Question 2:

Schedules of cost of goods manufactured and sold; income statement

The following data refer to Sunshine Sdn Bhd for the current year:

Sales revenue $2 526 000

Raw material inventory, 1 January 106 800

Purchases of raw material 877 200

Raw material inventory, 31 December 70 800

Direct labour cost incurred 568 800

Selling and administrative expenses 322 800

Indirect labour cost incurred 180 000

Council rates 108 000

Depreciation on factory building 150 000

Income tax expense 30 000

Indirect material used 54 000

Depreciation on factory equipment 72 000

Insurance on factory and equipment 48 000

Electricity for factory 84 000

Work in process inventory, 1 January 0

Work in process inventory, 31 December 48 000

Finished goods inventory, 1 January 42 000

Finished goods inventory, 31 December 48 000

Interpreting the schedule of cost of goods manufactured

Refer to the schedule of cost of goods manufactured prepared in above.

Required:

a. How much of the manufacturing costs incurred during the current year remain in work in process inventory on 31 December?

b. Suppose Sunshine Sdn Bhd had increased its production in the current year by 20 per cent. What effect would this change have on the direct material cost shown in the schedule of cost of goods manufactured? Why?

c. Answer the same question as in requirement 2 for depreciation on the factory building.

d. Suppose that only half of the $72 000 in depreciation on equipment was related to factory machinery, and the other half was related to selling and administrative equipment. Now would this have changed the schedule of cost of goods manufactured?