Concept explainers
Prepare the cost of goods sold budget for Incorporation P.

Explanation of Solution
Budgeting is a process to prepare the financial statement by the manager to estimate the organization’s future actions. It is also helpful to satisfy the everyday activities.
Cost of goods sold indicates the costs involved for the inventory sold by the business in a specific period of time. Its mathematical representation is as below:
Prepare the cost of goods sold budget.
Incorporation P | |||
Cost of Goods Sold Budget | |||
For the Month Ending December 31 | |||
Particulars |
Amount ($) |
Amount ($) |
Amount ($) |
Finished goods inventory, January 1 | 200,000 | ||
Work in process inventory, January 1 | 41,250 | ||
Direct materials: | |||
Direct materials inventory, January 1 | 19,840 | ||
Direct materials purchases (2) | 604,035 | ||
Cost of direct materials available for use | 23,875 | ||
Direct materials inventory, January 31 | -15,500 | ||
Cost of direct materials placed in production | 608,375 | ||
Direct labor (4) | 1,413,000 | ||
Factory | 300,000 | ||
Total | 2,321,375 | ||
Total work in process during period | 2,362,625 | ||
Work in process inventory, January 31 | -28,500 | ||
Cost of goods manufactured | 2,334,125 | ||
Cost of finished goods available for sale | 2,534,125 | ||
Finished goods inventory, January 31 | -120,000 | ||
Cost of goods sold | 2,414,125 |
Table (1)
Working note (1):
Calculate the pounds of wax required for production.
Budgeted production of candles = 785,000
Estimated inventory of wax = 16 ounces
Wax are required for each candle = 10ounces
Note: 1 ounce = 10,000 pounds
Working note (2):
Calculate cost of direct material to be purchased in January.
P Incorporation Direct Materials Purchases Budget For the year ending January 31 | |
Particulars | In pounds |
Pounds required for production | |
Candles (1) | 490,625 |
Add: Desired ending inventory, January 31 | 12,500 |
Total units available | 503,125 |
Less: Estimated beginning inventory, January 1 | (16,000) |
Total Pounds To Be Purchased (A) | 487,125 |
Unit price per pound (B) | $1.24 |
Total Direct Materials To Be Purchased in January | $604,035 |
Table (2)
Working note (3):
Calculate the minutes required for molding each candle.
Budgeted production of candles = 785,000
Minutes required for molding each candle = 6 minutes
Working note (4):
Calculate the direct labor cost.
P Incorporation Direct Labor Cost Budget For the year ending January 31 | |
Particulars | |
Hours required for assembly: | |
Candles (in minutes) (3) (A) | 4,710,000 minutes |
Convert minutes to hours (B) | 60 minutes |
Molding Hours | 78,500 hours |
Hourly rate (D) | $18 |
Total direct labor cost | $1,413,000 |
Table (3)
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