Assignment 2: Calculating Inventory

Assignment 2 Calculating Inventory Finland Upholstery Inc. Oscar L. Galvan Argosy University The firms selling and administrative expenses are operating expenses whence they are treated as Period Cost rather that Product Cost. This face of cost is unrelated to manufacturing smash and cost of goods sold. Manufacturing smasherManufacturing smash-up includes wholly costs of manufacturing such as indirect material, indirect labor, property taxes, maintenance and repairs, insurance etc. It excludes the direct material and direct labor.The selling and administrative expenses result non be reported in the manufacturing overhead since they are not incurred for the production of the goods. Cost of Goods Sold Cost of goods sold is a cost incurred to endure the raw material for the production andfor producing the products that are sold to the consumers. Cost of goods sold (Beginning merchandise inventory + inventory purchases ending inventory. ) Since the selling and administrative expenses are not incurred for obtaining the raw material as well as manufacturing the product they will not be reported in the cost of goods sold.Selling and Administrative Expenses The selling and administrative expenses are incurred for delivering the goods to the consumers, and also for the advertising of the products. The following are examples management expenses, salesman salaries, clerical expenses and advertisement expenses. 1. Calculate the companys predetermined overhead application rate. Budgeted Overhead 5,460,000 Budgeted require Labor 4,200,000 Predetermined Overhead Rate 130% 2. Calculate the additions to the work-in-process inventory account for the direct material used, direct labor and manufacturing overhead. Direct material used 5,600,000 Direct Labor 4,350,000 Manufacturing ove rhead 5,655,000 organic Addition 15,605,000 . Calculate the finished-goods inventory for the 12/31/01 balance sheet. Direct material cost 156,000 Direct labor 85,000 Manufacturing overhead 110,500 Finished goods inventory 351,500 All amounts in the Work-in-Process must be transferred to Finished-Goods-Inventory due to the fact that there is no Work-in-Process at year end. so Dr. Cr. Finished goods inventory 5,811,800 Work in process Inventory 5,811,800 4. Calculate the over-applied/under-applied overhead at year end Applied overhead 5,655,000. 00 Actual overhead 5,554,000. 00 Over-applied overhead 101,000. 00 Calculation of Actual Overhead Indirect materials used 65,000. 00 Indirect labor 2,860,000. 00 Factory depreciation 1,740,000. 0 Factory insurance 59,000. 00 Factory utilities 830,000. 00 Total 5,554,000. 00 Dr. Cr. Manufacturing Overhead $5,554,000 Cost of Goods Sold $5,554,000 5.Explain if it is appropriate to include selling and administrative expenses in the cost of goods sold category. Companys cost of goods sold totals $15,309,300 Finished-goods inventory, Jan 1 0. 00 Add Cost of goods manufactured 15,761,800. 00 Cost of goods available for sale $15,761,800. 00 Less Finished-goods inventory, Dec. 1 351,500. 00 Unadjusted cost of goods sold 15,410,300. 00 Less Over applied overhead 101,000. 00 Cost of goods sold $15,309,300. 00 The firms selling and administrative expenses are operating expenses therefore they are treated as Period Cost rather that Product Cost. This type of cost is unrelated to manufacturing overhead and cost of goods sold.