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Chapter 14

Basic Accounting for


Manufacturing Operations

Exercises

Exercise 1

Southern Manufacturing Corporation


Statement of Cost of Goods Manufactured
For the Year Ended June 30, 2008

Raw materials used


Raw materials inventory, July 1, 2007 P400,000
Add: Purchases P1,300,000
Add (Deduct)
Freight in 28,000
Purchase returns & allowances (78,000)
Purchase discount (18,000)
Net purchases 1,232,000
Raw materials available for use P1,632,000
Less: Raw materials inventory, June 30, 2008 340,000
Raw materials used P1,292,000
Direct labor 640,000
Factory overhead
Indirect labor P 164,000
Factory rent expense 120,000
Depreciation machinery and equipment 100,000
Superintendence 96,000
Indirect materials 80,000
Factory supplies used 74,400
Machinery repairs and maintenance 70,000
Amortization of patents 40,000
Factory insurance expense 14,400 758,800
Total manufacturing costs for the period P2,690,800
2 Chapter 14

Exercise 2

Requirement (1)

Cookie Factory
Statement of Cost of Goods Manufactured
For the Year Ended December 31, 2008

Raw materials used


Raw materials inventory, January 1 P 720,000
Add: Raw materials purchases 2,200,000
Add (Deduct)
Purchase returns & allowances (66,000)
Purchase discounts (24,600)
Transportation-in 30,000
Net purchases 2,139,400
Raw materials available for use P2,859,400
Less: Raw materials inventory, December 31 540,000
Raw materials used P2,319,400
Direct labor 1,020,000
Factory overhead
Indirect materials P 360,000
Indirect labor 130,000
Depreciation factory building 100,000
Factory supervisor 96,000
Machine maintenance 82,000
Factory supplies expense 58,000
Freight and power 26,000
Expired factory insurance 12,000
Total manufacturing costs P4,203,400
Add: Work in process inventory, January 1, 2008 860,000
Total cost of goods placed in process P5,063,400
Less: Work in process inventory, December 31, 2008 840,000
Cost of Goods Manufactured P4,223,400
Basic Accounting for Manufacturing Operations 3

Requirement (2)

Cookie Factory
Statement of Income
For the Year Ended December 31, 2008

Sales P5,928,000
Less: Sales Returns and Allowances P 86,000
Sales Discounts 58,400 144,400
Net Sales P5,783,600
Less: Cost of Sales

Cost of Goods Manufactured P4,223,400


Add: Finished Goods Inventory, January 1 900,000
Total Available for Sale 5,123,400
Less: Finished Goods Inventory, December 31 960,000
Cost of Goods Sold P4,163,400
Gross Profit P1,620,200
Less: Operating Expenses
Selling Expenses
Sales Commission P592,800
Advertising Expense 62,000
Transportation Cost 52,000
Depreciation Store Fixtures 24,000
Store Supplies Expense 16,800
Total 747,600
Administrative Expenses
Office Salaries P368,000
Depreciation Office Furniture 36,000
Bad Debts Expense 32,000
Office Supplies Used 14,000
Total 450,000
Total Operating Expenses 1,197,600
Net Operating Income P 422,600
Add (Deduct) Other Income (Expenses)
Rent Income 19,200
Interest Income 4,000
Interest Expense (11,200)
12,000
Net Income P 434,600
4 Chapter 14

Requirement (3)

A Balance Sheet Statement cannot be prepared for lack of information.

Requirement (4)

Closing Entries, December 31, 2008

(1) Cost of Goods Manufactured P4,223,400


Raw Materials Inventory, December 31 540,000
Work in Process Inventory, December 31 840,000
Raw Materials Purchase Returns and Allowances 66,000
Raw Materials Purchase Discount 24,600
Raw Materials Inventory, January 1 720,000
Work in Process Inventory, January 1 860,000
Raw Materials Purchases 2,200,000
Transportation In 30,000
Direct Labor 1,020,000
Indirect Materials 360,000
Indirect Labor 130,000
Depreciation Factory Building 100,000
Factory Supervisor 96,000
Machine Maintenance 82,000
Factory Supplies Expense 58,000
Light and Power 26,000
Expired Factory Insurance 12,000

