Question

Consider the following information for Butler Manufacturing Inc. for the year ended December 31, 2019:

​​Accumulated depreciation​       $ 400,000

​​Depreciation expense (90%-Plant)​​  ​   200,000

​​Direct labor – Wages​​​​​ ​  600,000

​​Direct materials inventory, Dec. 31, 2019​​     50,000

​​Direct materials inventory, Jan. 1, 2019​​   30,000

​​Direct material purchases​​​​     200,000

​​Finished goods inventory, Dec. 31, 2019​​   20,000

​​Finished goods inventory, Jan. 1, 2019​​   40,000

​​Heat, light & power (90%-Plant)​​​​   60,000

​​Indirect labor​​​​​​     40,000

​​Property taxes (90%-Plant)​​​​         60,000

​​Sales representatives’ salaries​​​       800,000

​​Sales revenue​​​​​       4,000,000

​​Plant supervisor’s salary​​​​   100,000

​​Accounts receivable​​​       600,000

​​Supplies (80%-Plant) ​​​​​       80,000

Accounts payable     500,000

​​Work-in-Progress inventory, Dec. 31, 2019​​     50,000

​​Work-in-Progress inventory, Jan. 1, 2019​​   30,000

​​     Determine:

a) The cost of goods manufactured.

b) The gross profit.

c) The operating income (loss).

Answer 1

Requirement a: Compute the cost of goods manufactured as follows

BM Inc
Schedule of Cost of Goods Manufactured
For the Year Ended December 31, 2019
Particulars	Amount	Amount
Direct Materials:
Inventory, January 1, 2019	$30,000
Add: Purchases of Direct Material	$200,000
Cost of Direct Materials Available for Use	$230,000
Deduct: Inventory, December 31, 2019	$50,000
Direct Materials Used		$180,000
Direct Manufacturing Labor		$600,000
Manufacturing Overhead Costs:
Indirect Manufacturing Labor	$40,000
Supplies ($80,000 × 80%)	$64,000
Heat, Light & Power ($60,000 × 90%)	$54,000
Depreciation Expense ($200,000 × 90%)	$180,000
Property Taxes ($60,000 × 90%)	$54,000
Plant Supervisor's Salary	$100,000
Total Manufacturing Overhead Costs		$492,000
Manufacturing Costs Incurred During 2019		$1,272,000
Add: Work-in-Process Inventory, January 1, 2019		$30,000
Total Manufacturing Costs to Account for		$1,302,000
Deduct: Work-in-Process Inventory, December 31, 2019		$50,000
Cost of Goods Manufactured		$1,252,000

Requirement b and c: Compute gross profit and operating income as follows

BM Inc
Income Statement
For the Year Ended December 31, 2019
Particulars	Amount	Amount
Revenues		$4,000,000
Cost of Goods Sold
Finished Goods Inventory, January 1, 2019	$40,000
Add: Cost of Goods Manufactured	$1,252,000
Cost of Goods Available for Sale	$1,292,000
Deduct: Finished Goods Inventory, December 31, 2019	$20,000
Cost of Goods Sold		$1,272,000
Gross Profit		$2,728,000
Operating Expenses
Supplies Expense ($80,000 × 20%)	$16,000
Heat, Light & Power ($60,000 × 10%)	$6,000
Depreciation Expense ($200,000 × 10%)	$20,000
Property Taxes ($60,000 × 10%)	$6,000
Sales Representative Salaries	$800,000
Total Operating Expenses		$848,000
Operating Income		$1,880,000