Inventory Costing Method, Halsey premium plan, Cost of Goods Sold Statement
Question
The following information has been extracted from the books on leather product manufacturing companies to prepare material ledger cards for the month of January.
January 1: Company had 50-meter leather sheet @ Rs. 210.98 per meter
January 4: Purchased material of 2,000 meters @ Rs. 315 per meter
January 13: Issued 1,000-meter material
January 29: Issued 750-meter material
The following information is related to direct labor cost Workers completed the assigned job to manufacture the leather product in the month of January based upon the following information and the company observe the Halsey Premium plan.
Wage rate per hour Rs. 104
Time allowed for the job 240 hours
Time is taken 176 hours
Following cost incurred during the period to manufacture the product
- Factory overhead applied: Rs. 45,000
- Closing finished goods: Rs. 15,000
- Closing work in process: Rs. 5, 000
There was no beginning inventory in finished goods and work in process.
Required:
1. Prepare Material Ledger Card by using the first in first out (FIFO) inventory valuation method under the perpetual inventory system for the month of January.
2. Calculate the gross earnings of the workers for the month of January.
3. Prepare the Cost of Goods Sold Statement for the month of January.
Solution:
- Material Ledger Card (FIFO method):
Date | Description | Receipts | Issues | Balance | Rate | Amount |
Jan. 1 | Opening | 50 m | Rs. 210.98 | Rs. 10,549.00 | ||
Jan. 4 | Purchase | 2,000 m | 2,050 m | Rs. 315.00 | Rs. 644,250.00 | |
Jan. 13 | Issued | 1,000 m | 1,050 m | |||
Jan. 29 | Issued | 750 m | 300 m | |||
Total | 2,750 m | 1,750 m |
"Amount" column, the calculation is done by multiplying the quantity
(in meters) by the respective rate.
- Calculation of gross earnings of the
workers for January:
workers for January:
Time taken for the
job: 176 hours
Wage rate per hour: Rs. 104
Time allowed for the job: 240 hours
According to the
Halsey Premium plan, the workers receive 50% of the time saved as a bonus:
Time saved = Time
allowed - Time taken = 240 hours - 176 hours = 64 hours
Bonus = 50% of time
saved = 50% * 64 hours = 32 hours
Gross earnings = (Time
taken * Wage rate per hour) + Bonus Gross earnings = (176 hours * Rs. 104) +
(32 hours * Rs. 104) Gross earnings = Rs. 18,304 + Rs. 3,328 Gross earnings =
Rs. 21,632
Therefore, the gross
earnings of the workers for the month of January amount to Rs. 21,632.
- Cost of Goods Sold Statement for January:
Beginning inventory:
Finished Goods = Rs. 0
Work in Process = Rs. 0
Direct material used:
Opening balance (50 m * Rs. 210.98) = Rs. 10,549
Purchases (2,000 m * Rs. 315)
= Rs. 630,000
Total direct material available = Rs. 640,549
Less: Ending
balance (300 m * Rs. 315) = Rs. 94,500
Direct material used = Rs. 546,049
Direct labor = Rs.
21,632
Factory overhead applied = Rs. 45,000
Total manufacturing
costs = Direct material used + Direct labor + Factory overhead applied Total
manufacturing costs = Rs. 546,049 + Rs. 21,632 + Rs. 45,000 Total manufacturing
costs = Rs. 612,681
Cost of Goods
Manufactured = Total manufacturing costs + Beginning Work in Process - Ending
Work in Process Cost of Goods Manufactured = Rs. 612,681 + Rs. 0 - Rs. 5,000
Cost of Goods Manufactured = Rs. 607,681
Cost of Goods Sold =
Cost of Goods Manufactured + Beginning Finished Goods - Ending Finished Goods
Cost of Goods Sold = Rs. 607,681 + Rs. 0 - Rs. 15,000 Cost of Goods Sold = Rs.
592,681
Therefore, the Cost of
Goods Sold for the month of January amounts to Rs. 592,681.
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