(2) Cost of Sales 4,163,400


Finished Goods Inventory, December 31 960,000
Cost of Goods Manufactured 4,223,400
Finished Goods Inventory, January 1 900,000

(3) Income Summary 4,163,400


Cost of Sales 4,163,400
Basic Accounting for Manufacturing Operations 5

(4) Sales 5,928,000


Rent Income 19,200
Interest Income 4,000
Sales Returns and Allowances 86,000
Sales Discount 58,400
Sales Commission 592,800
Advertising Expense 62,000
Transportation Out 52,000
Depreciation Store Fixture 24,000
Store Supplies Expense 16,800
Office Salaries 368,000
Depreciation Office Furniture 36,000
Bad Debts Expense 32,000
Office Supplies Expense 14,000
Interest Expense 11,200
Income Summary 4,598,000
6 Chapter 14

Exercise 3

Requirement (1)
Crown Manufacturing Co.
Worksheet
June 30, 2008

Adjusted Trial Cost of Goods


Trial Balance Adjustments Balance Manufactured Income Statement Balance Sheet
DR CR DR CR DR CR DR CR DR CR DR CR
Cash P 87,500 P 87,500 P 87,500
Raw Materials
Inventory, Jan. 1 66,500 66,500 66,500
Work in Process
Inventory, Jan. 1 76,500 76,500 76,500
Finished Goods
Inventory, Jan. 1 83,000 83,000 83,000
Unexpired Factory
Insurance 12,600 (1) 4,000 8,600 8,600
Factory Supplies on
Hand 25,600 (2) 20,600 5,000 5,000
Machinery 365,800 365,800 365,800
Accumulated
Depreciation
Machinery P 84,000 (5) 18,000 102,000 102,000
Tools 14,800 (3) 14,800
Patents 28,000 (4) 2,800 25,200 25,200
Vouchers Payable 78,000 78,000 78,000
Bonds Payable 200,000 200,000 200,000
Share Capital 400,000 400,000 400,000
Retained Earnings 250,700 250,700 250,700
Sales 720,000 720,000 720,000
Raw Materials
Purchases 247,200 247,200 247,200
Discount on Raw
Materials Purchases 5,000 5,000 5,000
Basic Accounting for Manufacturing Operations 7

Adjusted Trial Cost of Goods


Trial Balance Adjustments Balance Manufactured Income Statement Balance Sheet
DR CR DR CR DR CR DR CR DR CR DR CR
Direct Labor 356,400 (7) 3,600 360,000 360,000
Indirect Labor 53,200 (7) 1,000 54,200 54,200
Supervision 44,000 44,000 44,000
Machinery Repairs 16,000 16,000 16,000
Other Factory
Expenses 20,000 20,000 20,000
Selling Expenses 125,600 125,600 125,600
Administrative
Expenses 110,000 110,000 110,000
Interest Expense 5,000 (6) 1,000 6,000 6,000
P1,737,700 P1,737,700

Insurance Expense
Factory (1) 4,000 4,000 4,000
Factory Supplies
Expense (2) 20,600 20,600 20,600
Tools Expense (3) 14,800 14,800 14,800
Patent Amortization (4) 2,800 2,800 2,800
Depreciation
Machinery (5) 18,000 18,000 18,000
Interest Payable (6) 1,000 1,000 1,000
Wages Payable
(7) 4,600 4,600 4,600
Raw Materials
Inventory, June 30 48,000 48,000
Work in Process
Inventory, June 30 56,000 56,000
Finished Goods
Inventory, June 30 60,000 60,000
944,600 109,000 324,600 780,000 656,100 1,036,300
835,600 835,600
380,200 380,200
944,600 944,600 1,160,200 1,160,200 1,036,300 1,036,300
8 Chapter 14

Requirement (2)

Crown Manufacturing Co.


