Question

The following data pertain to Babor Company for the fiscal year ended December 31: Prior December 31 Current December 31 Purchases of materials $ 197,500 Direct labor 130,250 Indirect labor 51,500 Factory insurance 9,300 Depreciation—factory 36,250 Repairs and maintenance—factory 14,900 Marketing expenses 148,550 General and administrative expenses 87,950 Materials inventory $ 29,500 64,750 Work-in-Process inventory 16,250 18,600 Finished Goods inventory 18,300 24,400 Sales in the current year were $660,000. Required: Prepare a schedule of cost of goods manufactured and an income statement for the current year for Babor Company.

Answer 1

To prepare a schedule of cost of goods manufactured, calculate the total manufacturing costs and subtract the beginning and ending work-in-process inventory. To prepare an income statement, calculate the cost of goods sold, gross profit, operating expenses, and net profit.

Step-by-step explanation:

Schedule of Cost of Goods Manufactured:

1. Calculate the total manufacturing costs by adding up purchases of materials, direct labor, indirect labor, factory insurance, depreciation—factory, and repairs and maintenance—factory.
2. Calculate the total cost of goods manufactured by adding the total manufacturing costs to the beginning work-in-process inventory and subtracting the ending work-in-process inventory.

Income Statement:

1. Calculate the cost of goods sold by adding the beginning finished goods inventory to the cost of goods manufactured and subtracting the ending finished goods inventory.
2. Calculate the gross profit by subtracting the cost of goods sold from the sales revenue.
3. Calculate the operating expenses by adding the marketing expenses and general and administrative expenses.
4. Calculate the net profit by subtracting the operating expenses from the gross profit.

Answer 2

Answer and Explanation:

The preparation is presented below:

Babor Company

Cost of Goods Sold Statement

For the fiscal year ended December 31

Beginning work-in-process inventory $16,250

Manufacturing costs:

Direct materials:

Beginning inventory $29,500

Purchases $197,500

Materials available $227,000

Less: Ending inventory -$64,750

Direct materials used $162,250

Direct labor $130,250

Other manufacturing costs

Indirect labor $51,500

Factory insurance $9,300

Depreciation - factory $36,250

Repairs and maintenance -factory $14,900

Total of other manufacturing cost $111,950

Total manufacturing costs: $404,450

Total costs of work-in-process $420,700

Less: Ending work-in-process -$18,600

Cost of goods manufactured $402,100

Beginning finished goods inventory $18,300

Finished goods available for sale $402,400

Less: Ending finished goods inventory -$24,400

Cost of goods sold $396,000

Babor Company

Cost of Goods Sold Statement

For the fiscal year ended December 31

Sales $660,000

Less: Cost of goods sold -$396,000

Gross profit $264,000

Less: Marketing expenses -$148,550

Less: General and administrative expenses -$87,950

Net operating income $27,500