A. The cost of goods sold can be calculated as the beginning finished goods inventory plus the cost of goods manufactured minus the ending finished goods inventory. This is $125,000 + $665,000 - $117,000 and totals $673,000. To calculate the cost of goods manufactured, we simply take the total cost of manufacturing and adjust it for the change in work-in-process inventory. Total manufacturing cost is made up of prime costs plus manufacturing overheads applied. The prime costs are direct materials and direct labor. We are told that the direct labor was $300,000, but will need to calculate the direct materials for January. The beginning direct materials inventory was $134,000. During the period, they purchased $189,000 of direct materials and also incurred $3,000 in transportation in costs. However, they also returned $1,000 of direct materials during the period. Adding these together we can calculate the total direct materials available during January as $325,000. Since there was an ending inventory of $124,000, they must have used $201,000 of direct materials during the period. Added to the direct labor, the total prime costs were $501,000. We do not worry about the raw materials and finished goods inventory numbers because the amounts in those accounts were not related to the current period. Overhead is applied as 60% of direct labor, which totals $180,000 ($300,000 × 60%). Adding the prime costs and the overhead together, we get $681,000 as total manufacturing costs. Work-in-process inventory increased during the period by $16,000. This means that $16,000 of the work performed during the period ended up in work-in-process and not finished goods inventory, so this amount needs to be subtracted from cost of goods manufactured. The cost of goods manufactured is $681,000 - $16,000, or $665,000. Cost of goods sold is beginning finished goods inventory + cost of goods manufactured - ending finished goods inventory. Finished goods inventory decreased by $8,000 during January. This means that this amount of 'old' inventory was sold in addition to the finished goods manufactured this period. Cost of goods manufactured plus the amount of decrease in finished goods inventory equals the cost of goods sold: $673,000 ($665,000 + $8,000).
B. This answer is incorrect.
C. This answer is incorrect.
D. This answer is incorrect.
