Blueprint Problem III: External Financial Statements

Income Statement for Manufacturing Firms: Cost of Goods Manufactured

The income statement for external reporting is frequently referred to as . Under expenses are segregated according to . The two major categories for expenses are cost of goods sold and operating expenses. Cost of goods sold is the attached to the units sold. To compute the cost of goods sold, it is first necessary to calculate cost of goods manufactured. The Schedule of Cost of Goods Manufactured has the following format:

Statement of Cost of Goods Manufactured
for the Coming Year
Direct materials
Beginning Inventory	XXX
Add:	XXX
	XXX
Less:	XXX
Direct materials used in production		XXX
		XXX
		XXX
Total production (manufacturing) costs added		XXX
		XXX
		XXX
Cost of goods manufactured		XXX

Apply the Concepts Scenario 1

Timbre Company manufactures door bells. For the coming year, the company forecasts that 50,000 units will be produced with the following costs:

Direct materials	$231,450
Direct labor	135,000
Variable overhead	45,000
Fixed overhead	675,000

Timbre expects to purchase $215,400 of direct materials. Beginning inventories and projected ending inventories for direct materials and work in process are as follows:

	Direct Materials Inventory	Work-in-Process Inventory
Beginning	$80,100	$112,500
Ending	70,500	90,000

Using the above information for Timbre, prepare a cost of goods manufactured statement, by completing the following table:

Enter all amounts as positive numbers.

Statement of Cost of Goods Manufactured
for the Coming Year
Direct materials
Beginning Inventory	$231,450
	$
Direct materials used in production		$
Total production (manufacturing) costs added		$
Cost of goods manufactured		$

Statement of Cost of Goods Sold

Once cost of goods manufactured is computed, then it is a simple matter to calculate the cost of goods sold, the first category of expenses for the income statement. Cost of goods sold is calculated by beginning finished goods to cost of goods manufactured and then the ending finished goods.

Apply the Concepts: Scenario 1(a) (a continuation of the Timbre Example)

Assume that Timbre has beginning finished goods of $226,500 and that the ending finished goods is projected to be $67,500. Calculate cost of goods sold by completing the following table:

Prepare a statement of cost of goods sold by completing the following table:

Enter all amounts as positive numbers.

Statement of Cost of Goods Sold
Cost of goods manufactured	$
Goods available for sale	$
Cost of goods sold	$

Preparing a Statement of Operating Income

With cost of goods sold calculated, it is now possible to prepare an operating income statement. The format of the statement is shown in the table below. Notice that it is customary to show the items of the statement as a percentage of sales.

Timbre Company
Income Statement
For the Coming Year
			% of sales
Sales		xxx	100.00
Less:		xxx	xxx.xx
		xxx	xxx.xx
Less:
Selling expenses	xxx
Administrative expenses	xxx	xxx	xxx.xx
Operating income		xxx	xxx.xx

Apply the Concepts: Scenario 1(b) (a continuation of the Timbre Example)

Timbre has budgeted sales of 57,500 units at $43per unit. The selling expense is expected to be $200,000 and general administrative expense is projected at $350,000.

Prepare an operating income statement for Timbre by completing the table below (round dollars to the nearest dollar and percentages to two decimal places):

Enter all values as positive numbers.

Timbre Company
Income Statement
For the Coming Year
			% of sales
Sales		$	100.00
Selling expenses	xxx
Administrative expenses	xxx
Operating income		$