cost of direct materials used in production}\\ \text{+Direct labor+Factory overhead}\end{array}\right)\\ \text{=}\left(\text{\$938,500+\$2,860,000+\$1,800,000}\right)\\ =\$5,598,500\end{array}$ (b)

2. 5.      Determine the amount (c) in Company Y.

   $\begin{array}{c}\text{Work in progress, May 31}\text{= }\left[\begin{array}{l}\text{Total manufacturing costs}-\text{Cost of }\\ \text{goods manufactured}\end{array}\right]\\ =\$2,660,600-\$2,491,500\\ =\$169,100\end{array}$ (c)

3. 6.      Determine the amount (c) in Company R.

  $\begin{array}{c}\text{Cost of goods manufactured}\text{= }\left[\begin{array}{l}\text{Total manufacturing costs+}\\ \text{Work in process, May1}-\\ \text{Work in progress May 31}\end{array}\right]\\ =\left[\begin{array}{c}\$5,598,500+\$400,000\\ -\$382,000\end{array}\right]\\ =\$5,616,500\end{array}$ (c)

1. 7.      Determine the amount (d) in Company Y.

  $\begin{array}{c}\text{Finished goods inventory, May 31}\text{= }\left[\begin{array}{l}\text{Cost of goods manufactured+Finished}\\ \text{goods inventory, May 1}-\text{Cost of }\\ \text{goods sold }\end{array}\right]\\ =\left[\$2,491,500+\$190,000-\$2,470,00\right]\\ =\$211,500\end{array}$ (d)

1. 8.      Determine the amount (d) in Company R.

   $\begin{array}{c}\left(\text{Cost of goods sold}\right)\text{= }\left(\begin{array}{l}\text{Finished goods inventory, May 1+Cost of goods}\\ \text{manufactured}-\text{Finished goods}\\ \text{ inventory, May 31}\end{array}\right)\\ =\left(\$615,000+\$5,616,500-\$596,500\right)\\ =\$5,635,000\end{array}$ (d)

2. 9.      Determine the amount (e) in Company R.

  $\begin{array}{c}\text{Gross Profit=}\left(\text{Sales}-\text{Cost of goods sold}\right)\\ =\left(\$9,220,000-\$5,635,000\right)\\ =\$3,585,000\\ \end{array}$ (e)

1. 10.  Determine the amount (e) in Company Y.

   $\begin{array}{c}\text{Gross Profit=}\left(\text{Sales}-\text{Cost of goods sold}\right)\\ =\left(\$4,550,000-\$2,470,000\right)\\ =\$2,080,000\\ \end{array}$ (e)

2. 11.  Determine the amount (f) in Company Y.

   $\begin{array}{c}\text{Operating expenses}\text{= }\left[\text{Gross profit}-\text{Net income}\right]\\ =\left[\$2,080,000-\$1,500,000\right]\\ =\$580,000\end{array}$ (f)

3. 12.  Determine the amount (f) in Company R.

  $\begin{array}{c}\text{Net income}\text{= }\left[\text{Gross profit}-\text{Operating expenses}\right]\\ =\left[\$3,585,000-\$1,000,000\right]\\ =\$2,585,000\end{array}$ (f)

To determine

Prepare Company Y’s statement of cost of goods manufactured for May.

Explanation of Solution

Prepare Company Y’s statement of cost of goods manufactured for May.

Company Y
Statement of Cost of Goods Manufactured
For the month ended May 31
Particulars	$	$	$
Work in process inventory, May 1     (1)			$ 176,400
Direct materials:
Materials inventory, May 1	$ 48,200
Purchases	710,000
Cost of materials available for use	$758,200
Less: Materials inventory, May 31	50,000
Cost of direct materials used		$708,200
Direct labor		1,330,000
Factory overhead		446,000
Total manufacturing costs incurred     (2)			2,484,200
Total manufacturing costs   (3) = (1) + (2)			$2,660,600
Less: Work in process inventory, May 31			169,100
Cost of goods manufactured			$2,491,500

Table (2)

Conclusion

The cost of goods manufactured of Company Y for May is $2,491,500.

To determine

Prepare Company Y’s income statement for May.

Explanation of Solution

Prepare Company Y’s income statement for May.

Company Y
Income Statement
For the month ended May 31
Sales		$4,550,000
Cost of goods sold:
Finished goods inventory, May 1	$190,000
Cost of goods manufactured	2,491,500
Cost of finished goods available for sale	$2,681,500
Less: Finished goods inventory, May 31	211,500
Cost of goods sold		2,470,000
Gross Profit		$2,080,000
Less: Operating expenses		580,000
Net Income		$1,500,000

Table (3)

Conclusion

Hence, the net income of Company Y for the month of May is $1,500,000.