1 Net Sale Total Sales - Sales return - sales discount
2 Cost of goods sold
COGS of Trading business COGS of Manufacturing business Inventory (at start) 10,000 1 Direct material used add: Net Purchase 120,000 2 Direct labor used Inventory available for sale 130,000 3 Factory overhead Less: Inventory (at end) (20,000) 4 Work in Process 5 Finished goods COGS 110,000 3 Operating expenses All expenses related to operation of business. It includes (T & M) Office expenses (Called Administrative and General Exp) and Sales expenses (Called Selling and marketing expenses) 4 Other Income All income which are not related to main business activities (T & M) (T & M) COGS of Manufacturing business Direct material used Direct labor used Factory overhead Work in Process Finished goods All expenses related to operation of business. It includes Office expenses (Called Administrative and General Exp) and Sales expenses (Called Selling and marketing expenses) All income which are not related to main business activities Particulars Rs. Rs. 1. Direct material used Raw material (at start) Add: Net Purchases: Purchases 210,000 Add: Freight in 4,500 Gross Purchases 214,500 Less: Purchase return 8,000 Purchase discount 4,000 (12,000) Net Purchases Total raw material avaiable for use/ consumed Less: Raw material ( at end) Raw Material Consumed/ Used: 2. Direct Labour: Direct labor 60,000 Add: Direct labor payable 4,000 Prime Cost 3. Factory overhead: Machinery repair Heat and light Factory insurance 7,500 Less: Prepaid Insurance (6 months x 625) (3,750) Indirect labor Factory supplies 10,000 Less: Factory supplies on hand (3,000) Depreciation expenses - Factory building Depreciation expenses - Factory machinery Total Factory Overhead Manufacturing Cost / Factory Cost 4. Work in Process: Name of Company Cost of Goods Manufactured For the period ended Dec 31, 1996 Add: Work in process (at start) Total work in process Less: Work in process (at end) Cost of Goods Manufactured 2 3 NET INCOME Rs. Rs. 56,000 202,500 258,500 (28,000) 230,500 64,000 294,500 8,000 16,500 3,750 9,000 7,000 3,000 5,000 52,250 346,750 Name of Company Cost of Goods Manufactured For the period ended Dec 31, 1996 24,000 370,750 (20,000) 350,750 SAAD Manufacturing Co. Income Statement 1 NET SALES: Sales Less: Sales return 4,600 Sales discount 5,000 NET SALES: 2 Less: COST OF GOODS SOLD: Cost of goods manufactured Add: Finished Goods (at start) Total Finished goods available for sale Less: Finished Goods (at end) COST OF GOODS SOLD 3 Less: Operating Expenses: Administrative Expenses: Other Administrative expenses Depreciation expenses - Office building Marketing and Selling Expenses: Amortization on patent NET INCOME 508,600 (9,600) NET SALES: 499,000 350,750 70,000 420,750 (92,000) COST OF GOODS SOLD (328,750) GROSS PROFIT 170,250 40,000 6,000 46,000 2,000 2,000 (48,000) NET INCOME 122,250 Particulars Rs. Rs. Rs. 1. Raw / Direct Material Consumed/ Used: Raw material (at start) 3,420 Add: Net Purchases: Purchases 90,563 Add: Freight in 477 Gross Purchases 91,040 Less: Purchase discount Net Purchases 91,040 Total raw material avaiable for use/ consumed 94,460 Less: Raw material ( at end) (7,130) Raw Material Consumed/ Used: 2. Direct Labour: Direct Labour used Prime Cost 3. Factory overhead: Indirect labor 5,026 Depreciation - Factory equipment 2,135 Misc. FOH 17,908 Rent (80%) 4,000 Total Factory Overhead Manufacturing Cost / Factory Cost 4. Work in Process: Add: Work in process (at start) Total work in process Less: Work in process (at end) Cost of Goods Manufactured 5.Finished Goods: Add: Finised Goods (at start) Total Finished Goods available for sale Less: Finished Goods (at end) Cost of Goods Sold 30 Net Sales Less: Cost of goods sold Less: Operating expenses: 1 Administrative expenses: Rent (10%) Office salaries Misc. admin Total administative expenses 2 Selling & Marketing expenses: Rent (10%) Sales salaries Royalties paid Freight out Misc. marketing expenses Un-collectable expenses Total Marketing expenses Add: Other income: Interest earned 1 Calculation of nos. of units produced: Nos. of units sold 4,300 Add: Finished goods (at end) 179 Total finished goods available for sale 4,479 Less: