Wesley Power Tools manufactures a wide variety of tools and accessories. One of

Question

Wesley Power Tools manufactures a wide variety of tools and accessories. One of its more popular items is a cordless power handisaw. Use the following information about this product line to complete the problem requirements. Each handisaw sells for $50. Wesley expects the following unit sales: Wesley's ending finished goods inventory policy is 30 percent of the next month's sales. Suppose each handisaw takes approximately .35 hours to manufacture, and Wesley pays an average labor wage of $12.50 per hour. Each handisaw requires a plastic housing that Wesley purchases from a supplier at a cost of $6.00 each. The company has an ending raw materials inventory policy of 10 percent of the following month's production requirements. Materials other than the housing unit total $4.00 per handisaw. Manufacturing overhead for this product includes $66,000 annual fixed overhead (based on production of 27,000 units) and $1.00 per unit variable manufacturing overhead. Wesley's selling expenses are 6 percent of sales dollars, and administrative expenses are fixed at $18,000 per month. Required: 1. Compute the budgeted cost of goods sold following for the first quarter. (Round cost per unit to 2 decimal places. Round final answers to the nearest dollar amount.) Budgeted Cost of Goods Sold

Explanation / Answer

Workings

Note:

The selling overheads are not included in the calculation of goods sold. Since it is a manufacturing business, the selling expenses usually does not constitute the cost of goods sold. The total cost of production is identified and it is divided among the number of units manufatured to arrive at the total cost per unit produced. The rate identified is multiplied with the number of units sold to arrive at the cost of goods sold.

There are alternate methods to calculate COGS. Since, the value of opening and closing inventory is uncertain, this approach is used.

Cost of Goods Sold Calculation Jan Feb March 1st Quarter total Cost of manufacture per unit $17.82 Sales Units budgeted 2300 2200 2900 Total Cost of goods sold 17.82 * sales 40986 39204 51678 131868

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