Gay's Auto Repair Shop had the following inventory balances during July 2006:

During the month of July the company purchased \(\$ 50,000\) of direct materials and incurred \(\$ 13,000\) of direct labor costs. Factory overhead was \(75 \%\) of direct labor costs.

{Required:}

(a) Using a computer spreadsheet program, prepare a schedule which computes the cost of goods manufactured and the cost of goods sold for July. Follow the format shown in the chapter for the income statement of a manufacturing firm.

(b) Use this schedule to show the effect on cost of goods manufactured and sold if purchases of direct materials increases to \(\$ 60,000\) and ending finished goods inventory decreases to \(\$ 48,000\).

Transcribed Image Text:

Inventories Direct Materials Work in process Finished goods July 1, 2006 $150,000 200,000 70,000 July 31, 2006 $178,000 210,000 52,000