Case Study I

Materials purchased $325,000
Direct Labor $220,000
Sales $1,350,000
Gross Margin 30%
Cost of Goods Available for Sale $1,020,000
Prime Costs $545,000
Manufacturer Overhead 65% of Conversion cost
Direct Materials $325,000

Beginning Inventory numbers:
Raw Materials $41,000
Works in Process $56,000
Finished Goods $35,000

Formulas:

Prime cost = Direct Materials cost + Direct Labor cost
Conversion cost = Direct Labor cost + Manufacturing overhead cost
(65% conversion)

Prime cost = 325,000 + $220,000 545,000 ( Data given)

Trying to get to the Conversion cost.
Direct labor =
220,000 = 35% of conversion costs
= 220,000/.35 = 628,571.42

Manufacturing Overhead = 628,571 - 220,000 = 408,571
Prime cost = direct material cost + 220,000
545,000 = direct material cost + 220,000
545,000 – 220,000 = 325,000
Direct material cost = 325,000

Gross Margin = 30% of $1,350,000 = 405,000.
$1,350,000 – 405,000 = 945,000
Ending balance finished goods = 945,000

Cost of Goods Available for Sale $1,020,000
- Finished Goods Inventory (Beginning) 35,000
= Cost of Goods Manufactured $985,000

Cost of Goods sold:
Beginning balance finished goods $ 35,000
+ Cost of Goods Manufactured $985,000
Goods available for sale $1020,000
- Ending balance finished goods 945,000
Cost of goods sold $ 75,000

Manufacturing Costs:
Direct Materials $325,000
Direct Labor 220,000
Manufacturing overhead 408,471
Total $ 953,471

Cost of Goods Manufactured
Beginning works in process balance $56,000
Total manufacturing costs 953,471
- Ending balance work in progress ? .
Cost of Good Manufactured $985,000

(Total Manufacturing cost + Beginning works in process balance) – Cost of Goods Manufactured