This is a managerial accounting question.

I do not understand why cost of goods manufactured would equal cost of goods available for sale - direct materials purchases to the following question. The answer and solution is given. I do NOT need the answer to the following question. Can someone EXPLAIN WHY they used the following formula in getting cost of goods manufactured.

Randall Company manufactures products to customer specifications. A job costing system is used to accumulate production costs. Factory overhead cost was applied at 125% of direct labor cost. Selected data concerning the past year's operation of the company are presented below.

	January 1	December 31
Direct materials	$77,000	$40,000
Work in process	66,000	42,000
Finished goods	115,000	100,000
Other information
Direct materials purchases		$324,000
Cost of goods available for sale		950,000
Actual factory overhead costs		260,000

The cost of goods manufactured during the year is:

A.

$850,000.

B.

$348,000.

C.

$672,000.

D.

$835,000.

E.

$811,000.

$950,000 - $115,000 = $835,000. The answer is D