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CHAPTER 14

Correction on Exercise 5: Sales of P2,000,000 should be P5,500,000


Ex 1
a. direct materials
f. direct materials
b. factory overhead g. factory overhead
c. factory overhead h. direct materials
d. direct labor
i. Factory overhead
e. factory overhead j. direct materials
Ex 2
a. direct, manufacturing
b. direct, administrative
c. common
d. common
e. direct, manufacturing
f. direct, administrative
g. direct, selling
h. direct ,selling

i. common
j. direct, manufacturing
k. direct, selling
l. direct, administrative
m. direct, selling
n. common
o. direct, administrative
p. direct, manufacturing

q. direct, administrative
r. direct, manufacturing
s. common

Building, insurance and depreciation = square foot of land area used


Light and Power = based on equipment used
Water = no. of employed workers
Janitorial Service = square foot of land area used
Ex 3
Raw Materials, Aug. 1
Add: Net costs of purchases:
Purchases
Freight-in
Purchase Ret. & All
Purchase discount
Total avail for use
Raw materials Aug. 31
Raw materials used

P20,750
P20,500
475
(500)
(200)

20,275
41,025
15,900
P25,125

Ex 4
SHOWROOM MANUFACTURING
Statement of Cost of Goods Sold
For the year ended Dec. 31, 2009
Raw Materials, Jan. 1
Purchases
Raw Mat, Dec. 31
Raw mat used
Direct Labor
Manufacturing Expense
Total Manufacturing Cost
WIP 1/1
Total cost placed in process
WIP 12/31
Cost of Goods Manufactured
FG, 1/1
Total available for sale
FG, 12/31
Cost of Goods Sold

P 36,500
50,000
(33,700)
P 52,800
45,000
143,500
241,300
83,750
325,050
74,450
250,600
25,450
276,050
21,900
254,150

SHOWRROM MANUFACTURING Co
Income Statement
For the year ended Dec. 31, 2009
Sales
Cost of goods sold
Gross Profit
Operating Expenses
Net Income

P 280,000
254,150
25,850
14,600
P 11,250

62

Ex 5
ROLLERS MANUFACTURING COMPANY
Statement of Cost of Goods Sold
For the year ended Dec. 31, 2009
Raw Mat, 1/1
Add: Purchases
Freight In
Total Available for use
Less: Raw Mat, 12/31
Raw Mat Used
Direct labor
Manufacturing Expenses Note1
Total Manufacturing Cost
Add: WIP, 1/1
Total cost placed in process
Less: WIP, 12/31
Cost of Goods Manufactured
Add: Finished Goods, 1/1
Total Goods Available for Sale
Less: Finished Goods, 12/31
Cost of Goods Sold

P 88,000
1,200,000
28,000
1,316,000
95,000
1,221,000
1,500,000
1,852,750
(a) 4,573,750
65,000
4,638,750
78,500
(b) 4,460,250
320,000
4,780,250
250,000
(c) P4,530,250

Note 1:
Machine Repairs
Supervision
Factory Heat, Light, Power
Indirect Materials
Total

12,250
75,000
1,750,000
15,500
1,852,750

d) Gross Profit (5,500,000 18,500- 25,000 4,530,250) P 926,250


Selling (120,000+150,000 + 60,000)
(330,000)
Administrative
(7,850 + 80,000)
( 87,850)
e) Net Income
P 508,400
Ex. 6 Material requirement : table P750 + glass top P500 = P1,250
chairs P500 x 4 =
2,000
Labor: P300 x 2 workers x 3days

P3,250
1,800

No of chairs manufactured in a month considering 4 weeks:


If 2 workers can finish a table in 3 days and there are 6 workers, then
Six tables per week x 4 wks= 24 tables in a month.
Cost of goods manufactured for October:
Direct Materials
P3,250 x 24
Direct Labor
P1,800 x 24
Factory Overhead
Supplies Used
P 12,500
Tools Used
9,250
Repairs
4,100
Heat, Light & Power
7,500
Water
1,200
Depreciation
5,000
Cost of Goods Mftd

P 78,000
43,200

39,500
P160,750

Unit cost (160,750/24)= P6,697.92 x 2=Sales Price P13,395.84


Income Statement
Sales
Cost of Goods Sold
Gross Profit
Distribution Costs:
Administrative Costs
Net Income

P13,395.84 x 10
P6,697.92 x 10
Advertising
P8,500
Sales Salaries 6,000
Communication 3,750
Office Expenses

63

P133,958.40
66,979.20
P 66,979.20
(18,250)
( 10,000)
P 38,729.20

7.
WASHINGTON COMPANY
Statement of Cost of Goods Sold
For the year ended Dec. 31, 2010
Direct materials, 1/1
P 14,000
Purchases
35,500
Total avail for use
49,500
Direct Mat, 12/31
13,000
Raw Mat, used
36,500
Direct Labor
39,000
Manufacturing Expenses:
Indirect Labor
P 11,500
Depreciation
6,000
Taxes
5,000
Insurance
4,450
Utilities
4,000
Patent Amort
2,750
33,700
Total Manufacturing Costs
109,200
Add: WIP, 1/1
9,000
Total cost placed in process
118,200
Less: WIP 12/31
3,000
Cost of Goods Manufactured (115,200/800=P144/unit) 115,200
Add: FG, 1/1
50,000
Total Goods Available for Sale
165,200
Less: FG, 12/31
(P144 x250)
36,000
Cost of Goods Sold
P 129,200
WASHINGTON COMPANY
Income Statement
For the year ended Dec. 31, 2009
Sales
Sales Discount
Less: CGS
Gross Profit
Less: Operating Expenses:
Selling-advertising
Commission
Freight-out
Others
Admins-Salaries
Bad Debts
Others
Operating Loss
Interest Expense
Net Loss

P 192,750
(3,910)

P 41,300
20,750
1,200
14,000
P 25,000
5,500
20,500

P188,840
129,200
P 59,640

(77,250)
(51,000)
P (68,610)
(5,000)
P (73,610)

8. a) Statement of Cost of Goods Manufactured


Beauty Products
Statement of Cost of Goods manufactured
For the month ended March 31, 2009
Purchases - Raw Materials
Add: Freight In
Total Raw Materials Available for use
Less: Raw Materials, end
Raw Materials Used
Direct Labor
Factory Overhead
Indirect Labor
SSS, MCR, EC, HDMF
Factory Supplies
Depreciation Expense - Machinery
Depreciation Expense - Building
Power

64

P80,000
1,500
P81,500
14,000
67,500
50,000
P10,000
4,425
3,000
3,000
2,000
1,500

Machine Maintenance
Total Manufacturing Cost
Add: Work In process, beg.
Total Cost of Goods In Process
Less: Work In Process, end
Total Cost of Goods Manufactured

1,600

b) Cost per unit (128,025 / 1,000)

25,525
P143,025
0
P143,025
15,000
P128,025
P128.025

c) Gross Profit for the month


Beauty Products
Income Statement
For the month ended March 31, 2009
Sales (at 100% mark-up) 256.05 x 800
Less: Cost of Goods Sold
Cost of Goods manufactured
Less: Fin Goods,end ( P128.025 x 200)
Gross profit
d) Journal Entries:
1) Raw Materials Purchases
Accounts Payable
To record the purchase of Raw
Materials on Account.

P128,025
25,605

80,000
80,000

Factory Supplies Expense


3,000
Cash
To record the purchase of factory Supplies.
2) Freight-In
Cash
To record the payment of freight.

1,500

3) Payroll
Withholding Tax Payable
SS Premium Payable
Medicare Premium Payable
HDMF Premium Payable
Cash
To record the paid salaries and
their corresponding premiums withheld.

80,000

3,000

1,500

4) Medicare Expense
Combined EC & Maternity Expense
SS Expense
HDMF Expense
Medicare Payable
Combined EC & Maternity Payable
SS Payable
HDMF Payable
To record the premiums
contributions of the employer.
5) Direct Labor
Indirect Labor
Sales Salaries
Administrative Salaries
Payroll
To record the classification of
payroll.

P204,840

3,200
2,500
1,300
600
72,400

1,300
750
3,250
600
1,300
750
3,250
600

50,000
10,000
10,000
10,000
80,000

6) Depn Expense-Building (Manufacturing) 2,000


Depn Expense-Building (Selling)
1,000
Den Expense-Building (Administrative) 1,000
Depn Expense (Factory Machinery)
3,000
Accumulated Depreciation - Bldg

65

4,000

P102,420
P118,400

Accumulated Depreciation Machinery 3,000


To record the Depreciation of
factory building & machineries.
7) Power-(Manufacturing)
Power-Selling
Power-Administrative
Machine Maintenance
Cash

1,500
750
750
1,600
4,600

8) Cash/Accounts Receivable
Sales
To record sales at 100% mark-up.

204,840
204,840

Cost of Sales
Finished Goods Inventory
To record the corresponding cost
of sales.
Problems
1.
1. FOH
6. ADM
11.ADM

2. FOH
7. FOH
12. FOH

3. M&S
8. M&S
13. FOH

102,420
102,420

4. M & S
9.DM
14. FOH

5. FOH
10. M & S
15.M&S

2.
a)
SUNSHINE ENTERPRISES
Statement of Cost of Goods Sold
For the year ended March 31, 2009
Direct mat, 1/1
Purchases
Freight-In
Less: Returns
Total avail for use
Less: Direct mat 12/31
Raw Mat used
Direct Labor
Factory overhead:
Indirect Labor
Factory Supplies used
Factory Taxes
Factory depreciation
Factory utilities
Factory Insurance
Total manufacturing costs
Add: WIP 1/1
Total cost placed in process
Less: WIP 12/31
Cost of goods Manufactured

P 70,000
P 137,500
9,000
6,500
140,000
210,000
80,000
130,000
142,500
P 50,000
30,000
21,000
18,000
15,000
6,000

140,000
412,500
15,000
427,500
42,000
P385,500

b) Income Statement
Sunshine Enterprise
Income Statement
For the year ended Dec. 31, 2009
Sales
Less: Cost of Goods Sold
Cost of Goods Manufactured
Add: Finished Goods, Jan. 1
Goods Available for Sale
Less: Finished Goods, Dec. 31
Gross Income
Less: Operating Expenses

P471,000
P385,500
109,900
495,400
155,000

66

340,400
P130,600

Selling Expenses
Sales Salaries
Advertising
Sales Taxes
Sales Depreciation
Sales Utilities
Sales Insurance
Administrative Expenses
Administrative Salaries
Administrative Utilities
Administrative Dep.
Administrative Taxes
Bad Debt Expense
Administrative Insurance
Net Income Before Taxes
Less: Tax (at 32%)
Net Income After Tax

P25,000
16,000
8,750
6,000
2,500
2,000

60,250

P41,000
7,500
6,000
5,250
5,000
2,000

66,750

3.
a)
Jan. 2 Raw Materials
Accounts Payable
To record purchased materials on
account.
08

12
15

20,000
20,000

Raw Materials Purchases


Accounts Payable
To record Purchases on account.

55,000

Factory Supplies
Cash

10,000

55,000

10,000

Direct Labor
Indirect Labor
Sales Salaries
Office Salaries
Withholding tax Payable
Cash
To record the salaries paid & the
withheld tax.

9,000
3,000
2,000
2,000

17 Real Estate taxes Expense


Factory Repairs Expense
Cash
To record the payment for Taxes
& Repair.

15,000
30,000

20 Utilities Expense - Manufacturing


Utilities Selling
Utilities- Administrative
Utilities Payable
To record the payment for fuel,
water & telephone bills.

6,750
3,375.
3,375

26 Prepaid Fire Insurance


Cash
To record the prepayment for
insurance.

48,000

1,700
14,300

45,000

13,500

48,000

28 Cash 375,000
Sales
To record the sales of the company.
30 Indirect Labor
Direct Labor
Sales Salaries
Office Salaries

375,000
3,000
9,000
2,000
2,000

67

127,000
P 3,600
1,152
P 2,448

Withholding Tax Payable


SS Payable
HDMF
Medicare
Cash
To record payroll and premiums
withheld.

1,700
1,350
600
750
11,615

a) PhilHealth Expense-Manufacturing
PhilHealth Expense=Operating
EC Expense=Manufacturing
EC Expense-Operating
SSS Expense-Manufacturing
SSS Expense-Operating
HDMF Expense-Manufacturing
HDMF Expense
Medicare Payable
EC Payable
SSS Payable
HDMF Payable
To record employers contribution
in employees premium.

562.50
187.50
900.00
300.00
1,312.50
437.50
450.00
150.00
750
1,200
1,250
600

31 b) Depreciation Expense Building(Mfg)


Depreciation Expense-Bldg(Sales)
Depreciation Expense-Bldg(Admin)
Depreciation Expense machinery
Accum. Depreciation - Building
Accum. Depreciation - Machinery
To record Depreciation Expense.

4,500
750
750
5,000

c) Insurance Expense-Manufacturing
Prepaid Insurance
To record expired portion of
insurance.

4,000

d) Factory Supplies Used


Factory Supplies
To record unused factory Supplies.

4,000

e) Materials inventory(50x P20)


Manufacturing summary

6,000
5,000

4,000

4,000
1,000
1,000

Finished Goods Inventory


Income & Expense Summary

4,750
4,750

Malakas Manufacturing Corp.


Statement of Cost of Goods Sold
For the month ended Jan. 31, 2009
Raw Materials Purchased
Less: Raw Materials, end
Raw Materials Used
Direct Labor
Factory Overhead
Factory Repairs
Indirect Labor
Real Estate Taxes
Utilities Expense
Factory Insurance fire
SS, MCR, EC
Depreciation Expense - Fact. Bldg
Depreciation Expense Machinery

P 75,000
1,000
P 74,000
18,000
P 30,000
6,000
15,000
6,750
4,000
3,225
4,500
5,000

68

Factory Supplies
a) Total Cost of Goods Manufactured

4,000

b) (170,475/4,000 = P42.61875)
Less: FG, End (42.61875 x 250)
Cost of Goods Sold

78,475
170,475
10,655
P159,820

c) Selling Price
Cost of Sales
M.U.
Rate = 57.38 / 42.62 x 100= 134,63%

P 100.00
42.62
P 57.38

d) Sales
Cost of Sales
Operating Expenses(7,914+ 7,914)
Net Income

P375,000
159,820
15,828
P199,352

4. a) 1) Raw Materials Purchased


Freight In
Accounts Payable
2) Factory Supplies
Cash
3) Payroll
Withholding Tax Payable
SS Payable
PH Payable
HDMF Payable
Cash
To record payroll.

23,000
2,000
25,000
6,500
6,500
72,000
3,600
1,440
1,080
720
65,160

Direct Labor
Indirect Labor
Sales Salaries
Admin. Salaries
Payroll
To classify payroll.

39,000
10,000
8,000
15,000
72,000

4) Machine Repairs Expense


Prepaid Factory Insurance
Rent Expense - Manufacturing
Rent Expense - Selling
Rent Expense - Admin.
Light & Power Expense - Mfg.
Light & Power Expense - Selling
Light & Power Expense - Admin.
Oil & Lubricants Expense
Delivery Truck Repairs Expense
Cash

2,000
1,500
4,000
2,000
2,000
3,000
1,500
1,500
4,500
3,750
25,750

5) Cash
75,000
Accounts Receivable
Sales

165,000
240,000

6) Accounts Payable
22,000
Purchase Discount
Cash
21,500
To record the payment of liabilities.
7) Cash 118,400
Sales Discount
Accounts Receivable
To record collection.

500

1,600
120,000

8) a) Depreciation Expense - machineries


Depreciation Expense - Furn. & Equipt.
Depreciation - Delivery Trucks

69

2,500
750
1,000

Accumulated Depreciation - Mach.


Accumulated Depreciation - Furn & Equipt.
Accumulate Depreciation - delivery Trucks
To record depreciation.
b) Factory Insurance Expense
Prepaid Factory Insurance
To record expired portion of Factory insurance.

2,500
750
1,000
300
300

c) Factory Expenses
Accrued Factory Expenses
To record Accrued Factory Expense.

1,750

d) Factory Supplies Inventory


Factory Supplies
Office Supplies Expense
Office Supplies Inventory

5,000

1,750

5,000
450
450

Work In Process Inventory


Materials Inventory
Manufacturing Summary

20,500
14,000

Finished Goods Inventory


Income & Expense Summary

10,800

34,500
10,800

Mahal Mfg. Co.


Statement of Cost of Goods Sold
For the month ended July 31, 2009
Raw Materials, beg.
Add: Raw Materials Purchases
Purchase Discount
Add: Freight In
Total Raw Materials available for use
Less: Raw Materials, end
Raw Materials Used
Direct Labor
Factory Overhead
Indirect Labor
Factory Rent
Factory Light & Power
Oil & Lubrication
Supplies Expense
Machineries Depreciation
Machine Repairs
Factory Expense
Factory Insurance Expense
Total Manufacturing Cost
Add: Work In Process, beg.
Total Cost of Goods In Process
Less: Work In Process, end
Total Goods Manufactured
Add: Finished Goods, beg.
Total Goods available for sale
Less: Finished Goods, end
Total Cost of Goods Sold

P30,000
P23,000
(500)
2,000

P10,000
4,000
3,000
4,500
3,000
2,500
2,000
1,750
300

24,500
54,500
14,000
P40,500
39,000

31,050
P110,550
40,000
P150,550
20,500
P130,050
6,000
P136,050
10,800
P125,250

Mahal Mfg. Co.


Income Statement
For the month ended July 31, 2009
Sales (Net of discount of P1,600)
Less: Cost of Goods Sold
Gross profit
Less: Operating Expense
Rent Selling
Rent Admin.

P238,400
125,250
113,150
P 2,000
2,000

70

Admin. Salaries
Sales Salaries
Office Furn. & Equipt. - Depreciation
Office Supplies Expense
Light & Power Selling
Light & Power Admin.
Repairs - Delivery Truck
Depreciation Delivery Truck

15,000
8,000
750
450
1,500
1,500
3,750
1,000

Net Income

35,950
P77,200

Mahal Mfg. Co.


Statement of Financial Position
As of July 31, 2009
Assets
Current Assets
Cash
Accounts Receivable
Raw Materials Inventory
Work In Process Inventory
Finished Goods Inventory
Office Supplies
Prepaid Factory
Factory Supplies Inventory
Property Plant & Equipment
Machineries
Accumulated Depreciation
Office Furniture & Equipment
Accumulated Depreciation
Delivery Equipment
Accumulated Depreciation
Total Assets

P224,490
60,750
14,000
20,500
10,800
200
1,200
5,000
P225,000
22,000
P 79,600
10,950
80,000
18,000

P336,940

203,000
68,650
62,000

333,650
P670,590

Liabilities & Stockholders Equity


Current Liabilities:
Accounts Payable
Accrued Expenses
SSS, MC, HDM Payable
Notes Payable

P11,500
1,750
6,840
74,800

Stockholders Equity
Capital Stock
APIC
Retained Earnings
Total Liabilities & Stockholders Equity

P250,000
155,000
170,700

Case Problem:
Working Capital requirements:
Materials (20,000 x 2)
Direct Labor
Factory Overhead
Operating Expenses
Total
Pre-operating costs
Fixed capital requirement:
Machineries
Furniture & Fixtures
Office Equipment
Delivery Truck
Contingency Fund
Total minimum capital requirement

P94,890

575,700
P670,590

P40,000
15,000
15,000
17,500
P87,500
25,000
P250,000
30,000
50,000
150,000

71

480,000
25,000
P617,500

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