Cost of Goods Manufactured
Medium Practice Test
Introduction to Accounting
Medium Prectice Test
Click the “Check Your Answer” box below each question to reveal the correct answer and explanation.
1. Which of the following would not be part of cost of goods manufactured?
b. raw materials purchased
c. depreciation on factory machines
d. beginning work in process
Answer
A. Finished goods inventory is not part of cost of goods manufactured. It is part of cost of goods sold.
2. If ending work in process is overstated
Answer
D. Ending work in process is subtracted in the cost of goods manufactured calculation. When it is too high, cost of goods manufactured is too low. Manufacturing overhead is not affected by work in process. If cost of goods manufactured is too low, cost of goods sold will be too low also.
3. A manufacturing company has beginning finished goods of $60,000, raw materials purchased of $20,000, cost of goods manufactured of $98,000 and ending finished goods inventory of $35,000. Sales are $120,000 and selling expenses are $32,000. Cost of goods sold is
b. $123,000
c. $88,000
d. ($10,000)
Answer
B. Cost of goods sold is calculated by using only beginning finished goods plus cost of goods manufactured less ending finished goods. (60,000 + 98,000 – 35,000 = 123,000)
4. A manufacturing company reported the following during the first year of operations:
1) Sales $500,000
2) Gross profit $200,000
3) Ending finished goods $15,000
What was the cost of goods manufactured during the first year?
b. $285,000
c. $300,000
d. not enough information to calculate cost of goods manufactured
Answer
A. Sales less Gross profit gives the cost of goods sold: 500,000 – 200,000 = 300,000. Beginning FG + CGM – Ending FG = CGS First year = 0 + ? – 15,000 = 300,000 Plug the equation to get 315,000 for CGM
5. Cost of goods manufactured is
b. the cost of inventory that is not available to the customer
c. reported on the income statement and the balance sheet
d. only reported on the income statement
Answer
C. The cost of goods manufactured is the cost of completed goods inventory. This is reported on the balance sheet until it is sold to the customer and then it is reported as cost of goods sold on the income statement. Both of these will occur during a given period.
- Which of the following would not be considered part of the cost of inventory?
b. all manufacturing overhead
c. costs of warehousing inventory
d. indirect materials that are too small to track to each individual product
Answer
C. Warehouse costs are period costs and are not product costs. Only product costs are included in the cost of inventory. Work in process is inventory that is not finished. Indirect materials are a part of manufacturing overhead and all manufacturing overhead is included in the cost of inventory.
7. – 10. A manufacturing company prepared an income statement using the information that was in their accounting records. Use the following information to answer questions 7 through 10.
| Sales | $900,000 |
| Less operating expenses: | |
| Materials purchased | $125,000 |
| Advertising expense | $ 65,000 |
| Direct labor costs | $185,000 |
| Rent on manufacturing facility | $ 22,000 |
| Rent at corporate headquarters | $ 33,000 |
| Utilities expense – manufacturing | $ 42,000 |
| Utilities expense – corporate | $ 12,000 |
| Executive salaries | $200,000 |
| Insurance expense- corporate | $ 8,000 |
| Shipping to customer | $ 19,000 |
| Rent at warehouse | $ 25,000 |
| Operating income | $164,000 |
| Inventory: | Beginning | Ending |
| Raw materials | $104,000 | $110,000 |
| Finished goods | $ 65,000 | $ 79,000 |
7. The direct materials cost that should be included in cost of goods manufactured is
b. $119,000
c. $125,000
d. $111,000
Answer
B.
Beginning Raw Materials Inventory 104,000
+ Purchases of Raw Materials 125,000
– Ending Raw Materials Inventory (110,000)
= Materials Used in Production 119,000
8. Cost of goods manufactured is
b. $488,000
c. $374,000
d. 420,000
Answer
A.
1st – Calculate cost of goods manufactured:
Direct materials used 119,000
Direct labor 185,000
Rent on manufacturing facility 22,000
Utilities expense – manufacturing 42,000
+ Beginning WIP 0
– Ending WIP (0)
= Cost of Goods Manufactured 368,000
9. Cost of goods sold that should be reported is
b. $368,000
c. $354,000
d. $488,000
Answer
C.
