Cost of Goods Manufactured

Medium Practice Test

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?

a. finished goods inventoryfinished goods inventory
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

a. manufacturing overhead will be incorrect
b. cost of goods sold will be overstated
c. cost of goods manufactured will be overstated
d. cost of goods manufactured will be understated
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

a.   $106,000
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?

a.  $315,000
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

a. expensed in the period it is incurred
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.

  1. Which of the following would not be considered part of the cost of inventory?
a. work in process
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

a. $131,000
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

a. $368,000
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

a. $289,000
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

a. $164,000
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

  1. 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)