(TCO A) The following data (in thousands of dollars) have been taken from the ac

ID: 2345990 • Letter: #

Question

(TCO A) The following data (in thousands of dollars) have been taken from the accounting records of the Maroon Corporation for the just-completed year.

Sales 1,200
Raw materials inventory, beginning 25
Raw materials inventory, ending 50
Purchases of raw materials 180
Direct labor 230
Manufacturing overhead 250
Administrative expenses 400
Selling expenses 200
Work-in-process inventory, beginning 150
Work-in-process inventory, ending 120
Finished goods inventory, beginning 100
Finished goods inventory, ending 110

Use the above data to prepare (in thousands of dollars) a schedule of Cost of Goods Manufactured and a Schedule of Cost of Goods Sold for the year. In addition, what is the impact on the financial statements if the ending finished goods inventory is overstated or understated?

Explanation / Answer

1. cost of goods manufactured:

Direct materials

Beginning inventory

purchases

180

available for use

205

ending

direct materials used

155

Direct manufacturing labor

230

manufacturing overhead

250

manufaturing costs incurred

635

plus beginning wip

150

costs to account for

785

less ending wip

120

cost of goods mnaufactured

665

2. cost of goods sold

beginning finished inventory

100

plus cost of goods manufactured

665

cost of goods available fo sale

765

less ending finished goods inventory

110

cost of goods sold

655

If ending finished goods is overstated, cost of goods sold would be understated and net income would be overstated.

If ending finished goods is understated, cost of goods sold would be overstated and net income would be understated.