[Anonymous]

I am getting confused of calculation of cost of goods manufactured. how come does “Indirect manufacturing labor costs” include straight to calculation for this MC?…Any hints or explanation will be greatly appreciated.

Becker – Final Review 1-2-7/29

The following information was extracted from the accounting records of Company:

Direct materials purchased: 80000

Direct material used: 76000

Direct manufacturing labor costs: 10000

Indirect manufacturing labor costs: 12000

Sales salaries: 14000

Other factory expenses: 22000

Selling and administrative expenses: 20000

What was the cost of goods manufactured?

A. 124000

B. 120000

C. 154000

D. 170000

Answer: B (76000+10000+12000+22000)

[Anonymous]

Remember the formula and what it means: DM+DL+FOH = Direct Materials + Direct Labor + Factory Overhead

From the problem, you need to add 1) direct materials used, 2) direct labor costs, 3) indirect labor (for example the direct labor needs to be supervised by top notch supervisors or drill sergeants, whichever works for the company :P) and 4) the other factory expenses (lubrication of machinery, repairs and maintenance, security, parking, utilities, etc.)

What's missing? Factory overhead, normally that is included, but since it was not mentioned as one of the costs, I bet it was one of the “other factory expenses” listed. That's why it was added to the cost of goods manufactured. And the indirect labor was also factory overhead too, so they basically split factory overhead into two components: indirect labor + other factory expenses.

Now what about the rest?

Direct materials purchased: 80,000 but 76,000 were used so 4,000 left over. That's just in inventory, not part of cost of goods manufactured because you didn't manufacture any goods with them.

sales salaries and selling and administrative – those don't count for manufacturing goods, those are for getting the manufactured goods out the door. Those do not count for cost of goods manufactured.

[Anonymous]

Thank you for your reply, bobkorz. I was wondering what timing the indirect labor has applied factory OH in this question… I thought the indirect labor is to be allocated to actual factory overhead cost incurred first. Then, it would be applied factory OH…anyway, thank you, again! good luck.

[Anonymous]

I thought all the indirect labor was part of Factory OH applied in this problem. The costs were actually incurred.

[Anonymous]

I should've been thinking that way…thank you, again!

[Anonymous]

The only trick for this problem is that Factory OH was split into two parts: Other factory expenses and indirect labor.

[Author]

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