Statement of Cost of Goods Manufactured
For the Period Ended June 30, 2008

Raw materials used:


Raw materials inventory, January 1, 2008 P 66,500
Add Net material purchases
Purchases P247,200
Less: Discount on raw material purchases (5,000) 242,200
Raw materials available for use P 308,700
Less: Raw materials inventory, December 31, 2008 (48,000)
Raw materials used P 260,700
Direct labor 360,000
Factory overhead costs:
Indirect labor P 54,200
Supervision 44,000
Machinery repairs 16,000
Other factory expenses 20,000
Insurance expense - factory 4,000
Factory supplies expense 20,600
Tools expense 14,800
Patent amortization 2,800
Depreciation expense - machinery 18,000 194,400
Total manufacturing costs P 815,100
Add: Goods in process inventory, January 1, 2008 76,500
Total cost of goods placed in process P 891,600
Less: Goods in process inventory, December 31, 2008 (56,000)
Cost of goods manufactured P 835,600
Basic Accounting for Manufacturing Operations 9

Requirement (3)

Crown Manufacturing Co.


Income Statement
For the Period Ended June 30, 2008

Sales P720,000
Less: Cost of goods sold:
Finished goods inventory, January 1, 2008 P 83,000
Add: Cost of goods manufactured 835,600
Total available for sale 918,600
Less: Finished goods inventory,
June 30, 2008 (60,000)
Cost of goods sold (858,600)
Gross profit P(138,600)
Less: Selling and administrative expenses
Selling expenses P(125,600)
Administrative expenses (110,000) (235,600)
Operating income P(374,200)
Less: Interest expense (6,000)
Net income P(380,200)
10 Chapter 14

Requirement (4)

Crown Manufacturing Co.


Balance Sheet
June 30, 2008

ASSETS

Current Assets
Cash P 87,500
Raw materials inventory 48,000
Goods in process inventory 56,000
Finished goods inventory 60,000
Unexpired factory insurance 8,600
Factory supplies on hand 5,000
Total current assets P 265,100

Non-current Assets
Machinery (net of accumulated depreciation of
P102,000) P 263,800
Patent 25,200
Total non-current assets P 289,000
Total assets P 554,100

LIABILITIES AND EQUITY

Current Liabilities
Vouchers payable P 78,000
Interest payable 1,000
Wages payable 4,600
Total current liabilities P 83,600

Non-current Liabilities
Bonds payable 200,000

Total liabilities P 283,600

Equity
Share capital P 400,000
Retained earnings P 250,700
Deduct: Net loss (380,200) (129,500)
Total equity P 270,500
Total liabilities and equity P 554,100
Basic Accounting for Manufacturing Operations 11

Test Material

Test Material 14-1

Post
Date Account Titles and Explanation Ref Debit Credit
2008
April 1 Accounts Payable 24,000
Cash 480
Purchase Discount 23,520

3 Raw Materials Purchases 12,000


Cash 12,000

10 Direct Labor 36,000


Withholding Taxes Payable 712
Cash 35,288

13 Accounts Payable 2,000


Purchase Returns and Allowances 2,000

20 Factory Supplies 9,000


Cash 9,000

30 Raw Materials Purchases 20,000


Cash 4,000
Notes Payable 6,000
Accounts Payable 10,000

May 4 Indirect Materials 4,000


Cash 4,000

7 Cash 3,000
Purchase Returns and Allowances 3,000

15 Indirect Labor 12,800


Superintendence 20,000
Sales Salaries 19,240
Office Salaries 17,960
Withholding Taxes Payable 3,744
Cash 66,256

20 Notes Payable 6,000


Interest Expense 20
Cash 6,020
12 Chapter 14

Post
Date Account Titles and Explanation Ref Debit Credit
2008
June 10 Tools 15,600
Cash 15,600

14 Prepaid Insurance 5,400


Cash 5,400

19 Indirect Materials 9,200


Accounts Payable 9,200

25 Accounts Payable 1,200


Indirect Materials 1,200

28 Freight-in 3,000
Cash 3,000

30 Direct Labor 14,000


Indirect Labor 9,000
Wages Payable 23,000

30 Depreciation Expense 6,000


Accumulated Depreciation
Machinery and Equipment 6,000
Basic Accounting for Manufacturing Operations 13

