Chapter 1, Problem 4PB

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

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 December.
3. 3. Prepare Yakima Company’s income statement for December.

To determine

Calculate the amounts of the missing items (a) through (f).

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.

Calculate the amounts of the missing items (a) through (f) as follows:

Particulars	Company On	Company Off
Materials inventory, December 1	$ 65,800	$ 195,300
Materials inventory, December 31	(a) 30,800	91,140
Materials purchased	282,800	(a) 581,560
Cost of direct materials used in production	317,800	(b) 685,720
Direct labor	387,800	577,220
Factory overhead	148,400	256,060
Total manufacturing costs incurred during December	(b) 854,000	1,519,000
Total manufacturing costs	973,000	1,727,320
Work in process inventory, December 1	119,000	208,320
Work in process inventory, December 31	172,200	(c) 195,300
Cost of goods manufactured	(c) 800,800	1,532,020
Finished goods inventory, December 1	224,000	269,080
Finished goods inventory, December 31	197,400	(d) 256,060
Sales	1,127,000	1,944,320
Cost of goods sold	(d) 827,400	1,545,040
Gross profit	(e) 299,600	(e) 399,280
Operating expenses	117,600	(f) 234,360
Net income	(f) 182,000	164,920

Table (1)

Working note (a):

Determine the amount of material inventory for Company On.

$\begin{array}{c}\text{Materials inventory, December 31}\text{= }\left[\begin{array}{l}\text{Materials inventory, December 1+}\\ \text{Materials purchased}-\\ \text{Cost of direct materials used in production }\end{array}\right]\\ =\$282,800+\$65,800-\$317,800\\ =\$30,800\end{array}$

Determine the amount of materials purchased for Company Off.

$\begin{array}{c}\begin{array}{l}\text{Cost of direct materials}\\ \text{ used in production}\end{array}\}\text{= }\left(\begin{array}{l}\text{Materials inventory, December 1+}\\ \text{Materials purchased}-\\ \text{Materials inventory, December 31}\end{array}\right)\\ =\$685,720+\$91,140-\$195,300\\ =\$581,560\end{array}$

Working note (b):

Determine the amount of total manufacturing cost incurred in December for Company On.

$\begin{array}{c}\begin{array}{l}\text{Total manufacturing costs}\\ \text{incurred during December}\end{array}\}\text{= }\left(\begin{array}{l}\text{Cost of direct materials }\\ \text{used in production+Direct labor+}\\ \text{Factory overhead}\end{array}\right)\\ \text{=}\left(\text{\$317,800+\$387,800+\$148,400}\right)\\ =\$854,000\end{array}$

Determine the cost of direct materials used in production for Company Off.

$\begin{array}{c}\begin{array}{l}\text{Cost of direct materials }\\ \text{used in production}\end{array}\}\text{= }\left(\begin{array}{l}\text{Total manufacturing costs in }\\ \text{December}-\text{Direct labor}-\\ \text{Factory overhead}\end{array}\right)\\ \text{=}\left(\text{\$1,519,000}-\text{\$577,220}-\text{\$256,060}\right)\\ =\$685,720\end{array}$

Working note (c):

Determine the amount of work in process at the end of the December for Company Off.

$\begin{array}{c}\text{Work in progress, December 31}\text{= }\left[\begin{array}{l}\text{Total manufacturing costs}-\\ \text{Cost of goods manufactured}\end{array}\right]\\ =\$1,727,320-\$1,532,020\\ =\$195,300\end{array}$

Determine the cost of goods manufactured for Company On.

$\begin{array}{c}\text{Cost of goods manufactured}\text{= }\left[\begin{array}{l}\text{Total manufacturing costs incurred+}\\ \text{Work in process, December 1}-\\ \text{Work in progress December 31}\end{array}\right]\\ =\left[\begin{array}{c}\$854,000+\$119,000\\ -\$172,200\end{array}\right]\\ =\$800,800\end{array}$

Working note (d):

Determine the amount of finished goods inventory for December 31 for Company Off.

$\begin{array}{c}\begin{array}{l}\text{Finished goods inventory,}\\ \text{ December 31}\end{array}\}\text{= }\left[\begin{array}{l}\text{Cost of goods manufactured + }\\ \text{Finished goods inventory, December 1}-\\ \text{Cost of goods sold }\end{array}\right]\\ =\left[\$1,532,020+\$269,080-\$1,545,040\right]\\ =\$256,060\end{array}$

Determine the cost of goods sold for Company On.

$\begin{array}{c}\text{Cost of goods sold}\text{= }\left(\begin{array}{l}\text{Finished goods inventory, December 1+}\\ \text{Cost of goods manufactured}-\\ \text{Finished goods inventory, December 31}\end{array}\right)\\ =\left(\$224,000+\$800,800-\$197,400\right)\\ =\$827,400\end{array}$

Working note (e):

Determine the amount of gross profit for Company On.

$\begin{array}{c}\text{Gross Profit=}\left(\text{Sales}-\text{Cost of goods sold}\right)\\ =\left(\$1,127,000-\$827,400\right)\\ =\$299,600\\ \end{array}$

Determine the amount of gross profit for Company Off.

$\begin{array}{c}\text{Gross Profit=}\left(\text{Sales}-\text{Cost of goods sold}\right)\\ =\left(\$1,944,320-\$1,545,040\right)\\ =\$399,280\\ \end{array}$

Working note (f):

Determine the amount of operating expense for Company Off.

$\begin{array}{c}\text{Operating expenses}\text{= }\left[\text{Gross profit}-\text{Net income}\right]\\ =\left[\$399,280-\$164,920\right]\\ =\$234,360\end{array}$

Determine the amount of net income for Company On.

$\begin{array}{c}\text{Net income}\text{= }\left[\text{Gross profit}-\text{Operating expenses}\right]\\ =\left[\$299,600-\$117,600\right]\\ =\$182,000\end{array}$

To determine

Prepare Company On’s statement of cost of goods manufactured for December.

Explanation of Solution

Prepare Company On’s statement of cost of goods manufactured for December.

Company On
Statement of Cost of Goods Manufactured
For the month ended December 31
Particulars	$	$	$
Work in process inventory, December 1 (A)			$ 119,000
Direct materials:
Materials inventory, December 1	$ 65,800
Purchases	282,800
Cost of materials available for use	$348,600
Less: Materials inventory, December 31	30,800
Cost of direct materials used		$317,800
Direct labor		387,800
Factory overhead		148,400
Total manufacturing costs incurred (B)			854,000
Total manufacturing costs  $\left(\text{A+B}\right)$			$973,000
Less: Work in process inventory, December 31			172,200
Cost of goods manufactured			$800,800

Table (2)

Conclusion

Therefore, the cost of goods manufactured of Company On for December is $800,800.

To determine

Prepare Company On’s income statement for December.

Explanation of Solution

Prepare Company On’s income statement for December.

Company On
Income Statement
For the month ended December 31
Sales		$1,127,000
Cost of goods sold:
Finished goods inventory, December 1	$224,000
Cost of goods manufactured	800,800
Cost of finished goods available for sale	$1,024,800
Less: Finished goods inventory, December 31	197,400
Cost of goods sold		827,400
Gross Profit		$299,600
Less: Operating expenses		117,600
Net Income		$182,000

Table (3)

Conclusion

Hence, the net income of Company On for the month of December is $182,000.