Finished goods (at start) (120) NOS. OF UNITS PRODUCED 4,359 2 Calculate the unit cost / Average cost / Per unit cost: Unit cost = Nos. of units produced 183,078 42 4,359 3 Calculation of Cost of Finished goods: Cost of finished goods = FG (at end) in units x average rate Cost of finished goods = 179 units x $42 Cost of finished goods = 7,518 COGM 1 2 3 4 5 Rs. 87,330 62,522 149,852 29,069 178,921 8,159 187,080 (4,002) 183,078 4,584 187,662 (7,518) 180,144 387,000 (180,144) Gross Profit 206,856 Administrative expenses: 500 Office salaries 24,790 8,700 Total administative expenses 33,990 Selling & Marketing expenses: 500 Sales salaries 28,000 Royalties paid 21,500 1,860 Misc. marketing expenses 11,380 Un-collectable expenses 280 Total Marketing expenses 63,520 Total operating expenses (97,510) Operating Income 109,346 Interest earned 130 NET INCOME 109,476 Closing Entries of Manufacturing Companies: 1 Manufacturing account Raw material (at start) Work in process (at start) Purchase Transportation in Direct labor used Indirect labor Depreciation expenses Rent Misc (To close: the manufacturing expenses) 2 Raw material (at end) Work in process (at end) Purchase discount Manufacturing account (To close: all the manufacturing revenue account) 3 Close the manufacturing account: Income Summary Manufacturing account (COGM) Finished goods (at start) Rent (10%) Office salaries Misc. admin Rent (10%) Sales salaries Royalties paid Freight out Misc. marketing expenses Un-collectable expenses 4 Close the revenue account Sales Finished goods (at end) Interest earned Income Summary 5 Close the net income or net loss: a) Incase of net income (When credit side is more) Income summary Retained Earning b) Incase of net loss (When Debit side is more) Retained earning Income Summary 194,210 3,420 8,159 90,563 477 62,522 5,026 2,135 4,000 17,908 7,130 4,002 840 11,972 (To close: all the manufacturing revenue account) 284,332 Manufacturing account (COGM) 182,238 4,584 500 24,790 8,700 500 28,000 21,500 1,860 11,380 280 387,000 7,518 130 394,648 a) Incase of net income (When credit side is more) 110,316 110,316 b) Incase of net loss (When Debit side is more) Debit Credit Closing Entries of Manufacturing Companies: 1 Close the manufacturing expenses account: Manufacturing account Debit Raw material (at start) Credit Work in process (at start) Credit Purchase Credit Transportation in Credit Direct labor used Credit All Factory overhead Credit 2 Close all the manufacturing revenue account: Raw material (at end) Debit Work in process (at end) Debit Purchase return Debit Purchase discount Debit Manufacturing account Credit 3 Close the manufacturing account: Income Summary Debit Manufacturing account (COGS) Credit Finished goods (at start) Credit Sales return Credit Sales discount Credit All types of operating expenses Credit 4 Close the revenue account Sales Debit Finished goods (at end) Debit All types of other income Debit Income Summary Credit 5 Close the net income or net loss: a) Incase of net income (When credit side is more) Income summary Debit Retained Earning Credit b) Incase of net loss (When Debit side is more) Retained earning Debit Income Summary Credit Solution of Q9 Particulars Rs. Rs. Rs. 1. Raw / Direct Material Consumed/ Used: Raw material (at start) 30,000 Add: Net Purchases: Purchases 68,000 Add: Purchase discount lost 8,000 Gross Purchases 76,000 Net Purchases 76,000 Total raw material avaiable for use/ consumed 106,000 Less: Raw material ( at end) (36,000) Raw Material Consumed/ Used: 2. Direct Labour: Direct Labour used Prime Cost 3. Factory overhead: a) Fuel consumed: Fuel (at start) 3,000 Add: Fuel purchase during the year 5,000 Total fuel available for use 8,000 Less: Fuel (at end) (3,400) 4,600 b) Factory repair parts consumed: Fatory parts (at start) 4,500 Add: Factory parts purchased during the year 4,200 Total parts available for use 8,700 Less: Factory parts (at end) (2,600) 6,100 Misc. Factory overhead 2,300 Depreciation on plant 3,000 Superintendance 2,000 Indirect factory labor 4,000 Total Factory Overhead Name of Company Cost of Goods Sold For the period ended June 30, 2002 Manufacturing Cost / Factory Cost 4. Work in Process: Add: Work in