Test Material 14-2


Requirement (1)
Bea Manufacturing Co.
Worksheet
For the Year Ended December 31, 2008

Trial Balance Adjustments Adjusted Trial Balance Cost of Goods Manufactured Income Statement Balance Sheet
DR CR DR CR DR CR DR CR DR CR DR CR
Cash on hand and
in banks 1,060,000 1,060,000 1,060,000
Accounts receivable 2,280,000 2,280,000 2,280,000
Allowance for bad
debts 81,000 (2) 55,800 136,800 136,800
Notes receivable 300,000 300,000 300,000
Raw materials
inventory, Jan. 1 1,260,000 1,260,000 1,260,000
Goods in process
inventory, Jan. 1 1,395,000 1,395,000 1,395,000
Finished goods
inventory, Jan. 1 1,105,000 1,105,000 1,105,000
Prepaid insurance 18,000 (4) 14,400 3,600 3,600
Land 1,500,000 1,500,000 1,500,000
Buildings 2,400,000 2,400,000 2,400,000
Machinery and
equipment 975,000 975,000 975,000
Office furniture and
equipment 225,000 225,000 225,000
Tools 170,000 (5) 34,000 136,000 136,000
Store furniture and
fixtures 180,000 180,000 180,000
Accumulated
depreciation
Machinery and
equipment 272,000 (5) 195,000 467,000 467,000

Trial Balance Adjustments Adjusted Trial Balance Cost of Goods Manufactured Income Statement Balance Sheet
14 Chapter 14

DR CR DR CR DR CR DR CR DR CR DR CR
Accumulated
depreciation
Buildings 720,000 (5) 480,000 1,200,000 1,200,000
Accumulated
depreciation
Office furniture
and fixtures 27,000 (5) 45,000 72,000 72,000
Accumulated
depreciation
Store furniture
and fixtures 22,500 (5) 36,000 58,500
Patent 150,000 (6) 30,000 120,000 120,000
Vouchers payable 1,380,000 1,380,000 1,380,000
Notes payable 270,000 270,000 270,000
Mortgage payable 800,000 800,000 800,000
Share capital
(authorized,
50,000 shares,
p.v. P200) 6,000,000 6,000,000 6,000,000
Premium on share
capital 600,000 600,000 600,000
Reserve for sinking
fund 100,000 100,000 100,000
Treasury shares
(1,000 shares at
cost) 240,000 240,000 240,000
Retained earnings 2,419,500 2,419,500 2,419,500
Sales 13,680,000 13,680,000 13,680,000
Sales allowance
and discounts 408,000 408,000 408,000
Raw materials
purchases 4,400,000 4,400,000 4,400,000
Purchase
allowances and
discount 480,000 480,000 480,000
Freight in 540,000 540,000 540,000
Direct labor 2,900,000 (8) 40,000 2,940,000 2,940,000
Indirect labor 840,000 (8) 30,000 870,000 870,000

Trial Balance Adjustments Adjusted Trial Balance Cost of Goods Manufactured Income Statement Balance Sheet
Basic Accounting for Manufacturing Operations 15

DR CR DR CR DR CR DR CR DR CR DR CR
Indirect materials 720,000 720,000 720,000
Manufacturing
supplies
expenses 240,000 (9) 24,000 216,000 216,000
Superintendence 460,000 460,000 460,000
Advertising 600,000 (10) 120,000 480,000 480,000
Sales salaries 700,000 (8) 10,000 710,000 710,000
Office salaries 800,000 800,000 800,000
Miscellaneous
factory
overhead 260,000 260,000 260,000
Interest expense 18,000 (7) 12,000 30,000 30,000
Interest income 12,000 (3) 1,800 13,800 13,800
Freight out 360,000 360,000 360,000
Miscellaneous
selling expenses 200,000 200,000 200,000
Miscellaneous
general
expenses 160,000 160,000 160,000
26,693,000 26,693,000
Raw materials
inventory,
12.31.08 1,900,000 1,900,000
Goods in process
inventory,
12.31.08 1,200,000 1,200,000
Finished goods
inventory,
12.31.08 1,560,000 1,560,000
Bad debts expense (2) 55,800 55,800 55,800
Interest receivable (3) 1,800 1,800 1,800
Insurance expense (4) 14,400 14,400 7,200 7,200
Depreciation
expense
Buildings (5) 480,000 480,000 240,000 240,000
Depreciation
expense
Machinery and
equipment (5) 195,000 195,000 195,000

