Sleep Tight manufactures comforters. The estimated inventories on January 1 for finished goods, work in process, and materials were $36,000, $34,000 and $26,000 respectively. The desired inventories on December 31 for finished goods, work in process, and materials were $42,000, $33,000 and $19,000 respectively. Direct material purchases were $580,000. Direct labor was $202,000 for the year. Factory overhead was $144,000. Prepare a cost of goods sold budget for Sleep Tight, Inc.

Sleep Tight, Inc.

Cost of Goods Sold Budget:

RAW MATERIALS COSTS

January 1 Inventory of materials = $26,000

Direct Materials Purchases = $580,000

Less December 31 Inventory = $19,000

Cost of Materials used in production = $587,000

PRODUCTION COSTS

January 1 work in process = $34,000

Cost of materials used in production = $587,000

Direct Labour = $202,000

Factory Overhead = $144,000

less December 31 work in process = $33,000

Cost of goods produced = $934,000

FINISHED GOODS COSTS

January 1 Finished Goods = $36,000

Cost of goods produced = $934,000

less December 31 Finished Goods = $42,000

Cost of Goods Sold = $928,000

Explanation:

An alternative way to prepare the above budget would be to add all the opening inventories to purchases, direct labour, and factory overhead.  From the total, deduct the closing inventories.

January 1 Inventory of materials = $26,000

January 1 work in process = $34,000

January 1 Finished Goods = $36,000

Direct Materials Purchases = $580,00

Direct Labour = $202,000

Factory Overhead = $144,000

a) Total = $1,022,000

less:

December 31 Inventory = $19,000

December 31 work in process = $33,000

December 31 Finished Goods = $42,000

b) Total = $94,000

Cost of Goods Sold (a-b) = $928,000

However, this second approach is lacking in details.  As such, it is not very informative.  The first arrangement displayed the cost of raw materials used for production, cost of goods produced, and then the cost of goods sold.

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