Adams Corporation began fiscal Year 2 with the following balances in its inventory accounts. Raw Materials $ 54,600 Work in Process 83,400 Finished Goods 27,400 During the accounting period, Adams purchased $239,200 of raw materials and issued $248,600 of materials to the production department. Direct labor costs for the period amounted to $323,000, and manufacturing overhead of $46,300 was applied to Work in Process Inventory. Assume that there was no over- or underapplied overhead. Goods costing $611,700 to produce were completed and transferred to Finished Goods Inventory. Goods costing $601,100 were sold for $800,600 during the period. Selling and administrative expenses amounted to $70,200. Required Determine the ending balance of each of the three inventory accounts that would appear on the year-end balance sheet. Prepare a schedule of cost of goods manufactured and sold and an income statement.

Adams Corporation

a) Ending Balances of:

i) Raw Materials:

a) Opening balance = $54,600

b) Purchases = $239,200

Cost of Available Raw Materials = $293,800 (a+b)

less c) Cost of Raw Materials Issued = $248,600

Closing Raw Materials = $45,200

ii) Work in Process (WIP):

a) Opening WIP = $83,400

b) Materials Issued = $248,600

c) Labour applied = $323,000

d) Overhead applied = $46,300

Total cost of WIP available for production = $701,300 (a+b+c+d)

less Cost of Finished Goods = $611,700

Closing WIP = $89,600

iii) Finished Goods:

a) Opening Finished Goods = $27,400

b) Cost of Finished Goods = $611,700

c) Finished Goods available for sale = $639,100 (a+b)

d) less Cost of Goods Sold = $601,100

e) Closing Finished Goods = $38,000

B-1) A schedule of Cost of Goods Manufactured

Opening Inventory of Materials = $54,600

Opening WIP = $83,400

Purchases of Materials = $239,200

Labour = $323,000

Overhead = $46,300

Total Cost = $746,500

Less Closing Inventory of Materials = $45,200

Less Closing WIP = $89,600

Total Cost of Finished Goods = $611,700

B-2) Schedule of  Cost of Goods Sold:

a) Opening Finished Goods = $27,400

b) Cost Finished Goods = $611,700

c) Cost of Goods Available for sale = $639,100 (a+b)

d) less Closing Finished Goods = $38,000

e) Cost of Goods Sold = $601,100 (c - d)

B-3) Income Statement

Sales = $800,600

less cost of sales = $601,100

Gross Profit = $199,500

less Selling and Administrative Expenses = $70,200

Net Income before Interests and Taxes = $129,300

Explanation:

a) Closing Inventory of Raw Materials, WIP, and Finished Goods can be obtained by adding opening inventory to purhcases, transferred to production, or finished goods to obtain the costs of raw materials available for production, cost of materials in WIP, and cost of finished goods available for sale respectively.

b) With the costs of materials in WIP, labour and overhead costs are applied to obtain the costs of production.

c) When the closing WIP is subtracted from (b) above, we have the cost of finished goods for the period.

d) The difference between Sales and Cost of Sales is the Gross Profit.

e) The Selling and Administrative expenses are then deducted from the gross profit to get the net income or profit before interests and taxes.