Trial Balance Adjustments Adjusted Trial Balance Cost of Goods Manufactured Income Statement Balance Sheet
16 Chapter 14

DR CR DR CR DR CR DR CR DR CR DR CR
Depreciation
expense
Office furniture
and fixtures (5) 45,000 45,000 45,000
Tools expense (5) 34,000 34,000 34,000
Depreciation
expense Store
furniture and
fixtures (5) 36,000 36,000 36,000
Patent amortization (6) 30,000 30,000 30,000
Interest payable (7) 12,000 12,000 12,000
Salaries payable (8) 80,000 80,000 80,000
Unused
manufacturing
supplies (9) 24,000 24,000
Prepaid advertising (10) 120,000 120,000
13,567,200 3,580,000 4,637,000 15,253,800 14,225,400 13,595,800
9,987,200 9,987,200
13,567,200 13,567,200
Net income 629,600 629,600
15,253,800 15,253,800 14,225,400 14,225,400
Basic Accounting for Manufacturing Operations 17

Requirement (2)

Bea Manufacturing Co.


Statement of Cost of Goods Manufactured
For the Year Ended December 31, 2008

Raw materials used:


Raw materials inventory, January 1, 2008 P 1,260,000
Add Net material purchases
Purchases P4,400,000
Add: Freight-in 540,000
Total P4,940,000
Less: Purchase allowances and discount (480,000) 4,460,000
Raw materials available for use P 5,720,000
Less: Raw materials inventory, December 31, 2008 (1,900,000)
Raw materials used P 3,820,000
Direct labor 2,940,000
Factory overhead costs:
Indirect labor P 870,000
Indirect materials used 720,000
Manufacturing supplies expenses 216,000
Superintendence 460,000
Miscellaneous factory overhead 260,000
Insurance expense 7,200
Depreciation expense - buildings 240,000
Depreciation expense machinery and equipment 195,000
Tools expense 34,000
Patent amortization 30,000 3,032,200
Total manufacturing costs P 9,792,200
Add: Goods in process inventory, January 1, 2008 1,395,000
Total cost of goods placed in process P11,187,200
Less: Goods in process inventory, December 31, 2008 (1,200,000)
Cost of goods manufactured P 9,987,200
18 Chapter 14

Requirement (3)

Bea Manufacturing Co.


Income Statement
For the Year Ended December 31, 2008

Sales P13,680,000
Less: Sales discounts and allowances (408,000)
Net sales P13,272,000
Less: Cost of goods sold:
Finished goods inventory, January 1, 2008 P 1,105,000
Add: Cost of goods manufactured 9,987,200
Total available for sale 11,092,200
Less: Finished goods inventory,
December 31, 2008 (1,560,000)
Cost of goods sold 9,532,200
Gross profit P 3,739,800
Less: Selling and administrative expenses
Selling expenses
Insurance expense P (3,600)
Advertising (480,000)
Sales salaries (710,000)
Freight-out (360,000)
Miscellaneous selling expenses (200,000)
Depreciation expense building (120,000)
Depreciation expense store
furniture and fixtures (36,000) (1,909,600)
Administrative expenses
Office salaries P (800,000)
Bad debt expense (55,800)
Depreciation expense office
furniture and fixtures (45,000)
Depreciation expense building (120,000)
Insurance expense (3,600)
Miscellaneous general expenses (160,000) (1,184,400)
Total (3,094,000)
Operating income P 645,800
Add (Deduct) Other Income (Expense)
Interest income P 13,800
Interest expense (30,000) (16,200)
Net income P 629,600
Basic Accounting for Manufacturing Operations 19

Requirement (4)

Bea Manufacturing Co.


