Coronado Boat Yard should not recognize any of the manufacturing costs on their year end

income statement. These are product costs, and as a result, will not appear on the income
B. Ex. 16.1 statement until the boats are sold and the revenue is earned.

Direct materials used = Direct materials purchased ($340,000) less the increase in the
B. Ex. 16.2 ending balance of direct materials ($65,000) = $275,000.

B. Ex. 16.3 Product costs per truck: $4,500,000 ÷ 60 = $75,000

Costs recognized due to matching: 53 trucks sold × $75,000 = $3,975,000
The company should recognize $3,975,000 in product costs in the current year income
statement.

B. Ex. 16.4 Direct Materials Inventory

Balance, 1/1 $320,000

Purchases of Direct materials used

direct materials $1,450,000

Balance, 12/31 $270,000

B. Ex. 16.5
Account Debit
Direct Labor 380000
Cash
To record payment of direct labor costs.

Account Debit
WIP Inventory 400000
Direct Labor
To record usage of direct labor in the production process.

B. Ex. 16.6
CF Manufacturing Co. -- Manufacturing Overhead
Indirect labor 370,000 Overhead costs
payroll assigned to production
Indirect material 15,000
costs

Other overhead 163,000

costs
 Only product costs are debited to the Manufacturing Overhead account throughout the year. Rent
associated with a finished goods warehouse is a period cost. Thus, in order for the Manufacturing
Overhead account to have a zero ending balance, manufacturing overhead of $548,000 must have been
assigned to Work in Process Inventory during the year.
Basic Formula: Beg. WIP Inv. + manufacturing costs - cost of fininshed goods manufactured
B. Ex. 16.7 = End. Inv.
Midwest Canterbury = $30,000 + $100,000 - $110,000 = X; X = $20,000
Northern Canterbury = $40,000 + $200,000 - X = $60,000; X = $180,000
Eastern Canterbury = $30,000 + X - $150,000 = $40,000; X = $160,000

B. Ex. 16.8 Eskola Manufacturing

Partial Balance Sheet
At December 31
Current assets:
Cash and Cash Equivalents …………………………………………….
Accounts Receivable ……………………………………………………..
Inventories:
Raw Materials ……………………………………………… 25,400
Work in Process ………………………………………… 43,600
Finished Goods …………………………………………… 85,700
Total Inventories ………………………………………………………..
Total current assets ………………………………………………………………………..
 SOLUTIONS TO BRIEF
EXERCISES

nufacturing costs on their year end

ult, will not appear on the income
ned.

,000) less the increase in the

00 = $3,975,000
sts in the current year income

ory

$1,500,000

Credit

380000

Credit

400000

uring Overhead

548,000
t throughout the year. Rent
der for the Manufacturing
ead of $548,000 must have been

t of fininshed goods manufactured

X; X = $20,000
; X = $180,000
X = $160,000

540,000
237,000

154,700
931,700
 SOLUTIONS TO PROBLEMS SET A

20 Minutes, Easy PROBLEM 16.1A

AQUA-MARINE

a. Computations of amounts:
(1) Average per-unit manufacturing cost:
Cost of finished goods manufactured $ 728,000
Number of completed units manufactured 112
Average cost per unit ($728,000 ÷ 112 units) $ 6,500

(2) Ending materials inventory:

Direct materials purchased $ 225,000
Less: Direct materials used in production 216,000
Materials inventory, end of year $ 9,000

Ending work in process inventory:

Manufacturing costs charged to work in process:
Direct materials used $ 216,000
Direct labor assigned to production 200,000
Manufacturing overhead 350,000
Total manufacturing costs $ 766,000
Less: Cost of finished goods manufactured 728,000
Work in process inventory, end of year $ 38,000

Ending finished goods inventory:

Average per-unit manufacturing cost [part (1)] $ 6,500
Number of finished goods in inventory
(112 manufactured, less 100 sold) 12
Ending inventory of finished goods
(12 units × $6,500 per unit) $ 78,000

(3) Cost of goods sold:

Number of units sold 100
Average per-unit manufacturing cost [part (1)] $ 6,500
Cost of goods sold (100 units × $6,500 per unit) $ 650,000

Alternative computation:
Cost of finished goods manufactured $ 728,000
Less: Ending inventory of finished goods [part (2)] 78,000
Cost of goods sold $ 650,000

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McGraw-Hill Education.
 PROBLEM 16.1A
AQUA-MARINE (concluded)
b. Comments on deducting manufacturing costs from revenue:

No—the entire $775,000 in manufacturing costs is not deducted from the revenue of the
current year. Manufacturing costs are product costs, not period costs. Product costs are
viewed as the cost of creating inventory, not as “expenses” of the current period. If the
inventory remains on hand at the end of the period, the product costs appear in the balance
sheet as the cost of this inventory. When the units are sold, the product costs are deducted
from the related sales revenue as the cost of goods sold. This accomplishes the objective of
“matching” revenue with the related costs and expenses of generating that revenue.

