Any clarification to this Wiley Cost Measurement Problem is greatly appreciated. The answer for the first AND third parts don't make sense to me. You'll see when you read my comments in capitalized lettering. Here it goes:
1. (a) Three computations must be performed: raw materials used, cost of goods manufactured, and cost of goods sold. (1) Raw materials purchased $ 430,000
Less: Increase in raw materials inventory 15,000
Raw materials used $ 415,000
(2) Beginning WIP —
Raw materials used (from above) $ 415,000
Direct manufacturing labor 200,000
Factory overhead 300,000
Cost to account for $ 915,000
Less: Ending WIP —
Cost of goods manufactured $ 915,000
(3) Cost of goods manufactured $ 915,000
Add: Decrease in finished goods inventory 35,000
Cost of goods sold $ 950,000
PART 1 -The increase in raw materials inventory represents the amount of inventory that was purchased but was not used. Therefore, this increase must be subtracted from raw materials purchased to determine the amount of raw materials used.(OKAY- I STILL DON'T UNDERSTAND WHY THIS INCREASE MUST BE SUBTRACTED FROM RAW MATERIALS PURCHASED-WHY OH WHY???? CAN SOMEONE SHOW ME A T-ACCOUNT ON THIS-MAYBE I'LL UNDERSTAND THIS.)
PART 2 -Work in process inventory is an adjustment in arriving at cost of goods manufactured (as shown above). For this question no adjustment is necessary because Kay has no work in process inventory.(THIS MAKES SENSE-YEA!!)
PART 3 -The decrease in finished goods inventory represents the amount of inventory that was sold in excess of the inventory manufactured during the current period. Therefore, this amount must be added to cost of goods manufactured to determine cost of goods sold. (OKAY- THIS EXPLANATION REALLY DOESN'T MAKE SENSE TO ME. THE DECREASE IN FG REPRESENTS THE AMOUNT OF INVENTORY THAT WAS SOLD IN EXCESS OF THE INVENTORY MANUFACTURED DURING THE CURRENT PERIOD…???? WHAT DOES THIS MEAN???? AND WHY MUST IT BE ADDED TO CGM???) ANY HELP IS GREATLY APPRECIATED.
The freight-out of $ 45,000 is irrelevant for this question
.