process (at start) Total work in process Less: Work in process (at end) Cost of Goods Manufactured 5.Finished Goods: Add: Finised Goods (at start) Total Finished Goods available for sale Less: Finished Goods (at end) Cost of Goods Sold Conversion cost = Direct labor + Factory overhead Conversion cost: Direct Labor 93,100 add: Factory overhead 22,000 Conversion cost 115,100 Factory overhead rate: FOH rate = Total Amount of FOH Total amount of Direct Labor 22,000 x 100 93,100 FOH rate = 23.63 % Rs. 70,000 93,100 163,100 22,000 Name of Company Cost of Goods Sold For the period ended June 30, 2002 185,100 20,000 205,100 (15,000) 190,100 24,000 214,100 (12,000) 202,100 x 100 Particulars Rs. Rs. Rs. Rs. 1. Raw / Direct Material Consumed/ Used: Raw material (at start) 110,000 Add: Net Purchases: Purchases 500,000 Add: Transportation in 10,000 Gross Purchases 510,000 Less: Purchase return 12,000 Purchase discount 18,000 (30,000) Net Purchases 480,000 Total raw material avaiable for use/ consumed 590,000 Less: Raw material ( at end) (40,000) Raw Material Consumed/ Used: 550,000 2. Direct Labour: Direct Labour used 350,000 Prime Cost 900,000 3. Factory overhead: Indirect material 100,000 Indirect labour 50,000 other factory expenses 150,000 Total Factory Overhead 300,000 Manufacturing Cost / Factory Cost 1,200,000 4. Work in Process: Add: Work in process (at start) 50,000 Total work in process 1,250,000 Less: Work in process (at end) (90,000) Cost of Goods Manufactured 1,160,000 5.Finished Goods: Add: Finised Goods (at start) 60,000 Total Finished Goods available for sale 1,220,000 Less: Finished Goods (at end) (20,000) Cost of Goods Sold 1,200,000 Name of Company Cost of Goods Sold For the period ended June 30, 2002 Required no.1: Manufacturing Cost Particulars Rs. Rs. Rs. 1. Raw / Direct Material Consumed/ Used: Raw material (at start) 176,000 Add: Net Purchases: Purchases 2,400,000 Add: Transportation in 32,000 Net Purchases 2,432,000 Total raw material avaiable for use/ consumed 2,608,000 Less: Raw material ( at end) (196,000) Raw Material Consumed/ Used: 2. Direct Labour: Direct Labour used Prime Cost 3. Factory overhead: Total Factory Overhead Manufacturing Cost / Factory Cost Required no. 2: Cost of Goods Manufactured: Manufacturing Cost / Factory Cost 4. Work in Process: Add: Work in process (at start) Total work in process Less: Work in process (at end) Cost of Goods Manufactured Requried no.3: Cost of Goods Sold Cost of Goods Manufactured ABC Company 5.Finished Goods: Add: Finised Goods (at start) Total Finished Goods available for sale Less: Finished Goods (at end) Cost of Goods Sold Rs. 2,412,000 3,204,000 5,616,000 1,885,600 7,501,600 7,501,600 129,800 7,631,400 (136,800) 7,494,600 7,494,600 ABC Company 620,000 8,114,600 (467,400) 7,647,200 Required 1: 1. Direct material used: 430,000 2. Direct labor used: 250,000 Prime Cost 680,000 3. Factoy overehead Heat, light and power 150,000 Indirect labor 25,000 Depreciation exp 40,000 Repiar expenses 15,000 230,000 Manufacturing Cost 910,000 4. Work in process: add: WIP - at start 28,000 Total WIP 938,000 less: WIP - at end (37,000) Cost of Goods manufactured 901,000 Required 2: Per unit cost = 901,000 22.53 40,000 Required 3: Finished Goods - at end (units and cost) Units Finished goods - at start 1,000 Produced during the period 40,000 Total FG available for sale 41,000 Less: Sold units (40,500) Finished goods - at end 500 Cost of finished goods - at end = FG units x Rate Cost of finished goods - at end = 500 units x Rs 22.53 Cost of finished goods - at end = 11,265 Required 4: 1. Net Sales: Gross Sales 1,000,000 Less: Sales return (40,000) Less: Sales discount (10,000) NET SALES 950,000 2. Cost of Goods Sold: Cost of goods manufactured 901,000 Add: Finished goods - at start 25,000 Cost of Goods manufactured Nos. of units produced Income Statement Total Finished goods available for sale 926,000 Less: Finished goods - at end (11,265) COST OF GOODS SOLD (914,735) Gross Profit 35,265 1 Applied Factory overhead (30% x $ 290,000) 87,000 2 Actual Factory overhead a. Indirect labor 46,000 b. Light and power 4,260 c. Depreciation 4,700 d. Repairs 5,800 e. Misc FOH 29,000 89,760 Under Applied FOH 2,760