Case Study I
ACCT-505 Managerial Accounting

Information Provided

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% Conversion
Direct Materials $325,000

Beginning Balances
Raw Materials $41,000
Works in Progress $56,000
Finished Goods $35,000

Conversion Cost= Manufacturing Overhead + Direct Labor
Manufacturing Overhead= 65% of Conversion
Direct labor= $220,000
Direct = 35% of Conversion
220,000= 35% of Conversion cost
Conversion Cost= Manufacturing Overhead + Direct Labor $628,571
Direct Labor= $220,000
Manufacturing Overhead $408,571

Prime Cost= Direct Materials Cost = Direct Labor Costs
545,000 = Direct Materials Cost + 220,000
Direct Materials Cost= 325,000

Gross Margin
Sales $1,350,000 Cost of Goods Sold:
Beginning Finished Goods Inventory 35,000
Add: Cost of Goods Manufactured 985,000
Cost of Goods Available for Sale 1,020,000

Less: Ending Finished Goods Inventory (75,000) (945,000)
Gross Margin $405,000
1,350,000*.3= 405,000

Cost of Goods Sold
Beginning balance finished goods $35,000
Add: Cost of Goods Manufactured 985,000
Goods Available for Sale $1,020,000
Less: Ending Balance, Finished Goods (945,000)
Cost of Goods Sold $75,000

Total Manufacturing Cost
Direct Materials $325,000
Direct Labor 220,000
Manufacturing Overhead 408,471
Total Manufacturing Cost $953,471

Costs of Goods Manufactured
Beginning Balance Works in Progress $56,000
Total Manufacturing Cost 953,471
Less: Ending Balance Work in Progress (24,471)
Cost of Goods Manufactured $985,000

Direct Materials
Beginning Raw Materials Inventory $41,000
Add: Purchase of Raw Materials 325,000
Raw Materials Available for Use