The disposition of the $775,000 in manufacturing costs “incurred” during the year is
summarized below:

Total manufacturing costs “incurred” during the year $ 775,000

Less: Amounts representing inventory at year-end:
Materials inventory $ 9,000
Work in process inventory 38,000
Finished goods inventory 78,000 125,000
Manufacturing costs deducted from revenue $ 650,000
(cost of goods sold)

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McGraw-Hill Education.
15 Minutes, Easy PROBLEM 16.3A
SUPERIOR LOCKS, INC.

a. Purchases of direct materials $ 269,000

b. Cost of direct materials used:

Materials inventory, beginning of year $ 13,000
Add: Purchases of direct materials 269,000
Cost of materials available for use $ 282,000
Less: Materials inventory, end of year 17,000
Cost of direct materials used $ 265,000

c. Direct labor costs assigned to production $ 134,000

d. Year-end liability for direct wages payable $ 2,700

e. Total manufacturing costs:

Direct materials used (part b) $ 265,000
Direct labor costs 134,000
Manufacturing overhead 214,400
Total manufacturing costs $ 613,400

f. Cost of finished goods manufactured $ 614,400

g. Ending inventory of work in process:

Work in process inventory, beginning of year $ 19,000
Add: Total manufacturing costs (part e) 613,400
Cost of all goods in process during the year $ 632,400
Less: Cost of finished goods manufactured 614,400
Work in process inventory, end of year $ 18,000

h. Cost of goods sold:

Beginning inventory of finished goods $ 46,000
Add: Cost of finished goods manufactured 614,400
Cost of goods available for sale $ 660,400
Less: Ending inventory of finished goods 53,400
Cost of goods sold $ 607,000

i. Total inventory at year-end:

Materials $ 17,000
Work in process (part g) 18,000
Finished goods 53,400
Total inventory $ 88,400

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McGraw-Hill Education.
35 Minutes, Medium PROBLEM 16.5A
ANDITON MANUFACTURING

a. (1) Direct materials purchased $ 410,000

(2) Direct materials used:

Materials inventory, beginning of year $ 22,000
Add: Purchases of direct materials 410,000
Cost of direct materials available for use $ 432,000
Less: Materials inventory, end of year 26,000
Cost of direct materials used $ 406,000

(3) Payments of direct labor payrolls $ 189,000

(4) Direct labor cost assigned to production $ 192,000

(5) Total manufacturing costs:

Direct materials used [part a (2)] $ 406,000
Direct labor cost 192,000
Manufacturing overhead 393,600
Total manufacturing costs $ 991,600

(6) Cost of finished goods manufactured:

Work in process inventory, beginning of year $ 5,000
Add: Total manufacturing costs [part a (5)] 991,600
Cost of all goods in process during the year $ 996,600
Less: Work in process inventory, end of year 9,000
Cost of finished goods manufactured $ 987,600

(7) Cost of goods sold:

Beginning inventory of finished goods $ 38,000
Add: Cost of finished goods manufactured [part a (6)] 987,600
Cost of goods available for sale $ 1,025,600
Less: Ending inventory of finished goods 25,000
Cost of goods sold $ 1,000,600

(8) Total inventory:

Materials inventory $ 26,000
Work in process inventory 9,000
Finished goods inventory 25,000
Total inventory $ 60,000

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McGraw-Hill Education.
 PROBLEM 16.5A
ANDITON MANUFACTURING (concluded)
b. ANDITON MANUFACTURING CORP.
Schedule of the Cost of Finished Goods Manufactured
For the Year Ended December 31
Work in process inventory, beginning of year $ 5,000
Add: Manufacturing costs assigned to production:
Direct materials used [part a (2)] $ 406,000
Direct labor 192,000
Manufacturing overhead 393,600
Total manufacturing costs 991,600
Cost of all goods in process during the year $ 996,600
Less: Work in process, end of year 9,000
Cost of finished goods manufactured $ 987,600

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McGraw-Hill Education.
25 Minutes, Medium PROBLEM 16.7A
IDAHO PAPER COMPANY
a. IDAHO PAPER CO.
Schedule of the Cost of Finished Goods Manufactured
For the Year Ended December 31
Work in process inventory, January 1 $40,000
Add: Manufacturing costs assigned to production:
Direct materials used (1) $335,000
Direct labor 375,000
Manufacturing overhead 637,500
Total manufacturing costs 1,347,500
Cost of all goods in process during the year $1,387,500
Less: Work in process inventory, December 31 37,500
Cost of finished goods manufactured $1,350,000

(1) Cost of direct materials used:

Materials inventory, January 1 $25,000
Add: Purchases of direct materials 330,000
Cost of direct materials available for use $355,000
Less: Materials inventory, December 31 20,000
Cost of direct materials used $335,000

b. Average unit costs:

Cost of finished goods manufactured (part a) $1,350,000
Units manufactured 45,000
Average unit cost ($1,350,000 ÷ 45,000 units) $30

c. Cost of goods sold (FIFO basis):

10,000 units @ $21 (beginning inventory of finished goods) $210,000
Add: 30,000 units @ $30 900,000
(from units manufactured in the current year)
Cost of goods sold during year (40,000 units) $1,110,000

d. Finished goods inventory, Dec. 31 (FIFO basis):

15,000 units (10,000 + 45,000 - 40,000) @ $30 $450,000