Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 5

Cost of goods manufactured, cost of goods sold, and income statement

Richards, Inc., incurred the following costs during May:

Raw materials used	$ 662,000
Direct labor	1,304,000
Manufacturing overhead, actual	896,000
Selling expenses	534,000
Administrative expenses	388,000
Interest expense	182,000

Required:

During the month, 59,625 units of product were manufactured and 54,000 units of product were sold. On May 1, Richards, Inc., carried no inventories. On May 31, there were no inventories other than finished goods.

a.Calculate the cost of goods manufactured during May and the average cost per unit of product manufactured.

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b. Calculate the cost of goods sold during May.

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c. Calculate the difference between cost of goods manufactured and cost of goods sold. How will this amount be reported in the financial statements?

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d. (Optional) Prepare a traditional (absorption) income statement for Richards, Inc., for the month of May. Assume that sales for the month were $4,896,000 and the company’s effective income tax rate was 35%.

Step 1 of 9

Cost of goods manufactured, income statement, and Cost of Goods Sold: