Question

How would you revise your answer to question 12 if the company had beginning finished goods inventory of $12,400?

Answer 1

To revise question 12 with a beginning finished goods inventory of $12,400 included, this amount would be added to the total production costs when calculating the COGS, which affects the calculation of the firm's accounting profit.

Step-by-step explanation:

Concerning question 12, which initially didn't specify the beginning finished goods inventory, the revision that incorporates a beginning finished goods inventory of $12,400 would affect the calculation of the Cost of Goods Sold (COGS). When calculating COGS, the beginning inventory needs to be added to the total production costs, and then the ending inventory is subtracted. If the question pertains to calculating the firm's accounting profit, this means that the beginning inventory would be included in the total costs subtracted from sales to determine profit.

Here's how this might change the calculation for accounting profit:

1. Start with the sales revenue of $1 million.
2. Add the beginning finished goods inventory to the costs, which means labor ($600,000) + capital ($150,000) + materials ($200,000) + beginning inventory ($12,400).
3. Subtract these total costs from the sales revenue to find the accounting profit.

Note that if the question involves additional details such as ending inventory or other expenses, these would also need to be factored into the calculations.

Answer 2

If the company had a beginning finished goods inventory of $12,400, the revised calculation for cost of goods manufactured (COGM) would include adjusting for this beginning inventory in addition to the costs incurred during the year.

Explanation:

In the initial scenario where the beginning finished goods inventory is not provided, the calculation for cost of goods manufactured (COGM) involves summing up the total manufacturing costs incurred during the year. However, when the beginning finished goods inventory is considered, the COGM calculation requires adjusting for the beginning inventory as it represents the inventory from the previous period that was not sold and is now carried forward.

To revise the answer, the formula for COGM needs an adjustment:

`\[ COGM = Total Manufacturing Costs + Beginning WIP Inventory - Ending WIP Inventory \]`

Where:

- Total Manufacturing Costs comprise direct materials, direct labor, and manufacturing overheads.

- Beginning WIP Inventory represents the value of goods from the previous period.

- Ending WIP Inventory is the value of goods remaining at the end of the current period.

Incorporating the beginning finished goods inventory of $12,400 into the COGM calculation helps reflect the portion of the finished goods from the previous period that remains unsold. This ensures a more accurate representation of the cost incurred during the current period for the finished goods produced.