Selected financial information for Manufacturing is presented in the following table (000s omitted). Sales revenue: $4,500Purchases of direct materials: $450Direct labor: $520Manufacturing overhead: $630Operating expenses: $670Beginning raw materials inventory: $240Ending raw materials inventory: $230Beginning work in process inventory: $360Ending work in process inventory: $470Beginning finished goods inventory: $350Ending finished goods inventory: $230What was operating income?

Question

Business

Drew Savage

11 September, 00:47

Selected financial information for Manufacturing is presented in the following table (000s omitted). Sales revenue: $4,500Purchases of direct materials: $450Direct labor: $520Manufacturing overhead: $630Operating expenses: $670Beginning raw materials inventory: $240Ending raw materials inventory: $230Beginning work in process inventory: $360Ending work in process inventory: $470Beginning finished goods inventory: $350Ending finished goods inventory: $230What was operating income?

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Jovanny Reed · Answer 1

Operating income = $2,880

Explanation:

Operating income is calculated by providing cost of goods sold, manufacturing overheads, selling and administrative cost.

Here, cost of goods sold shall be calculated as follows:

Raw materials consumed = Opening inventory + Purchases - Closing inventory = $240 + $450 - $230 = $460

Expenses for manufacturing consumed in work in progress:

= Opening work in process + Manufacturing overheads - Closing work in process

= $360 + $630 - $470 = $520

Opening finished goods will be added and the closing shall be deducted.

Direct labor cost will also be part of cost of goods sold.

Therefore, Operating income shall be

Sales Revenue - Raw material consumed - Expenses of manufacturing - Opening Finished goods + Closing finished goods - Direct labor cost

= $4,500 - $460 - $520 - $350 + $230 - $520 = $2,880