Balance Sheet
December 31, 2008

ASSETS

Current Assets

Cash on hand and in banks P 1,060,000


Accounts receivable (net of Allowance for bad
debts of P136,800) 2,143,200
Notes receivable 300,000
Interest receivable 1,800
Raw materials inventory 1,900,000
Goods in process inventory 1,200,000
Finished goods inventory 1,560,000
Prepaid insurance 3,600
Unused manufacturing supplies 24,000
Prepaid advertising 120,000
Total current assets P 8,312,600

Non-current Assets

Land P 1,500,000
Buildings (net of accumulated depreciation of
P1,200,000) 1,200,000
Machinery and equipment (net of accumulated
depreciation of P467,000) 508,000
Office furniture and equipment (net of
accumulated depreciation of P72,000) 153,000
Store furniture and fixtures (net of accumulated
depreciation of P58,500) 121,500
Tools 136,000
Patent 120,000
Total non-current assets P 3,738,500

Total assets P12,051,100


20 Chapter 14

LIABILITIES AND EQUITY

Current Liabilities

Vouchers payable P 1,380,000


Notes payable 270,000
Interest payable 12,000
Salaries payable 80,000
Total current liabilities P 1,742,000

Non-current Liabilities

Mortgage payable 800,000

Total liabilities P 2,542,000

Equity

Contributed Capital
Share capital, P200 par value
Authorized, 50,000 shares
Issued, 30,000 shares of which 1,000
shares are in treasury P 6,000,000
Premium on share capital 600,000
Total contributed capital P 6,600,000

Retained Earnings
Unappropriated
Balance, January 1 P 2,419,500
Add: Net income for 2008 629,600
Total P 3,049,100
Appropriated for sinking fund 100,000
Total retained earnings P 3,149,100
Total contributed capital and retained earnings P 9,749,100
Less: Treasury shares (at cost) (240,000)
P 9,509,100

Total liabilities and equity P12,051,100


Basic Accounting for Manufacturing Operations 21

Requirement (5)

GENERAL JOURNAL

Post
Date Account Titles and Explanation Ref Debit Credit
2008 Closing Entries

Dec. 31 Cost of Goods Manufactured 9,987,200


Raw Materials Inventory, December 31,
2008 1,900,000
Work in Process Inventory, December 31,
2008 1,200,000
Purchase Allowances and Discount 480,000
Raw Materials Inventory, January 1,
2008 1,260,000
Work in Process Inventory, January
1, 2008 1,395,000
Raw Materials Purchases 4,400,000
Freight-In 540,000
Direct Labor 2,940,000
Indirect Materials 720,000
Indirect Labor 870,000
Manufacturing supplies expenses 216,000
Superintendence 460,000
Miscellaneous factory overhead 260,000
Insurance expense 7,200
Depreciation expense - buildings 240,000
Depreciation expense machinery and
equipment 195,000
Tools expense 34,000
Patent amortization 30,000

31 Cost of Sales 9,532,200


Finished Goods Inventory, December 31,
2008 1,560,000
Cost of Goods Manufactured 9,987,200
Finished Goods Inventory, January 1,
2008 1,105,000

31 Income Summary 9,532,200


Cost of Sales 9,532,200
22 Chapter 14

Post
Date Account Titles and Explanation Ref Debit Credit
2008 Closing Entries

Dec. 31 Sales 13,680,000


Interest Income 13,800
Insurance expense 3,600
Advertising 480,000
Sales salaries 710,000
Freight-out 360,000
Miscellaneous selling expenses 200,000
Depreciation expense building 120,000
Depreciation expense store
furniture and fixtures 36,000
Office salaries 800,000
Bad debt expense 55,800
Depreciation expense office
furniture and fixtures 45,000
Depreciation expense building 120,000
Insurance expense 3,600
Miscellaneous general expenses 160,000
Interest Expense 30,000
Income Summary 10,569,800