Chapter 1 Problem 2-7
Problem 2-7
Masay Company
Statement of Cost of Goods Manufactured
Year Ended December 31, 2008
Raw materials – January 1 200,000
Purchases 3,000,000
Raw materials available for use 3,200,000
Less: Raw materials – December 31 280,000
Raw materials used 2,920,000
Direct labor 950,000
Factory overhead:
Indirect labor 250,000
Superintendence 210,000
Light, heat and power 320,000
Rent – factory building 120,000
Repair and maintenance – machinery 50,000
Factory supplies used 110,000
Depreciation – machinery 60,000 1,120,000
Total manufacturing cost 4,990,000
Goods in process – January 1 240,000
Total Cost of goods in process 5,230,000
Less: Goods in process – December 31 170,000
Cost of goods manufactured 5,060,000
Cost of sales method
Masay Company
Income Statement
Year ended December 31, 2008
Note
Net sales revenue (1) 7,450,000
Cost of goods sold (2) (5,120,000)
Gross income 2,330,000
Other income (3) 210,000
Total income 2,540,000
Expenses:
Selling expenses (4) 830,000
Administrative expenses (5) 590,000
Other expense (6) 300,000 1,720,000
Income before tax 820,000
Income tax expense ( 320,000)
Net income 500,000
18
Note 1 – Net sales revenue
Sales 7,500,000
Sales returns and allowances ( 50,000)
Net sales revenue 7,450,000
Note 2 – Cost of goods sold
Finished goods – January 1 360,000
Cost of goods manufactured 5,060,000
Goods available for sale 5,420,000
Finished goods – December 31 ( 300,000)
Cost of goods sold 5,120,000
Note 3 – Other income
Gain from expropriation 100,000
Interest income 10,000
Gain on sale of equipment 100,000
210,000
Note 4 – Selling expenses
Sales salaries 400,000
Advertising 160,000
Depreciation – store equipment 70,000
Delivery expenses 200,000
Total 830,000
Note 5 – Administrative expenses
Office salaries 150,000
Depreciation – office equipment 40,000
Accounting and legal fees 150,000
Office expenses 250,000
Total 590,000
Note 6 – Other expense
Earthquake loss 300,000
19
Nature of expense method
Masay Company
Income Statement
Year Ended December 31, 2008
Note
Net sales revenue (1) 7,450,000
Other income (2) 210,000
Total income 7,660,000
Expenses:
Decrease in finished goods
and goods in process (3) 130,000
Raw materials used (4) 2,920,000
Direct labor 950,000
Factory overhead (5) 1,120,000
Salaries (6) 550,000
Advertising 160,000
Depreciation (7) 110,000
Delivery expenses 200,000
Accounting and legal fees 150,000
Office expenses 250,000
Other expense (8) 300,000 6,840,000
Income before tax 820,000
Income tax expense ( _320,000)
Net income 500,000
Note 1 – Net sales revenue
Sales 7,500,000
Sales returns and allowances ( 50,000)
Net sales revenue 7,450,000
Note 2 – Other income
Gain from expropriation 100,000
Interest income 10,000
Gain on sale of equipment 100,000
210,000
Note 3 – Decrease in finished goods and goods in process
January 1 December 31 Decrease
Finished goods 360,000 300,000 60,000
Goods in process 240,000 170,000 70,000
Total 600,000 470,000 130,000
20
Note 4 – Raw materials used
Raw materials – January 1 200,000
Purchases 3,000,000
Raw materials available for use 3,200,000
Raw materials – December 31 280,000
Raw materials used 2,920,000
Note 5 – Factory overhead
Indirect labor 250,000
Superintendence 210,000
Light, heat and power 320,000
Rent – factory building 120,000
Repair and maintenance – machinery 50,000
Factory supplies used 110,000
Depreciation – machinery 60,000
Total 1,120,000
Note 6 – Salaries
Sales salaries 400,000
Office salaries 150,000
Total 550,000
Note 7 – Depreciation
Depreciation – store equipment 70,000
Depreciation – office equipment 40,000
Total 110,000
Note 8 – Other expense
Earthquake loss 300,000
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