Problem 2-16 (45 minutes) 1. Swift Company Schedule of Cost of

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Problem 2-16 (45 minutes)
1.
Swift Company
Schedule of Cost of Goods Manufactured
For the Month Ended August 31
Direct materials:
Raw materials inventory, August 1................. $ 8,000
Add: Purchases of raw materials.................... 165,000
Raw materials available for use ..................... 173,000
Deduct: Raw materials inventory, August 31 ..
13,000
Raw materials used in production ..................
$160,000
Direct labor.....................................................
70,000
Manufacturing overhead ..................................
85,000
Total manufacturing costs................................
315,000
Add: Work in process inventory, August 1 ........
16,000
331,000
Deduct: Work in process inventory, August 31..
21,000
Cost of goods manufactured ............................
$310,000
2.
Swift Company
Income Statement
For the Month Ended August 31
Sales ..............................................................
$450,000
Cost of goods sold:
Finished goods inventory, August 1 ............... $ 40,000
Add: Cost of goods manufactured ................. 310,000
Goods available for sale ................................ 350,000
Deduct: Finished goods inventory, August 31.
60,000 290,000
Gross margin ..................................................
160,000
Selling and administrative expenses .................
142,000
Net operating income ......................................
$ 18,000
© The McGraw-Hill Companies, Inc., 2010. All rights reserved.
Solutions Manual, Chapter 2
37
Problem 2-16 (continued)
3. In preparing the income statement for August, Sam failed to distinguish
between product costs and period costs, and he also failed to recognize
the changes in inventories between the beginning and end of the
month. Once these errors have been corrected, the financial condition
of the company looks much better and selling the company may not be
advisable.
© The McGraw-Hill Companies, Inc., 2010. All rights reserved.
38
Managerial Accounting, 13th Edition
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