Quality Souvenirs Corporation produces and distributes products that are labeled
ID: 2599866 • Letter: Q
Question
Quality Souvenirs Corporation produces and distributes products that are labeled and sold by sporting goods companies as souvenirs for their local sports teams. QSC, as they are called, needs to prepare its December 20x1, year-end financial statements. The initial draft was prepared by the company’s President. Below is a copy of that Income Statement:
QSC Corporation
Income Statement
December 31, 20x1
Sales
$950,000
Less:
Raw materials balance @ January 1, 20x1
$25,000
Wages – product assembly labor
150,000
Product painting and finishing wages
120,000
Advertising expense
90,000
Selling and administrative expenses
75,000
Rent on factory facilities
60,000
Rent on the corporate office complex
18,500
Finished Goods Inventory @ January 1, 20x1
30,000
Depreciation on sales equipment
45,000
Depreciation on production equipment
30,000
Accrued liabilities
125,000
Plant security wages
10,000
Purchases of direct material during the period
225,000
Production supervisor’s salary
18,000
Factory utilities
12,000
Factory cafeteria wages
21,000
Work-in Process Inventory @ January 1, 20x1
116,000
Factory insurance
8,000
1,078,500
Net Loss
($128,000)
With your advanced knowledge of accounting and reporting, you hired to review the income statement before it’s filed. In your review, you realize that the Income Statement is not quite right.
Required
Using the additional information provided below:
Prepare a schedule of cost of goods manufactured for the year-ending December 31, 20x1.
Some additional information:
Fiscal year-ending December 31, 20x1
Raw Materials Inventory
$22,000
WIP Inventory
14,000
Finished Goods Inventory
40,000
By the way, according to QSC’s President, the company’s manufacturing overhead cost should be applied to production at a rate of 55% of Direct Labor cost.
QSC Corporation
Income Statement
December 31, 20x1
Sales
$950,000
Less:
Raw materials balance @ January 1, 20x1
$25,000
Wages – product assembly labor
150,000
Product painting and finishing wages
120,000
Advertising expense
90,000
Selling and administrative expenses
75,000
Rent on factory facilities
60,000
Rent on the corporate office complex
18,500
Finished Goods Inventory @ January 1, 20x1
30,000
Depreciation on sales equipment
45,000
Depreciation on production equipment
30,000
Accrued liabilities
125,000
Plant security wages
10,000
Purchases of direct material during the period
225,000
Production supervisor’s salary
18,000
Factory utilities
12,000
Factory cafeteria wages
21,000
Work-in Process Inventory @ January 1, 20x1
116,000
Factory insurance
8,000
1,078,500
Net Loss
($128,000)
Explanation / Answer
QSC Corporation Schedule of cost of goods manufactured Beginning inventory raw material 25000 Add: Purchases during the year 225000 Total raw material available 250000 Less: Ending inventory of raw material 22000 Raw materials used for production 228000 Wages - product asembly labor 150000 Product painting and finishing labor 120000 Totdl direct labor cost 270000 Manufacturing overhead (55% of direct labor) 148500 Total factory cost incurred 646500 Add: Value of beginning work in process inventory 116000 762500 Less: Value of ending work in process inventory 14000 Cost of goods manufactured 748500