Question

Selected data concerning the past year’s operations of the Lone Star Leather Company are as follows:

	Inventories
	Beginning	Ending
Raw material	$71,000	$	81,000
Work in process	80,000		30,000
Finished goods	90,000		110,000

Other data:

Direct material used	$318,000
Total manufacturing costs charged to production during the year (includes direct material, direct labor, and manufacturing overhead applied at a rate of 60% of direct-labor cost)	686,000
Cost of goods available for sale	826,000
Selling and administrative expenses	31,000

Required:
1.	What was the cost of raw materials purchased during the year?
	2. What was the direct-labor cost charged to production during the year? 3. What was the cost of goods manufactured during the year? 4. What was the cost of goods sold during the year

Answer 1

Q1.

Cost of Raw Material (RM) Utilized = Opening stock of RM + Purchase of RM - Closing Stock of RM

OR

Purchase of RM = Cost of RM Utilized + Closing Stock of RM - Opening Stock of RM

Purchase of RM = $318,000 + $81,000 - $71,000

Purchase of RM = $328,000

Q2.

Total Manufacturing Costs = Direct Material Cost + Direct Labor Cost + Manufacturing Overheads i.e. 60% of Direct Labor Cost

Assume Direct Labor cost to be X

$686,000 = $318,000 + 1.0 X + 0.6X

Solving for X

1.6 X = $368,000

X = $230,000

Therefore Direct Labor Cost = $230,000

Q3.

Cost of Goods Manufactured (COGM) = Direct Material + Direct Labor + Other Factory Overheads + Op. Stock of Finished Goods - Cl. Stock of Finished Goods

COGM = $686,000 + $90,000 - $110,000

COGM = $666,000

Q4

Cost of Goods Sold (COGS) = Opening Inventory + Purchase of RM - Cl. Inventory

COGS = $241,000 + $328,000 - $221,000

COGS = $348,000