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Tyge Corporation recorded the following activities during its first month of operations. Purchased materials costing $300,000.
Used direct materials in production costing $280,000.
Incurred direct labor costs of $220,000, of which $190,000 had actually been paid at the end of the month.
Applied manufacturing overhead at a rate of $25 per direct labor hour. (Direct labor workers earn $16 per hour).
Incurred actual manufacturing overhead costs of $333,750.
Transferred completed jobs costing $675,000 to finished goods.
Sold completed jobs for $900,000. The cost applied to the jobs sold totaled $620,000.
Closed the Manufacturing Overhead account directly to Cost of Goods Sold at the end of the month.
Incurred selling and administrative costs of $130,000 during the month.
A. Prepare Tyge Corporation's income statement for its first month of operations. Ignore income taxes.
B. Determine the company's inventory balances at the end of its first month of operations.

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Answer:

Adjusted Cost of Goods Sold $ 610,000

Net Profit $ 160,000

Ending Inventory Materials   $ 20,000

Ending Inventory  Finished Goods $ 55,000

Ending Inventory Work In Process  $ 168,750

Explanation:

Tyge Corporation

Cost of Goods Sold Schedule

Direct Materials Inventory $ 000000

Purchased materials  $300,000

Less Ending Inventory $ 20,000

Direct materials Used in production $280,000.

Direct labor costs of $220,000,

Applied manufacturing overhead at a rate of $25 per direct labor hour. (Direct labor workers earn $16 per hour). $343,750

(Working 220,000/16*25= 343,750)

Total Manufacturing Costs 843,750

Add Work in Process Beginning Inventory $ 0000

Cost of Goods Available For Manufacture $ 843,750

Less Work In Process Ending Inventory 168,750

Cost Of Goods Manufactured $ 675,000

Add Finished Goods Opening Inventory  $0000

Cost of Goods Available for Sale $ 675,000

Less Finished Goods Ending Inventory $55,000

Cost of Goods Sold $620,000

LEss Over applied overhead 10,000

Adjusted Cost of Goods Sold $ 610,000

Tyge Corporation

Income Statement

Sales $900,000

Less Adjusted Cost of Goods Sold  $ 610,000

Gross Profit $ 290,000

Less selling and administrative Costs  $130,000

Net Profit $ 160,000

Part B: It is assumed that the beginning inventories of Direct Materials , Work in Process and  Finished Goods  are zero.

So adding the given balances and subtracting  we get the ending Inventories .

Materials Purchased $300,00

Materials used $ 280,000

Ending Inventory Materials   $ 20,000

Finished Goods  Transferred 675,000

Cost of Goods Sold 620,000

Ending Inventory  Finished Goods $ 55,000

Total Manufacturing Costs 843,750

Cost Of Goods Manufactured $ 675,000

Ending Inventory Work In Process  $ 168,750

Tyge Corporation's income statement for its first month of operations is illustrated below:

Tyge Corporation Income Statement for the Month Ended on XX/XX/XXXX.

Sales = $900,000

Less: Cost of goods sold = $610,000

Gross profit = $290,000

Selling and administrative expenses $130,000

Net income = $160,000

The company's inventory balances at the end of its first month of operations will be:

Ending material inventory = $20,000

Ending work in process inventory = $168750

Ending finished goods inventory = $55000

Note that:

Adjusted cost of goods sold = Unadjusted cost of goods sold - Over-applied factory overhead

= $620000 - $10000

= $610000

Ending raw materials inventory = Raw materials purchased - Direct materials used in production

= $300000 - $280000

= $20000

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