Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 61

Cost of Goods Manufactured, Income Statement Norton Industries, a manufacturer of cable for the heavy construction industry, closes its books and prepares financial statements at the end of each month. The statement of cost of goods sold for April 2010 follows:

NORTON INDUSTRIES Statement of Cost of Goods Sold For the Month Ended April 30, 2010 ($000 omitted)
Inventory of finished goods, March 31	$50
Cost of goods manufactured	790
Cost of goods available for sale	$840
Less inventory of finished goods, April 30	247
Cost of goods sold	$593

Additional Information

• Of the utilities, 80 percent relates to manufacturing the cable; the remaining 20 percent relates to the sales and administrative functions.

• All rent is for the office building.

• Property taxes are assessed on the manufacturing plant.

• Of the insurance, 60 percent is related to manufacturing the cable; the remaining 40 percent is related to the sales and administrative functions.

• Depreciation expense includes the following:

Manufacturing plant	$20,000
Manufacturing equipment	30,000
Office equipment	4,000
	$54,000

• The company manufactured 7,825 tons of cable during May 2010.

• The inventory balances at May 31, 2010, follow:

• Direct materials inventory $23,000

• Work-in-process inventory $220,000

• Finished goods inventory $175,000

NORTON INDUSTRIES Preclosing Account Balances May 31, 2010 ($000 omitted)
Cash and marketable securities	$54
Accounts and notes receivable	210
Direct materials inventory (4/30/2010)	28
Work-in-process inventory (4/30/2010)	150
Finished goods inventory (4/30/2010)	247
Property, plant, and equipment (net)	1,140
Accounts, notes, and taxes payable	70
Bonds payable	600
Paid-in capital	100
Retained earnings	930
Sales	1,488
Sales discounts	20
Other revenue	2
Purchases of direct materials	510
Direct labor	260
Indirect factory labor	90
Office salaries	122
Sales salaries	42
Utilities	135
Rent	9
Property tax	60
Insurance	20
Depreciation	54
Interest expense	6
Freight-in for materials purchases	15

Required Based on Exhibit 3.15A, prepare the following:

1. Statement of cost of goods manufactured for Norton Industries for May 2010.

2. Income statement for Norton Industries for May 2010.

SPARTAN PRODUCTS COMPANY Statement of Cost of Goods Manufactured For the Year Ended December 31, 2010
Direct materials
Direct materials inventory, Jan. 1, 2010	$ 20,000
Purchases of direct materials	100,000
Total direct materials available	$120,000
Less: Direct materials inventory, Dec. 31, 2010	30,000
Direct materials used		$ 90,000
Direct labor		350,000
Factory overhead
Heat, light, and power—Plant	12,000
Supplies—Plant	4,000
Property taxes—Plant	13,000
Depreciation expense—Plant and equipment	80,000
Indirect labor	5,000
Supervisor’s salary—Plant	40,000
Total factory overhead		154,000
Total manufacturing costs		$594,000
Add: Beginning work-in-process inventory, Jan. 1, 2010		35,000
Total manufacturing costs to account for		$629,000
Less: Ending work-in-process, Dec. 31, 2010		25,000
Cost of goods manufactured		$604,000

SPARTAN PRODUCTS COMPANY Income Statement For the Year Ended December 31, 2010
Sales revenue		$1,000,000
Cost of goods sold
Finished goods inventory, Jan. 1, 2010	$35,000
Cost of goods manufactured	604,000
Total goods available for sale	$639,000
Finished goods inventory, Dec. 31, 2010	40,000
Cost of goods sold		599,000
Gross margin		$ 401,000
Selling and administrative expenses
Sales representatives’ salaries	190,000
Supplies—Administrative office	6,000
Depreciation expense—Administrative office	30,000
Total selling and administrative expenses		226,000
Operating income		$ 175,000

Step 1 of 2

Norton Industries Statement of Cost of Goods Manufactured For the Month Ended May 31, 2010 ($000 omitted)
Direct materials
Inventory of direct materials, April 30		$28
Purchase of direct materials		510
Freight-in		15
Total direct materials available for use		$ 553
Inventory of direct materials, May 31		23
Direct materials used in production		$  530
Direct labor		260
Indirect factory labor	$ 90
Utilities ($135 x .8)	108
Property tax	60
Insurance ($20 x .6)	12
Depreciation ($20 + $30)	50
Manufacturing overhead		$320
Total manufacturing costs		$1,110
Plus: Inventory of  WIP April 30		150
Less:Inventory of WIP  May 31		220
Cost of goods manufactured		$1,040