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

Exercise 11

Cost of goods manufactured, cost of goods sold, and income statement Big Thunder Co. incurred the following costs during April:

Raw materials purchased	$ 99,225
Direct labor ($15 per hour)	123,750
Manufacturing overhead (actual)	303,175
Selling expenses	67,050
Administrative expenses	33,075
Interest expense	11,490

Manufacturing overhead is applied on the basis of $37.50 per direct labor hour. Assume that overapplied or underapplied overhead is transferred to cost of goods sold only at the end of the year. During the month, 7,500 units of product were manufactured and 7,950 units of product were sold. On April 1 and April 30, Big Thunder Co. carried the following inventory balances:

	April 1	April 30
Raw materials	$ 41,160	$ 37,590
Work in process	111,720	119,640
Finished goods	88,000	56,320

Required:

a.Prepare a statement of cost of goods manufactured for the month of April and calculate the average cost per unit of product manufactured.

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b. Calculate the cost of goods sold during April.

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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 Big Thunder Co. for the month of April. Assume that sales for the month were $722,925 and the company’s effective income tax rate was 40%.

Step 1 of 14

Cost of goods manufactured, Income statement, and Cost of goods sold:

Cost of goods manufactured : The total cost for the manufacture of goods, include fixed and variable costs, which occur within a particular period of time and that are applied in the income statement to estimate cost of goods sold.