Beginning finished goods 65,000
+ Cost of goods manufactured 368,000
– Ending finished goods (79,000)
= Cost of goods sold 354,000
10. Operating income should have been reported as
b. $296,000
c. $194,000
d. $184,000
Answer
D
3rd – Complete the income statement
Sales $900,000
– Cost of goods sold (354,000)
= Gross profit 546,000
– Operating expenses:
Advertising expense 65,000
Rent at corporate headquarters 33,000
Utilities expense – corporate 12,000
Executive salaries 200,000
Insurance expense- corporate 8,000
Shipping to customer 19,000
Rent at warehouse 25,000
Operating Income 184,000
11. The following information was taken from the accounting records of a manufacturing company. Use the information to compute cost of goods manufactured and cost of goods sold.
Workers on the production line 112,000
Advertising expense 45,000
Sales commission expense 33,000
Depreciation – manufacturing plant 18,000
Depreciation – sales office furniture 6,000
Utilities – manufacturing plant 26,000
Utilities – corporate headquarters 15,000
Indirect labor – other 55,000
Purchases of raw materials 237,000
Maintenance – manufacturing plant 13,000
Plant manager’s salary 48,000
Inventory Information: Beginning Ending
Finished goods 123,000 96,000
Raw materials 66,000 78,000
Work in process 9,000 11,000
Answer
Beginning Raw Materials Inventory 66,000
+ Purchases of Raw Materials 237,000
– Ending Raw Materials Inventory (78,000)
=Materials Used in Production 225,000
Workers on the production line 112,000
Depreciation – manufacturing plant 18,000
Utilities – manufacturing plant 26,000
Indirect labor – other 55,000
Maintenance – manufacturing plant 13,000
Plant manager’s salary 48,000
Total manufacturing overhead 160,000
+ Beginning WIP 9,000
– Ending WIP (11,000)
Cost of Goods Manufactured 495,000
Beginning finished goods 123,000
+ Cost of goods manufactured 495,000
– Ending finished goods (96,000)
= Cost of goods sold 522,000
- Use the following information to prepared an income statement.
Direct materials used 250,000
Indirect materials used 22,000
Direct labor 295,000
Indirect labor 68,000
Beginning WIP 8,000
Sales $1,450,000
Expenses to operate the
manufacturing building 175,000
Expenses at corporate headquarters 149,000
Selling expenses 88,000
Beginning finished goods 406,000
Executive salaries 150,000
Ending WIP 6,000
Ending finished goods 422,000
Answer
1st – Calculate cost of goods manufactured:
Direct materials used 250,000
Direct labor 295,000
Indirect materials 22,000
Indirect labor 68,000
Manuf. building expenses 175,000
Total manuf. overhead 265,000
+ Beginning WIP 8,000
– Ending WIP (6,000)
Cost of Goods Manufactured 812,000
2nd – Calculate cost of goods sold
Beginning finished goods 406,000
+ Cost of goods manufactured 812,000
– Ending finished goods (422,000)
= Cost of goods sold 796,000
3rd – Complete the income statement
Sales 1,450,000
– Cost of goods sold (796,000)
= Gross profit 654,000
– Operating expenses:
Expenses at corporate
headquarters 149,000
Selling expenses 88,000
Executive salaries 150,000
Operating Income 267,000
13. A manufacturing company had the following during the first year of operations: Raw materials purchased were 245,000, Raw materials used were 288,000, Factory utilities 66,000, Production line workers 206,000, Corporate insurance 32,000, Factory depreciation 22,000, Factory supervisors 104,000, Salesperson salaries 89,000, Executive salaries 220,000, Ending work in process 12,000, Ending finished goods 215,000, Administrative expenses 299,000, Sales 1,000,000
Calculate cost of goods manufactured and prepare an income statement.
Answer
1st – Calculate cost of goods manufactured:
Direct materials used 288,000
Direct labor 206,000
Factory utilities 66,000
Factory depreciation 22,000
Factory supervisors 104,000
Total manuf. overhead 192,000
+ Beginning WIP: Year 1 0
– Ending WIP (12,000)
Cost of Goods Manufactured 674,000
2nd – Calculate cost of goods sold
Beginning finished goods: Year 1 0
+ Cost of goods manufactured 674,000
– Ending finished goods (215,000)
= Cost of goods sold 459,000
3rd – Complete the income statement
Sales 1,000,000
– Cost of goods sold (459,000)
= Gross profit 541,000
– Operating expenses:
Corporate insurance 32,000
Salesperson salaries 89,000
Executive salaries 220,000
Administrative expenses 299,000
Operating Income (99,000)