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The following information is available for Aikman Company. January 1, 2017 2017 December 31,...

Question:

The following information is available for Aikman Company.

January 1, 2017 2017 December 31, 2017
Raw materials inventory $23,680 $31,650
Work in process inventory 16,120 18,470
Finished goods inventory 29,410 21,410
Materials purchased $153,280
Direct labor 221,550
Manufacturing overhead 184,550
Sales revenue 903,450

Compute costs of goods manufactured. Create an income statement through gross profit. Show the presentation of the ending inventories on the December 31, 2017 balance sheet.

Gross profit

Gross profit is the excess of net sales over necessary costs in producing the product, either direct or indirect. Such costs include fixed costs and variable costs.

Answer and Explanation:

Costs of goods manufactured is computed as follows:

Raw materials, beginning 23,680
Add: Materials purchased 153,280
Less: Raw materials, end 31,650
Materials put into process 145,310
Add: Direct labor 221,550
Add: Manufacturing overhead 184,550
Total costs put into process 551,410
Add: Work in process, beginning 16,120
Less: Work in process, end 18,470
Costs of goods manufactured 549,060

To create an income statement, we need to compute first for the cost of goods sold, as follows:

Costs of goods manufactured 549,060
Add: Finished goods inventory, beginning 29,410
Less: Finished goods inventory, end 21,410
Cost of goods sold 557,060

Income statement is prepared as follows:

Aikman Company
Income statement
As of December 31, 2017
Sales revenue 903,450
Less: Cost of goods sold 557,060
Gross profit 346,390

Ending inventory accounts are presented under the current assets in the balance sheet as follows:

Aikman Company
Balance Sheet
As of December 31, 2017
Current Assets
Raw materials inventory 31,650
Work in process inventory 18,470
Finished goods inventory 21,410
Total inventory 71,530

Learn more about this topic:

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How to Calculate Gross Profit Margin: Definition & Formula

from Financial Accounting: Help and Review

Chapter 5 / Lesson 17
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